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Experts Consider Altria Should Enter E-Cig Market

Altria Group is the overwhelming leader of the U.S. cigarette market, via its subsidiary, Philip Morris USA. The company stock sells well thanks to high dividends and strong performance of flagship brands Marlboro and L&M. Yet, there are several essential risks in the domestic cigarette market which Altria investors should be concerned with, such as shrinking cigarette market, growing excise taxes and stringent regulation.

Altria Group

Experts consider that the given risks are long-range and adhesive and that Altria will not succeed in retaining revenues growth without breaking into the alternative tobacco products market. The tobacco giant has already entered the smokeless tobacco market, with Copenhagen and Skoal brands that obtained top positions in the segment.

In addition, it has also introduced a nicotine lozenge, named Verve, making experts consider Altria’s potential to venture into the market for another innovative product, electronic cigarette.

What is an electronic cigarette?

E-cigarette is a battery-operated device, which contains liquid solution, allowing users to mimic smoking process by exhaling vapor. The electronic cigarettes have been growing in popularity recently, due to their similarity to conventional cigarette smoking, and alleged lack of harmful chemicals. These devices are not regulated by the FDA, and therefore, are very affordable. Overall, e-cigs are considered to be a long-term alternative for cigarettes.

The segment of e-cigarettes currently accounts for $300 million, and might grow to nearly $1 billion within the next 5 years, according to some forecasts.

Why Altria Should enter e-cig market?

At the moment, Altria leads the U.S. tobacco market, but has to deal with dropping revenues and declining demand due to the above-mentioned facts. In 2011, the U.S. cigarette market accounted for 270 billion units, and according to the analysts it would decline gradually over the next five years, reaching 235 billion units in 2019.

Altria’s main rivals, such as Reynolds American and Lorillard, have already showed interest in electronic cigarettes. Lorillard has recently acquired an e-cig maker, named Blu ecigs, while Reynolds American confirmed working to develop an American-made digital cigarette.

Altria Group in the meantime, has not embarked the market yet, and could end up on a losing side of a very lucrative market, in case it does not act in the nearest future.

How can it venture into the market?

There are a number of ways how Altria might enter the market of electronic cigarettes. One of such ways is to acquire an electronic cigarette company already-known in the U.S., following the Lorillard move.

According to Wells Fargo managing director Bonnie Herzog, Altria could be in negotiations to acquire NJOY, a maker of e-cigarette, which has a 40% share of the U.S. market of e-cigs. Another way is to develop its own electronic cigarette brand, like Reynolds American did.

The company declared earlier this year that it has signed into a partnership with Okono A/S, a subsidiary of Fertin Pharma A/S, to create “innovative, nicotine containing product”