Retailer interest is heating up for heat-not-burn traditional cigarettes even as tobacco manufacturers struggle to meet smokers’ expectations on taste and usage, a leading industry analyst said Tuesday.
Philip Morris USA is preparing to try its hand with the iQOS technology via the Marlboro HeatStick device being sold by Philip Morris International in Italy, Japan and Switzerland.
Bonnie Herzog, an analyst with Wells Fargo Securities, called the U.S. market potential for reduced-risk products “the most interesting development” gleaned from her latest monthly survey with retailers of tobacco products.
“Nearly 60 percent of retailers are optimistic about the future of reduced-risk products,” Herzog said. “Interest in heat-not-burn technologies and iQOS specifically has increased.”
That interest, Herzog said, is “laying the groundwork, we think, for an eventual industry pivot toward reduced-risk products as the next growth catalyst on the horizon.”
Philip Morris USA spokesman Brian May said the company is “actively working on commercialization plans for this product platform in the U.S.”
“We also are supporting PMI on a Food and Drug Administration application to designate this technology as a modified-risk tobacco product. PMI, in its recent investor day presentation, said it plans to file an application by year’s end.”
Herzog said the U.S. market is expected to get the product in late 2017 or early 2018.
“We see this as strongly positive for (Altria Group Inc.) given its alliance with Philip Morris International on iQOS,” Herzog said.
The potential U.S. entrance of Marlboro HeatStick comes about 14 months after R.J. Reynolds Tobacco Co. acknowledged in August 2015 that it was discontinuing its second attempt in 12 years at marketing a heated cigarette, Revo.
Reynolds shelved Revo after launching a test market in Wisconsin in February. The product sold at retail for about $6 a pack. Susan Cameron, Reynolds’ chief executive and president, had expressed confidence that heat-not-burn “finally finds its time.”
Although Cameron stressed Reynolds is not exiting the heat-not-burn category, the repeat failure did not appear to surprise analysts who have questioned the level of demand for heated cigarettes, particularly given the inability to match the taste that comes from a traditional cigarette.
“We believe we are the experts in the area of heat-not-burn, given our more than two decades of research and innovation in the category,” Reynolds spokesman David Howard said.
Eclipse, the company’s first national attempt at the heat-not-burn category from 2003 to 2007, also ended because the product struggled to gain traction with adult smokers. Eclipse remains available in limited supply, including at local Reynolds facilities.
“Given the changing expectations and interest in innovative tobacco products of today’s adult tobacco consumers, we continue to believe there is an opportunity for heat-not-burn products that offer benefits many adult smokers look for — less cigarette smoke smell, no ashes, real cigarette tobacco taste,” Howard said.
Herzog said retailers also are expressing interest in the Vibe platform of the Vuse electronic cigarette by R.J. Reynolds Vapor Co.
Vibe is a pre-filled, closed vapor tank system with a rechargeable battery that Reynolds Vapor plans to debut later this year.
Reynolds Vapor spokesman Jacob McConnico said Vibe offers more liquid than previous Vuse products, as well as a stronger and longer-lasting battery.
“Vibe is developed to provide adult tobacco consumers what they tell us they want, the ease of use of a cig-alike product combined with the performance of a tank system,” McConnico said.
In recent years, Reynolds has taken an if-you-can’t-beat-them-join-them approach by incorporating internally developed vaporizer technology in the next phase of Vuse innovations.
E-cigs heat a liquid nicotine solution in a closed disposable cartridge and create a vapor that is inhaled.
Vaporizers also heat liquid — but in a cartridge or tank that is refillable and provides consumers with more flavor and nicotine content options.