Archived Issues

PM USA focusing on reducing risk

An important area of focus for Philip Morris USA has been developing products that have the potential to reduce smokers’ exposure to harmful compounds and, ultimately, to reduce the harm caused by smoking, Michael E. Szymanczyk, the company’s chairman and CEO, told the Prudential Consumer Conference in Boston.

“Over the years, we have made significant investments in research and product development that we hope will lead to the commercialization of products with the potential to achieve these goals,” he says. “We will also continue to be an advocate of Food and Drug Administration regulation of tobacco products, in part because we believe that the federal government should establish standards for products that could potentially reduce the harm caused by smoking and define the appropriate ways to communicate about these products.”

Later in his presentation, Szymanczyk said that in order to enhance the company’s abilities to develop innovative new products and to develop new technologies that improve the products it currently manufactures, it is building a new Center for Research and Technology in Richmond, Virginia. “We broke ground on this new research center in June 2005 and construction is on schedule for completion in mid-2007,” he said. “In the meantime, we have already begun to add new capabilities to our research and development group by starting to hire the diverse group of scientists that will work in the new building.”

Szymanczyk told the conference he recognized that PM USA’s ability to grow revenue in the future was limited by several factors, including declining industry volume, a very competitive environment and the adverse impact of state excise tax increases.

“The fact that we are in a declining industry and have limits on our ability to grow cigarette revenue means that, as we look to the future, we need to find new ways to grow by expanding beyond our core business to other tobacco and tobacco-related adjacent categories …” he said.

“Given our unmatched brand portfolio and infrastructure, we believe we can expand beyond cigarettes in two ways. The first is through internal or organic development and the second is through acquisition. Both approaches represent promising and potentially complementary opportunities for Philip Morris USA. While acquisitions would provide us with immediate entry into existing categories and a solid base on which to grow, we recognize that finding appropriate acquisition candidates that meet our very strict economic return and other acquisition criteria is not an easy task.

“Internal development provides us with the opportunity to both develop new categories by bringing innovative products to market and to penetrate existing categories with products that enjoy a clear edge over existing consumer offerings. Our primary focus will be on products that directly appeal to adult smokers, a group we know well and communicate with every day. There are far more cigarette smokers in this country than users of other tobacco products. For example, there are 44 million adult cigarette smokers, and this compares to approximately 6 million moist snuff users.

“Rest assured that we are determined to develop new growth strategies that accommodate both approaches and that we recognize that only careful assessment of each opportunity will determine the approach, or approaches, ultimately taken.

“We took our first step beyond cigarettes when we launched a test market of Taboka and Taboka Green [smokeless tobacco products] … in July in Indianapolis. Taboka is a new brand, a new product and a new category for Philip Morris USA and a new way for adult smokers to enjoy tobacco.”