A recent Bloomberg report titled “Big Tobacco Has Caught Startup Fever” sheds light on traditional tobacco and cigarette industry leaders’ accelerated race to offer innovative products in light of anti-smoking regulation and campaigns, along with changing consumer preferences. As a byproduct of this shift, market giants such as Philip Morris International Inc. (PM), Reynolds American Inc. (RAI) and Japan Tobacco Inc. have invested heavily in product development, funding tech incubators, launching venture funds and creating apps after the style of Silicon Valley in efforts to develop next-gen reduced-risk tobacco platforms. (See also: Business Groups Increasingly Turn Against Tobacco.)
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‘Next-Gen Nicotine Delivery’
Philip Morris, the world’s largest publicly traded tobacco company, demonstrated its commitment to offer “next-gen nicotine delivery” through a new $111 million environmentally progressive research center called the Cube.
As a testament to the Lausanne, Switzerland-based firm’s new greeting on its re-launched homepage, “Designing a smoke-free future,” the high-tech center has three wings named Earth, Wind and Air. The absence of Fire signifies the company’s push for “heat not burn” tobacco products, including its popular IQOS heat stick. Philip Morris has poured more than $3 billion into new tobacco-based inventions as an alternative to the fragmented e-cigarette market. The decision makes sense given that the largest companies already have a competitive edge in the tobacco space.
A Cigarette-Free Future
A wave of tobacco companies shadowing Philip Morris have shown their willingness to deliver tobacco through any means consumers will adopt, whether it be heat-not-burn products, gum, lozenges, dip, e-cigarettes etc.
In January 2016, America’s second-largest tobacco company, Reynolds, announced the formation of RAI Innovations Co., following the nationwide release of its e-cigarette brand Vuse. Later, British American Tobacco Inc. (BTI) announced plans to acquire Reynolds for $49.4 billion. The London-based company’s CEO, Nicandro Durante, told sources that the deal was more about the future of smokeless nicotine than of scale.
“It’s going to be an arms race,” said analyst Nik Modi of RBC Capital Markets. “Who has the best technology, the best science? Who can get their applications through the FDA the quickest? We’re not in a pricing war. We’re in an innovation war.” (See also: Tobacco Giants Push New ‘Alternative Products’.)