Daily Management Review

Altria Seeks New Business Segment With Drop In US Cigarette Demand


12/21/2018




Altria Seeks New Business Segment With Drop In US Cigarette Demand
Business segments in addition to tobacco are now the focus of the America's preeminent cigarette company Altria for growth.
 
It has been reported that the company is contemplating the acquisition of a huge stake in e-cigarette maker Juul following its huge investment of $1.8 billion in Canadian cannabis company Cronos Group. According to a recent report in the Wall Street Journal, a 35 per cent stake in Juul is being eyed by Altria.
 
If the investment goes through, Altria would dominate over half of the American tobacco market with startup Juul. This startup sells more than 70 per cent of the cartridge-based e-cigarettes in the United States.
 
Altria would be able to expand its customer base with the investment. Altria is a spinoff company from Philip Morris International, having come into existence in 2008 and is a US-only business. On the other hand, in addition to the US, Juul has business interest in Canada, Israel, Russia and the United Kingdom.
 
Altria would be able to gain access to the rapidly growing market of e-cigarettes in the face of a slowing down in the US cigarette market where it is the leader. On the other hand, access to Altria's huge distribution network would be available for Juul by the deal.
 
But according to some analysts, the investment would be a risky one.
 
There has been intense regulatory scrutiny against Juul following reports of teenagers turning into addicts of its products.
 
Under the US Federal law, e-cigarettes cannot be sold to people below 18 years of age. But according to the surgeon general, e-cigarettes are used by one in five high school students. There is a growing use of e-cigarette among teens. According to the National Youth Tobacco Survey, between 2017 and 2018, there was an increase of more than 70 per cent in the percentage of high-school-age students who say they had smoked e-cigarettes in the past 30 days.
 
A campaign to prevent kids from using e-cigarettes was started in September by the Food and Drug Administration. Terming the teen use of e-cigarettes as "an epidemic," the FDA claimed that the young adults' health can be affected by nicotine use. A month later, a surprise inspection was carried out by the FDA at Juul's corporate headquarters in San Francisco. The agency seized thousands of documents among which many were related to the sales and marketing practices of the company.
 
While many expected a ban on e-cigarettes to be put in place by the FDA last month, the agency instead it mandated that stores can sell e-cigarettes only in those portions of the stores which are off limits for to teenagers.
 
According to Juul however, those people who want to quit smoking are the target customers of the company as it offers a tobacco-free source of nicotine.
 
"We can't restate this enough," said Juul CEO Kevin Burns in a July letter to customers. "As an independent company that is not big tobacco, we are driven by our mission and commitment to adult smokers."
 
There were no comments available from both Juul and Altria.
 
Regulation of some of the most popular products of Altria is also a cause of concerns for some analysts. Last month, a ban on mentholated cigarettes was sought by the FDA.
 
Its IQOS tobacco-heating is also being sought to be device to market by Altria but the company has not yet managed to gain government and regulatory approval for the same.
 
(Adapted from CNN.com)






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