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October, 2007

The Evolving Future of PMI

Over the last few months, the pages of this publication, along with those of financial publications and market-watchers the world over have been filled with the many moves of Altria’s Philip Morris International (PMI) wing that have (apparently) all been leading up to the recent disclosure that the Switzerland–based PMI will be spun-off from its New York–based parent company.

In January of this year, the Altria Board of Directors officially voted to saw off its Kraft Food appendage. The thinking was to separate the “family-oriented” Jell-O and Planters Peanuts brands from the “evilness” of the Philip Morris wing, whose tobacco products have become a political lightning rod in much of the Western world.

Since then, Altria has disclosed a series of moves that have paved the way for an amicable divorce. A few months ago, the company announced that its PMUSA division would be consolidating from two plants into one, as the demand for tobacco has weakened throughout the US market. Meanwhile, its PMI production facilities would be jumping the pond over to Europe, with closer access to the Eastern EU, the Middle East, Asia, and the CIS nations—where the tobacco industry remains robust and with room (and expectations) to grow. In the meantime, PMI would continue to invest in a huge production facility in the Philippines, while introducing a new Marlboro-dubbed kretek into the huge Indonesian market and advancing its brands into other developing economies. While back in the States, PMUSA invested in a $300 mn research facility, where the US tobacco industry faces government scrutiny under the Federal Food and Drug Administration (FDA). Some analysts have said that PMUSA may secretly want further government regulation as it will help to cement their first-place standing in the US market.

Then, of course, this has all led up to the recent big news: Altria would completely sever PMI from PMUSA, as the two companies would face very different challenges and be forced to offer very different solutions in their respective evolving markets.

If there’s a lesson, it’s look eastward. A good place to start would be convention’s like Germany’s Inter-tabac and—you’ll forgive me for plugging a bit for our own company—Tobacco Product International’s EuroTab?Warsaw exhibition, which will put an emphasis on the tobacco retail side of everything being sold east of gay Paris, (www.eurotab.com). Regulation, taxes, and demonization are only going to continue on this side of the pond. One company’s solution: look to the rising sun.

- Evan D. Dashevsky


Tobacco International - October, 2007

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