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Can Innovative Products Help Tobacco Companies?

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Mar. 14 2016, Updated 7:06 p.m. ET

Growing health consciousness

Due to increased health consciousness, most tobacco companies’ 4Q15 cigarette shipment volumes have seen a decline. As developing countries mature, smokers tend to become more aware of health risks relating to cigarette smoking that can lead to a multitude of health issues. This has led to a slowdown in growth or even a decline in tobacco companies’ revenues.

The mounting increase in health consciousness poses a growing threat to the tobacco industry as a whole. However, companies are investing heavily in moist snuff, e-cigarettes, and other innovative products in order to meet consumer expectations and shift the trend from traditional cigarettes.

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iQOS wave of expansion

For example, Philip Morris International (PM) expanded the geographic presence of iQOS under its reduced-risk products (or RRPs). The first wave of expansion in Japan reached more than 60% of the adult smoker population and expanded to Italy beyond Milan to Modena, Rome, and Turin.

Philip Morris expects iQOS to be present in key cities in about 20 markets globally, which could help revenue growth.

Innovative snus

Reynolds American (RAI) subsidiaries expanded Vuse Digital Vapor Cigarettes in September 2015 by adding four styles that have been well received by adult tobacco consumers. RAI’s American Snuff’s 4Q15 retail (XRT) market share increased to 30.8% behind Grizzly brand on volume growth of 6.6%.

Other companies such as Altria Group (MO), Japan Tobacco (JAPAF) (JAPAY), and Imperial Tobacco Group (ITYBY) have a presence in smokeless tobacco products. Marlboro Snus (MO), Skurf Snus (JAPAF), and Zerostyle Mint (ITYBY) are some of their smokeless tobacco product brands.

Shift to moist snuff

According to a Neilson report cited in Statista, the sales share of moist snuff in large convenience stores was 94% in 2014 among smokeless tobacco products.

MO and PM have exposure in the iShares Russell 3000 ETF (IWV) and together constitute ~1.2%[1. updated as of March 10, 2016] of the total weight of the portfolio.

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