Philip Morris moves towards exit from Russia

Philip Morris International has indicated that it is preparing to exit the Russian market amid international sanctions following the invasion of Ukraine. While analysts say such an exit will have limited consequences for the manufacturer's health, Russia remains one of the world's largest markets for tobacco products, particularly for Iqos, PMI's heated tobacco.

As dozens of multinationals scale back their operations in Russia, Philip Morris International has indicated it is working on exit options. On March 9, the company had already announced that it was suspending its planned investments in the Russian Federation and reducing production of tobacco products.[1].

Maintaining activities in Russia incompatible with the manufacturer's image strategy

Maintaining operations in Russia has become "too complex" for the tobacco giant, and potentially very damaging to its image among consumers and public decision-makers. Since February 24, 2022, the date of the Russian army's invasion of Ukraine, PMI has seen its share price fall by 13.5% on the New York Stock Exchange, before recovering slightly following the initial announcements of investment cuts and exits. For their part, British American Tobacco (BAT) and Imperial Brands have announced their intention to transfer their local operations to Russian partners. Japan Tobacco International (JTI), the leader in tobacco products in Russia, has limited itself to suspending investments in the country, stating, however, that it has not ruled out the possibility of halting production.

Russia, a preferred market for heated tobacco

Philip Morris International's withdrawal from the Russian market will likely not be painless for the cigarette manufacturer. Russia, a country particularly hard hit by the tobacco epidemic, accounts for 5 to 61% of the manufacturer's annual profits.[2]. Above all, Russia is currently the second most lucrative market for PMI's heated tobacco: 20% of IQOS production is currently consumed in Russia, dealing a severe blow to Philip Morris's strategy. According to Owen Bennett, an analyst at Jefferies, Philip Morris is considering several avenues for development, particularly in the United States, through the marketing of nicotine pouches, or through vaping products.

Russia and Ukraine at the heart of the tobacco epidemic

Jacek Olczak, CEO of Philip Morris International, said in a statement, "We stand in solidarity with the innocent men, women, and children who are suffering." Yet, in both Russia and Ukraine, the human consequences of smoking are particularly severe. Each year, the tobacco industry is responsible for the premature deaths of more than 125,000 people in Ukraine.[3], and more than 317,000 in Russia[4]Despite Ukraine's recent progress in tobacco control, smoking remains at particularly high levels, with over 401,000 adult men smoking daily. By early 2021, major tobacco companies had sought to put pressure on Ukraine, due to an adverse judgment following anti-competitive practices, raising the threat of negative economic repercussions.

FT

[1] Bloomberg, Philip Morris Plans to Exit Russia After Outcry Over War, 03/24/2022, (accessed 02/28/2022)

[2] Reuters, Philip Morris suspends investments in Russia, scales back manufacturing, 03/09/2022, (accessed 03/28/2022)

[3] Tobacco Atlas, Ukraine, (accessed 03/28/2022)

[4] Tobacco Atlas, Russian Federation, (accessed 03/28/2022)