Why an anti-smoking start-up decided to ally with ... Marlboro

On Thursday, December 20, the manufacturer of electronic cigarettes formalized the entry into capital of one of the giants of the sector, the American Altria, distributor of the brand Marlboro in the United States.

In fact, E-cigarettes and other vaping devices have been sold in the US since 2007 and have grown into a $6.6 billion business, and it is already intersecting with another seismic shift in the US – the legalization of marijuana across the US, according to AP.

The Marlboro maker said Thursday that it will take a 35 percent share of Juul, putting the value of the company at $38 billion, larger than Ford Motor Co., Delta Air Lines or the retail giant Target.

Threatened by a decline in sales, the tobacco company will spend $ 12.8 billion to recover 35 percent of the capital. This transaction values the San Francisco start-up at $ 38 billion, more than SpaceX and Airbnb.

 

Like a USB

Launched in 2015, Juul has experienced a meteoric rise. His winning recipe is based on three pillars. First, the simple and modern design of its electronic cigarette, which looks like a USB key.

Then, its refills Mint, mango or creamy taste, which incorporate nicotine salt to offer a sensation closer to that of a cigarette. Finally, marketing as effective as disparaged. Wells Fargo analysts now estimate its turnover at nearly $2 billion.

In three years, the company has even entered mainstream language. In American colleges and high schools, we do not use an electronic cigarette, we “juul”. And we proudly display it on Instagram and Snapchat.

The opposite of cigarettes, whose consumption continues to decline - less than 8 percent of high school students smoke.

According to the Food and Drug Administration, 3.6 million high school and college students are now regular consumers. This figure climbed 75 percent in one year. “An epidemic”, alarmed the FDA.

 

Nicotine-based vaping

With nicotine-based vaping, devices heat a flavored nicotine solution into an inhalable vapor. They have been pitched to adult smokers as a less-harmful alternative to cigarettes, though there’s been little research on the long-term health effects or on whether they help people quit.

The growing popularity of e-cigarettes has alarmed a number of health officials. For the health authorities, Juul indeed contributes to making “a whole generation dependent on nicotine”.

Faced with these reproaches, business leaders respond tirelessly by their desire to help the billion smokers to stop.

“Altria has no interest in reducing the number of people who smoke,” says Matthew Myers, President of the Campaign for Tobacco-Free Kids Association. They will have every interest in pushing Juul to design products that penalize cigarette sales as little as possible.

The entry into the capital of the first group of American tobacco also causes the discontent of some of the employees. To contain the sling, the company will pay $2 billion to its 1,500 employees, an average bonus of $ 1.3 million.

 

Best engineers

An unusual measure, which will certainly be spread over several years to limit resignations. In the longer term, however, Juul may have more difficulty recruiting the best engineers in Silicon Valley.

Kevin Burns, CEO of the start-up, recognizes that Altria is a “counterintuitive” investor. The manager says he understands “the controversy and skepticism” related to this announcement. “We were also skeptical,” he continues.

But over the last few months we have been convinced by measurements, not words. He highlights several guarantees provided by his new investor. The start-up will remain “entirely independent”.

And Altria will not be able to increase its participation for four years. The operation “will allow us to accelerate our success in converting adult smokers,” says Burns.

 

Distribution network

In addition to significant additional financial resources, Juul intends to take advantage of Altria’s distribution network, which sells cigarettes to more than 200,000 tobacco retailers in the United States. The manufacturer may also insert advertisements in Marlboro and other packages.

For several months, the start-up is in the crosshairs of the FDA, which accuses it of not having sufficiently taken the lead to limit the use of its products by minors.

In recent months, it has changed marketing plan and refocused around genuine smokers who have switched to vaping. It changed the name of some of her perfumes, to make them less attractive. It also provides greater control over distributors who target teenagers or who do not meet the legal age.

Juul said Thursday that it recently began to take actions intended to prevent underage vaping. The company shut down its Facebook and Instagram accounts last month and halted in-store sales of flavored pods, which were viewed by many critics as a direct play for younger users.

Juul also said that it’s also enhancing age-verification for its online sales.

Too little, too late for the FDA, which hardened its stance in November. Its first measure: the ban on the sale of scented refills, which is particularly popular with teenagers. A constraint that could also have an impact on sales to adults, fears the manufacturers.

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Last Update: Friday, 21 December 2018 KSA 12:39 - GMT 09:39
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