Tuesday, June 18, 2024

Altria Plots Life After Juul

Altria Group Inc. earlier this month divested itself of e-cigarette maker Juul Labs Inc., recording a loss of at least $12.5 billion. Altria now has a new lineup of e-cigarettes, heated-tobacco devices and oral nicotine pouches in the works, including the planned acquisition of vaping pioneer NJOY Holdings Inc.

Altria said it hopes to take its reduced-risk products overseas and is considering expanding into non-nicotine offerings such as cannabis products or caffeine pouches.

“Previously, we were chasing the market,” Chief Executive Billy Gifford said in an interview, referring to Altria’s past attempts to develop or acquire vaping products. “You’re constantly watching what the consumer is telling you in the marketplace, but none of them were satisfying the consumer enough to ultimately meet all of their needs and desires.”

Now Altria is soliciting smokers’ feedback during the development process, and making tweaks based on that feedback, Mr. Gifford said.

Altria this week for the first time set volume and revenue goals for its transition to smoke-free products: It aims to increase its smoke-free sales volume by at least 35% over the next five years.


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It also wants to roughly double its net revenue from smoke-free products to $5 billion by 2028, including $2 billion from new reduced-risk products.

Last year, Altria reported $2.6 billion in net revenue from smoke-free products, nearly all from moist smokeless-tobacco brands such as Copenhagen.

Many of the new products in Altria’s plan haven’t yet been authorized by the Food and Drug Administration and can’t go on the market until they are. That process could take years.

NJOY is one of the few e-cigarette makers whose products have clearance from federal regulators. But Altria’s acquisition must first pass a federal antitrust review. Mr. Gifford said he is optimistic but can’t project when the deal would close.

Altria’s lineup includes two prototypes unveiled this week: a higher-nicotine version of its On! pouch and a device called Swic that heats a single-use metal capsule containing tobacco.

The FDA so far has authorized only tobacco-flavored vaping products. NJOY plans to seek authorization for watermelon and blueberry flavors in a new version of its device that uses a Bluetooth connection to authenticate the user before unlocking, according to people familiar with the matter.

Altria in 2018 voluntarily pulled its own fruit-flavored e-cigarettes off the market, saying that those flavors were contributing to a rise in underage use. In the interview Thursday,Mr. Gifford said that flavored e-cigarettes help adult smokers switch from cigarettes and that NJOY’s locked version would mitigate the risk to young people.

Speaking about the company’s plans to explore non-nicotine products, Mr. Gifford pointed to people who used to use cigarettes to take a break, reward themselves, multitask or socialize.

“Those consumers didn’t stop enjoying those moments,” he said. “They replaced it with other stuff. It could be caffeine—anything in that energy space. Some are now using their phone.”

Altria executives said they hope to use non-nicotine products to reach a broader consumer base in similar everyday moments.

“How do you meet them in that moment and fix their unmet needs and desires?” Mr. Gifford said.

Altria struggled for years to develop e-cigarettes that appealed to smokers as U.S. cigarette sales declined. Among the stumbling blocks was trouble recruiting product developers. The company’s e-cigarettes leaked. And they lacked the nicotine kick smokers were looking for. Altria closed its e-cigarette business in 2018, shortly before it paid nearly $13 billion for a 35% stake in Juul. The vaping market leader’s valuation quickly evaporated.

Altria last year recruited Olivier Houpert, an alumnus of Procter & Gamble Co., to be its chief innovation and product officer. Mr. Gifford said he hopes to bring talent from NJOY. And he said Altria is better able to recruit now because of its remote-work policy.

He and Mr. Houpert said the company plans to invest in early-stage startups with promising technology and to work with external partners on technical aspects such as electronics.

Mr. Gifford served as Altria’s finance chief before he was tapped in 2020 to succeed Howard Willard, the CEO who forged the company’s ill-fated Juul deal. Mr. Gifford, who grew up outside Richmond, Va., said he began dipping Copenhagen smokeless tobacco on hunting trips with his father.

Now 52, he said he exclusively uses On!, Altria’s oral nicotine-pouch brand. At an investor presentation Thursday, he had a cinnamon-flavored pouch tucked in his cheek as he fielded questions from analysts.

States including California are enforcing bans on menthol cigarettes, and the Biden Administration is moving forward with plans to ban them nationwide. The administration also has said it intends to mandate the near-elimination of nicotine in all cigarettes sold in the U.S. The menthol and nicotine rules would take years to implement. Altria opposes both and has been lobbying for policies that “support harm reduction and avoid prohibition,” executives said.

Cigarette smoking is linked to 480,000 deaths in the U.S. each year, according to the Centers for Disease Control and Prevention. U.S. health officials have said they want to encourage cigarette smokers who can’t quit to switch to less-harmful products such as e-cigarettes.

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