The future of Big Tobacco in Russia goes up in smoke

As for withdrawals from Moscow, those of the tobacco companies since the invasion of Ukraine are rather mixed. While other brands have closed their doors and left the country, the makers of Marlboro, Lucky Strike, Rothmans, Kent and Gauloises have not given up hope.

Philip Morris International says it’s suspend investment in Russia and “reduce” manufacturing, while British American Tobacco and Imperial Brands will transfer their activities to local partners. Everything that happens to brands and how it will work financially remains vague.

“I think they are rigging. I predict Marlboro and Lucky Strike will still be sold there, and they will keep the brands and take the profits,” says Anna Gilmore, professor of public health at the University of Bath. She has reason to be suspicious, having studied how they invaded Moscow after the fall of the Berlin Wall.

They would leave a lot behind if they left completely: brands like McDonald’s have done well in Russia, but the tobacco companies have triumphed. Philip Morris and Japan Tobacco, which owns Winston and Cameldominate the world fourth marketas well as BAT and Imperial.

Russia is also a testing ground for the big shift cigarette companies are trying to make: transform themselves into makers of vaping and heat-treated tobacco products. Since millions of smokers get sick and die every year, anything sounds better than selling cigarettes.

Their track record does not inspire confidence in the health promises they are making now. They entered Russia in the 1990s by buying up state-owned factories — BAT acquired Java and Saratov in 1994 – and used them as a platform for international brands that had previously been smuggled into the Soviet Union.

There could hardly have been a more receptive market. The men were heavy smokers and many were addicted to papirosi — unfiltered high-tar cigarettes such as Belomorkanal. The brand had unconditional provenance, named in 1932 after the White Sea-Baltic Canal, which had been built by prisoners Gulag camps under Josef Stalin.

The Russians were hungry for something nicer, and the global tobacco companies provided it. But they also increased smoking among women and young people with advertising: a study found that smoking among women doubled between 1992 and 2003 to 15%, while the smoking rate among men reached 63%.

In a sense, the corporate advance in Russia was a classic case of consumer globalization: they produced sophisticated products, marketed them expertly, and raised quality standards. That would be fine except for one problem: the product was cigarettes and the World Health Organization estimates that more than 19 million Russian smokers will die prematurely.

Hence the global pivot companies have been trying to make towards vaping and tobacco heat-processing devices, including Philip Morris’ IQOS and BAT. Glo. Russia has been vital to the ‘smoke-free future’ that Philip Morris now promises and a leader last year greeted his “really very spectacular progress” there.

It is unclear to what extent heat-treating tobacco is safer for producing nicotine vapor than smoking it in cigarettes. A To analyse concluded that users of the devices inhaled “significantly less” toxic substances, but the results were mixed and most of the studies are carried out by tobacco companies.

The purpose of tobacco heat treatment devices is also unclear. Philip Morris says that 72 percent of IQOS users quit cigarettes entirely in 2020, but there are still many who continue to use both. There is an echo of the past transition from Belomorkanals to Marlboro Golds: better, but not good.

What is clear is that Russian smokers were early adopters of the technology. Philip Morris spear IQOS in Japan in 2016, but it is growing rapidly in Moscow and has taken 15 percent of the Moscow market in 2020. Nearly a quarter of Philip Morris’ global heat-treated product sales by volume are in Russia and Ukraine (another heavy-smoking country), according to JPMorgan.

That’s why Philip Morris and others are reluctant to pull out of Russia altogether: it’s not just a smoky emerging market where they can sell products that are in long-term decline in the US and Europe. Until Vladimir Putin destroyed a multitude of political and financial hopes, this was the future.

Russia’s convergence with the West has gone further than its integration of brands. He placed strict controls on cigarette advertising and on smoking in public places and Putin extended the policy to heated tobacco in 2020. The proportion of men who smoke has decreased, although it stay high.

Behind the scenes, the China National Tobacco Corporation, by far the largest cigarette producer in the world, waits. If Putin yearns for Russia’s past but papirosi will no longer satisfy smokers, it has an opportunity. Many factories may need help.

What’s best for Russians, other than kicking the habit, is another matter. History proves one thing: the present is unhealthy, but the past was worse.

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