For decades, you could bank on cigarette companies like Philip Morris International showing good healthy profits, even their product is anything but good and healthy.
Until the last few years, cigarette volumes would reliably decline 3 to 4 percent on a yearly basis and in response, the tobacco companies would increase the price of cigarettes. This worked for many years, decades in fact, and kept the tobacco companies in profit.
However, the rise of vaping is beginning to change the status quo in the smoking world. In the US, the number of Vape shops has tripled since 2014, whilst according to Wells Fargo, the electronic cigarette industry increased from $1.7 billion in 2014 to $4.1 billion in 2017.
The effect that the vaping industry is having on the tobacco world can be seen in recent earnings results. Philip Morris International shares plummeted 16 percent after releasing its weak earnings report. Philip Morris International missed revenue estimates at $6.90 billion, compared with the $7.03 billion analysts had been expecting. Total volumes were 2.3 percent lower and its flagship Marlboro brand fell 7 percent overall.
And it wasn’t just the US that saw heavy declines in cigarette volumes. The EU was down 6.7 percent; Eastern European volumes fell 10.4 percent. Middle East and Africa saw volumes drop 8.5%. Australia and the Far East saw the largest declines in cigarette volumes, down 18.3 percent. Meanwhile, Canada and Latin America only experienced a 1.5 percent decline in cigarette volumes. South and Southeast Asia were the only regions to see any positive growth, up 6.1 percent.
Adam Spielman, the Citigroup analyst said: “We saw the market’s sudden recognition that the cigarette industry seems to be in serious trouble, disrupted by the rise of vaping,”
“Over the course of three short days, the tobacco stocks were bent, they were spindled and they were mutilated by the realization that electronic cigarettes have become a serious threat to the old-school cigarette makers,” he added.
The decline in cigarette volumes show a direct correlation with a rise in vaping. According to statistics, in the US, 38% of high schoolers and 13% of middle schoolers have tried vaping. In the UK, 39.5% of smokers had used vaping to quit tobacco smoking.
One of the most popular brands is SMOK, which when you view the Google Trends, has been steadily rising over the last three years. The low cost vaping brand is leading the way in vaping with its clever marketing campaigns which target YouTube and other social media influencers, appealing to the younger generation.
Although there is some debate over the health risks to vaping, at the moment, at least, vaping is slowly killing off the cigarette industry just like the cigarette industry have been killing off its smokers.