Iluma-nating

Asian Trader has a Diwali get-together with Philip Morris Ltd MD Christian Woolfenden and External Affairs Director Duncan Cunningham, to talk about heated tobacco and their new IQOS device that is helping existing smokers to see the light

We’d asked Christian and Duncan if they’d like to meet up because there’s a lot happening over at Philip Morris Limited (PML) right now, with the recent launch of what might be termed a revolutionary upgrade to their IQOS heated tobacco device. Asian Trader has a keen interest in this as part of the broader importance of the role that tobacco alternatives play in the lives of convenience retailers as traditional tobacco declines.

There’s a marketing push ongoing to lure existing smokers away from cigs and onto what can legally be termed “less harmful” nicotine delivery systems, but at the same time, the vape scene has recently been called the Wild West, with illegal products and underage sales running rampant, to the extent that the government is reviewing ominous new rules that could stunt the positive effects of this growing sector.

Duncan Cunningham

But with IQOS and heated tobacco in general it appears things are a bit different, as these products appeal less to teens and more to long-term smokers who have often sniffed at and rejected vape, returning to cigarettes, as Christian and Duncan explain.

I suggest that heated tobacco (or heat-not-burn – HNB for short) is a big change from selling paper tubes of tobacco – consumables, in effect. These IQOS devices are sleek, desirable machines that involve a bit of investment from the customer. PML is perhaps getting into a different, Apple watch-like territory now in the sense of the IQOS Iluma being minimalist, sophisticated and even more electronically enhanced than the previous incarnation, IQOS Duo.

Blade runners

“There’s big differences in the devices but they're both IQOS,” Christian reassures, as he explains the impressive technological advances that have been added to the Iluma, making it a more appealing proposition to existing and new users, and explains that the biggest difference lies in the way the tobacco is heated.

"With Duo, you had a ceramic blade which warmed up the tobacco to release your nicotine,” he says.

“The Iluma has no blade, which is good for a number of reasons, and instead uses induction technology. Effectively what you have in Terea [Iluma’s new replacement for the Duo Heets tobacco sticks] is a little strip of metal:but it is not just a strip of metal. It is three different kinds of metal that are put under extreme pressure to atomically glue them in a ratio that means it's perfectly cut out. It's just mind blowing. But the big difference is to heat the tobacco without touching it, via induction, essentially magnetically. It heats the metal strip within the tobacco, and never the two shall meet.”

If that sounds technical, Christian makes clear what this advance means in practical terms for the user.

“If you jammed a Heet in a bit aggressively with the Duo it could snap – it was very delicate. We had people saying, ‘I've broken my blade’, and the risk was if you didn't get a new device immediately, you might buy another pack of cigarettes.”

That meant the ceramic blade in the old Duo could literally be a breaking point in the journey from cigarettes to HNB.

“Then over time, the Duo would also get a sort of a buildup of various bits and pieces around the ceramic blade, that if you didn't clean it would affect the taste, so you had to clean around the blade, which was a bit fiddly.”

The Philip Morris boffins at the Lausanne laboratory laboured away to try and solve the blade conundrum, finally arriving at the Iluma induction solution.

“Every time you put a Terea in the Iluma, the device sends signals to it and calibrates the individual tobacco stick’s characteristics perfectly to that little strip of metal. Because even though they're [mass-] produced, every single stick is slightly different. What does that mean, really? It means you always get a perfectly consistent taste, perfectly consistent draw, perfectly consistent time for the device to be available and ready to use.”

He says that from a consumer point of view, fundamentally, there is a better taste profile, better experience, you don't have to clean it, you don't have to worry about breaking it. “You can put it in as aggressively as you like and yank it out. And it's kind of bulletproof.”

From Moore’s law to outlaws

I suggest that there's kind of a Moore's law with vaping and HNB, similar to that in computers, where the level of technology doubles every couple of years, while costs come down.

This is good, but the success of vape has been so great that it has attracted a lot of cowboys – a word carefully chosen – to the extent that the tobacco alternatives sector, and especially single-use e-cigs, are now seen as a grave societal danger.

"I guess the real kicker of vaping is disposables,” agrees Christian. “You have this phenomenon that has come in, where the take-up in the last couple of years has been incredible. When people ask me what I think, I answer that disposable vapes are brilliant and awful in nearly equal measures.

“Brilliant, because if you're a smoker, there’s the convenience of just picking up a disposable vape and bam! – you throw it away - no messing around with liquids or charging. The flip side, it is horrible from a sustainability point of view and from a youth access point of view. The question around vaping will ultimately be, do we throw out the baby with the bathwater?”

The scandal of underage vaping appears to rest on the assumption that more teens are being tempted into nicotine who would not have, absent disposables or even vapes in general. If so, banning vapes would not mean they would neither smoke cigarettes – a dubious assumption. But if youngsters who would never have smoked are getting addicted to nicotine because of ilicit vapes, then the anti-vape lobby has a point.

“I think the nicotine category is super interesting,” says Christian.“The innovation is getting more exciting but we must ensure it remains focused on getting smokers to quit smoking and nothing else. And that's where we base all of our thinking and plans.”

That makes sense for heated tobacco, which appears to suit longer-term smokers. But I am interested in hearing what he and Duncan think about the current political situation. At the recent ACS Heart of the Community conference, Duncan Stevenson of the Chartered Standards Trading Institute said the High Street is like the Wild West, with vapes out of control. He said the authorities can't keep track of all the illegal products or prosecute enough offenders. Stephenson said they had sent out their people from the Standards Institute to 1200 shops to conduct test purchases for underage sales and 27 per cent of shops did it and broke the law.

"I think the first thing I'd say is that, thankfully, there are a lot of very hardworking, very honest, very reputable retailers across the convenience channel, who clearly care and do the right thing, both for their businesses and their communities,” says Duncan."We mustn't lose sight of that because it is really important that everybody – that's government, that’s adult consumers, that's retailers – are able to maintain confidence in the category, because we should be clear that at a category level, vaping over the years has done a lot to support smokers of combustible cigarettes to switch to less harmful alternatives.”

Christian adds: “I spent a lot of time out in the field and the lawlessness of it is stark. You can go on a typical high street and there will be an incredibly big and busy vape store and on his digital six-sheet, he's advertising a product that is completely illegal. And you go in: 'Excuse me,’ you say, ‘do you not get too bothered by Trading Standards? And they say, ‘No, not so much’.

“It’s in plain sight, you know, it’s singing it from the hilltops, and whatever you do with legislation, that’s how it is right now, today: already illegal, and nothing is being done with it.”

Christian fears the situation might prove intractable because the profit to be made is so enormous that legal traders end up losing out big-time if they don't join in.

“I think there is a danger that the good performers start to suffer, because the bad performers are benefitting. And soI think that enforcement is absolutely critical.”

Yet it sounds as if the government is leaning towards draconian measures and a crack-down – only to end up with a bigger black market and deeper criminality if people’s legal pleasures are put out of reasonable reach.

Christian believes that a good part of the solution is making sure that “every smoker in the UK is fully aware of all the alternatives they could try, and right now. we know that that isn't the case.”

He concludes that the devil is in the detail and that it's about executing it. It comes down to enforcement.

Educating IQOS

Heated tobacco has been the dark horse of the vape sector – it's not even vape, really, although it is adjacent and offers the same advantages. What started slowly is now gathering speed and taking off, and I ask what the situation is in the marketing outlook for IQOS.

“If you go into any number of convenience stores now, there will often be IQOS on the shelf, and somebody in that store, who really knows what they're talking about when it comes to why you should quit cigarettes and try IQOS," Christan says. “But it has taken a bit of time to get our heads around the messaging at the point of purchase, where you can interrupt a smoker journey, and have them think about a safer alternative, because often the issue is, if I'm coming in for my pack of cigarettes, I'm grabbing a newspaper, I know what I want – boom! – and I’m out. Now, for a retailer to step in and disrupt that journey is at risk of being irritating.”

He says that by now, however, they have mastered the approach, and that the whole thing is helped by the convenience store atmosphere, where retailers know their customers and talk to them anyway.

“I'd say over the past few years, we've been working with retailers, because they are the heart of it all, to figure out what works best when it comes to disrupting that smoke journey,” says Christian.“And then the Iluma, I would say has been taking all of those learnings and then pushing them out en masse into all the stores where we exist currently and into some new ones.”

IQOS ILUMA launch at the IQOS store in High Street Kensington,

Duncan also agrees that the retailers are the key for increasing the IQOS reach.

“What I would add,” he says,“is that that's where we see the power and are so grateful to many of your readers who are working really hard at the heart of their communities. They often know their customers best.”

Christian admits that when he started in position, he thought that IQOS would grow store by store instead of via a “vast scale” marketing strategy, but he has been surprised.

"You go into a shop and you meet an owner who is passionate about IQOS because he knows his customer base,” he says. “He knows it inside out and back to front. He says, ‘I tell you who I'll get going with. Dave has been trying everything vape but he's never had any joy. I’ll get Dave going on it. I'd say that when Dave gets going on it, we'll be able to get Deirdre and Donna done.’ And suddenly, he's cohorting up his base.

And indeed, this Dave is not hypothetical, and the word-of-mouth phenomenon that Christian sees spreading the good news of Iluma is in fact a very real Dave-inspired movement.

“I remember getting to a place in the Midlands, and there was a guy who ran a petrol station,” Christian tells a story.

“And he was known as smokey Dave, always with a cigarette hanging out of his mouth although he was running a petrol station, which is probably not ticking all the health and safety boxes. I went to see him because of his [IQOS] sales, which were off the scale. He's in his 50s and I said, ‘What's the story?’ And he said, ‘Look, I have been smoking 40 a day since I was about 15’.

“He wouldn't consider not smoking. And then somebody gave him IQOS, and hes aid, 'Wow’, because to his mind suddenly he had all the joys [of cigarettes] without the downsides.

“And because he was Smokey Dave, people began to ask, ‘Where's your cigarette?’ And he said, ‘I'm using this’. And he basically converted the village. It was amazing.”

Dave is a super-communicator, a super converter, and a great number of c-store retailers are just like Dave. "So that's where we've borrowed our marketing from – from people like that, which is how you convince your community to quit,” says Christian.

It’s true grassroots marketing.

“Big time. From a rollout point of view, it has been about doubling down on convenience, investing more into the stores and working with them and then pushing out into broader regions. We're now heading north and doing really well in the Northwest where we weren't really even there six months ago. So just taking the model and rolling it out with boots on the ground.”

I remark that what interested me was back in the summer, Duncan had said IQOS was selling particularly well in the north. Well, statistically they are heavier smokers, and not quite as affluent as southerners, in general. Yet they're willing to lay out a little bit of capital on something like IQOS, more so even than people down in the south.

“We're everywhere now,” says Duncan. “If I look at my map, we are into places like Carlisle and Penrith but we're well established in places like Preston.”

“I'm from Preston,” adds Christian, “so I think about it in the context of my stomping ground, very high smoking rates, high scepticism to alternatives. But I tell you what is interesting: if their mate or a family member says, this is working for me – they're off. We have some statistics on this and we think we're getting pretty close to a tipping point where the marketing we do really plays a smaller and smaller role, and the marketing really comes from current IQOS users.”

Hardcore

Who are those hardcore smokers?

“They are like my chap at the petrol station. When people said, ‘Smokey Dave's quit, can you believe it, with this IQOS device?’ every single smoker said, ‘Well, if he's quit, I could probably have a go with that’.

Does Christian think that heated tobacco, HNB, will gain share in the vape market going forward? It seems to be that hardcore smokers are the ones who are left, and vape has not satisfied them, while HNB might well do.

I say that I remember talking to [former PML MD] Peter Nixon back in 2019 when heated tobacco was still in its very, very early days, and I rehearsed my theory to him, which was that natural, dedicated smokers are in love with tobacco, and that when vape came along, the non-dedicated smokers were the low-hanging fruit that vape took care of, because they liked the sweet, sugary, fruity flavours and all that and they didn't miss the tobacco that much, or at all.

And after a while, there was a kind of a ceiling on what vape could achieve, because it was not serious or potent enough to attract the real nicotine die-hards who thought tobacco was one of the best molecules in the world.

“I think one of the things that vape has done incredibly well is that vapes have been around for a long time now, with a track record of getting people to quit smoking. But if you look at the data, the conversion rate is okay, but it's not great.”

So, given the evidence of vape appealing to a certain sector, have they seen that HNB has really cut into that dedicated smoking constituency that wasn't particularly impressed with vaping and thought it was a bit airy fairy?

"There's some interesting ASH statistics on this,” says Duncan. “I think the last survey points to the fact that roughly, 83 per cent of smokers had tried vaping but only 23 per cent had actually stuck with it, which shows that if we're going to get everyone off combustible cigarettes, then there needs to be a fully available portfolio of products to do that.”

“The reality is the hardest converts are the 50-plus who have smoked 20, 30 or 40 cigarettes a day for the last 20 to 30 years,” says Christian.

“These are the ones who, when they try vaping say, no, this is absolutely not for me. But these are the ones who have the highest success rate with IQOS. The challenge is getting in front of them.”

Could Diwali and Christmas be a good time for gifting the new Iluma? It’s half the price of the original device, after all.

“For sure we are doing promos in the in the run-up to the festive season. I think the Christmas gift that is designed to start on the first of January is a good one. The New Year's resolution gifting is pretty interesting. Obviously a lot of people start to think about these resolutions probably quite late in December, but joking aside, we see a real step up in January,” says Christian.

"If you've got a loved one who's an existing adult smoker, I cannot think of a better gift!” Duncan says.