Philip Morris’ Next CEO Says Investors Are Underestimating the Company’s Smoke-Free Future
Philip Morris International is getting a new CEO in 2021, when its current chief operating officer, Jacek Olczak, will take the helm. Expect a smooth transition with the company’s continued focus on moving smokers toward reduced-risk products, he tells Barron’s.
In May, Olczak, 55, will take over from André Calantzopoulos, who was named executive chairman of Philip Morris’s (ticker: PM) board as part of a long-planned succession. In an interview with Barron’s, Olczak notes that all leadership transitions are eventful in some way, but he worked closely with Calantzopoulos to develop the strategies guiding the company today. “We’re executing from the same book, and that’s very important for the company.”
That playbook is one that has focused squarely on moving smokers around the world away from traditional cigarettes. “The vision—which is very important and serves the company, the shareholders, and the public very well—is to leave cigarettes behind us,” Olczak says. “We really want to replace combustible cigarettes with a better product.”
The cornerstone of that plan is iQOS, the heat-not-burn tobacco product that the Food and Drug Administration said could be advertised as a better alternative to smoking earlier this year. Olczak says that it hopes to sell between 90 billion and 100 billion heated tobacco units in 2021, a 20% to 30% increase from this year and a target that the company is closing in on.
Of course, 2020 was a challenging year for the company, as it has been for so many others. The Covid-19 pandemic disrupted consumers’ routines and in some cases reduced their income—two factors that weighed on tobacco use in some areas, Olczak notes. It also presented Philip Morris with supply chain challenges related to shutdowns. Yet the company overcame these headwinds, he says. It has adapted well to more digital sales of iQOS, partly because of many people’s renewed focus on their health during the crisis.
That has helped the company build valuable relationships directly with consumers. While the tobacco industry was traditionally a business-to-business, or B2B, model, Philip Morris is moving more toward a B2C model. This is “differentiates us from the competition,” says Olczak. The shift to a consumer-focused model will benefit future products, as shoppers come online to a platform that offers “brand recognition and trust”—bolstered by a robust customer service response and online presence.
Those future products should include its Veev vaping product that has already rolled out in New Zealand. Olczak highlights Philip Morris’s use of technology in combating the problem of e-cigarettes ending up in the hands of underage users. The Veev device needs to be activated—like a new iPhone—by users who can verify their age. This extra, built-in layer of protection should give “a level of confidence to regulators in various geographies, that they can offer a solution to adults while [excluding] audiences that shouldn’t have access.”
Speaking of regulators, he is particularly proud of the company’s iQOS approvals from the FDA, whose standards are “on the highest end, and unmatched by any other regulator.” He also notes that the company’s journey to a tobacco-free future began under the Obama administration, and while the company is agnostic in terms of politics, he is encouraged by President-elect Joe Biden’s embrace of science.
“He has talked about scientific facts as a guiding principle for policy-making …iQOS is the most viable scientifically verified alternative to smoking,” Olczak says. “I hope I’m not reading into the tea leaves too much, but I think we’re moving in the right direction.”
Philip Morris stock has risen just under 1% year to date, lagging far behind the S&P 500, a measure of the broader market. Olczak argues that investors are underestimating the market opportunity ahead of Philip Morris. He says that, with iQOS, the company has the “most advanced reduced-risk product,” with the most rigorous science behind it. He highlights the company’s valuable first-mover advantage in many markets, which should also help it rebuff competition from smaller rivals.
Ultimately, he says, Philip Morris’s transformation toward a smoke-free future has been “a massive investment, but it equips the company with the right assets going forward.”
Write to Teresa Rivas at [email protected]
