How to self-disrupt a multi-billion dollar company

Peter Nixon – PMI

Philip Morris International (PMI) is one of the world’s leading tobacco companies with revenues in excess of $80bn. However, five years ago the company made a global announcement that it wanted to stop selling cigarettes as fast as possible and focus instead on selling its smoke-free products.

Business Leader spoke to Peter Nixon, the UK & Ireland Managing Director about the company’s radical plans and how it is changing smokers lives for the better.

Can you tell me about the company’s history and its recent self-disruption?

We are best known as the sellers of Marlboro – that is what our history is built on to become one of the biggest tobacco companies in the world. We originally started on Bond Street in London by a man called Philip Morris.

Five years ago, our CEO came out and announced that we were going to stop selling cigarettes, and we then put all of our focus into selling smoke-free products. This included e-cigarettes, heated tobacco products, like IQOS, and some new technologies. We are transforming the whole company. This created a shockwave around the world and within the company itself. When you have 80,000 employees and operate across 180 markets, to then announce that we aren’t going to sell those anymore one day was a surprise. However, if you think about it, it is a logical move.

New tech is now coming so fast, people will come up with the products that will replace cigarettes and reduce the harm associated with smoking. Our CEO had the vision, and decided that we would go all out to build a smoke-free future. Since 2008, we’ve invested more than £4bn into the science and research of developing smoke-free products, and we employ more than 400 world-class scientists, engineers and technicians to help us.

IQOS itself now makes up 60% of the global Reduced Risk Products market with a £10bn retail value last year.

How has the company changed in those five years?

My job is to lead the transformation here in the UK and Ireland. I have been with the company for 16 years, but when I came to the UK, we looked at transforming a company that just sells cigarettes to one that is completely focused on alternatives. The traditional business is a simple one. You harvest the leaves, roll them up, package them and then sell them across the world. It is now completely different as we have electronics involved and we have a whole new division dedicated to this. They are constantly working on new designs and upgrades to our smoke-free portfolio.

The last five years have felt like I have been working at a completely different company. It is like being a start-up, but being a massive global company at the same time. Disruptive thinking but from within the business that leads the industry. Companies normally react to outside disruption, but this is a unique business transition that we have gone through. We are trying to avoid our own Kodak moment. We have the disrupter technology in house – so we are going to use it. This means there will be less smokers and cigarette sales – but that is the future of the industry. The UK has around 7.2 million smokers. They are looking for less harmful, yet satisfying, alternatives to smoking. We will give them that choice.

We have a 25% market share for our traditional conventional business. For the new marketplace, we control 60% of it. However, in this new tech-focused world, the industry moves at incredible speed. The market share can shift in very short periods of time – that is the power of innovation. We are moving from a stable marketplace to a volatile one, and that is why we have innovation at the heart of what we do.

What does the future hold for the industry?

60% of smokers want to quit and try every year, but only 2-3% will succeed. Most of the time as they are unaware of the alternatives, like the heated tobacco that we offer, or the vaping solutions we have. Once we have more awareness, the interest will grow rapidly. Internally, we are very excited, and externally, when we meet people they understand the difference and why this solution that we offer makes sense.

If you can move people over to these less harmful alternatives, rather than them failing to quit, then it is better for everyone in the long run. There is a genuine drive for people to join us to make a difference for the smokers. The government have reached a point where they have increased taxation on cigarettes through the roof and have strict regulations, but they are unsure what to do next – they now understand that supporting alternatives is the best way to get people to stop smoking. That is a massive change from a decade ago, and something that they have actively changed their mindset on.

What do the next five years hold for the company?

Our end goal is for there to be no cigarettes at all and so we are currently working towards that. The government has committed to end smoking in England by 2030. We want to get there as soon as possible by driving as much change as we can and helping people switch to alternative products. Our immediate goal is to sell more alternatives than cigarettes. Once that happens, we can talk about phasing out cigarettes from the business – that is our end goal.

People view us as a dusty, old company – however, we are more like a new-age tech start-up with constant innovation and self-disruption. We are still leading the industry, but in a completely different way.

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