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The great tobacco extinction – a case of good economics

Published on: 14/01/2019

News that Philip Morris International is planning to phase out cigarettes and move towards smoke-free products should come as no surprise. Demand for cigarettes, a killer of hundreds of millions of people in the last century, has plummeted with less than 15% of the UK adult population now a smoker.

The explosive rise of vaping over the past few years has seen customers shun tobacco in ever increasing numbers. With enormous R&D budgets, tobacco firms are fighting back as they attempt to regain control of the nation’s inhalation habits. Hi-tech Innovations that heat tobacco rather than burning it (estimated to produce 95% less harmful chemicals) are firmly targeted at recapturing the tobacco weary markets of the developed world.

Aside from the moral compulsion to do no harm, there is a strong financial case for moving away from cigarettes and into less harmful nicotine products such as vaping. To highlight the case, market analysts Plimsoll have compared the performance of Tobacco Product companies v E-Cigarette & Vaping Product providers. The results are as follows:

 

Tobacco industry

E-Cigarettes & Vaping industry

Growth

2%

9%

Profit Margins

3%

6%

% of companies in difficulty

29%

9%

% of companies making a loss

30%

22%

 

Christopher Evans, Senior Analyst at Plimsoll explains the growing necessity for diversification from the major Tobacco firms, “Forgetting the moral need to move away from products that are the leading cause of premature, painful death, just look at the figures. Compared to traditional tobacco, the vaping market delivers four times the growth, double the profits and a relatively tiny percentage of companies are in financial trouble. The tobacco market is being phased out by vaping particularly in first world economies”.

“Tobacco firms now rely on middle to low income countries for their cigarette profits but how long will that last? The more the rest of the world connects to the internet, the faster the message spreads that smoking kills. Demand will fall and alternatives like vaping will move in. The first world has already seen demand shift”.

“innovations such as Philip Morris’ IQOS tobacco heating device are ‘Big Tobaccos’ answer to this vaping boom. The hi-tech products the major companies are developing are much healthier options for those in need of a nicotine fix. However, with an established network of vaping product sellers on the High Street and online keeping prices low, big tobacco companies have a mighty challenge on their hands to get their product and pricing strategies right. Having invested billions into R&D, they cannot afford to get it wrong”.

Plimsoll’s continually updated analysis of both the Tobacco and E-Cigarette & Vaping market can be purchased for a special bundle price of £650 (+VAT). You will be able to compare performance across both sectors instantly and spot the winners / losers in these interlinked markets.

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