In Los Angeles for the first time in four years, Jack Lowenstein was stunned by the widespread use of the Juul electronic cigarette.
What happens when a massive old no-growth cash cow company meets a bustling start-up “disrupting” its core business?
The following involves two US companies we can never own because of our ethical screens: Altria and Juul. It is a warning on the damage a combination of big tobacco, venture capital and devil-may-care marketing may do to your financial as well as physical health.
On one level, the Juul electronic cigarette is an amazing story of American invention and sales chutzpah, not to mention capital market wizardry.
The Juul was launched on June 1, 2015. In July 2018, it raised US$650m, giving it a private market valuation of US$15b. Five months afterwards, Altria (MO US), formerly known as Philip Morris, one of the world’s largest tobacco companies, bought 35% of Juul for US$12.8b, the biggest investment ever in a US venture-backed company. This valued the business at US$38b. At the time, Juul had 1,500 employees, outsourced manufacturing in China, and an annual revenue of about US$2b.
It is easy to see what attracted Altria to Juul. Conventional stick sales are in decline and its in-house e-cig strategy was sputtering. Meanwhile, Juul has cornered 75% of the US e-cig market and is starting to also promote itself as a smokeless delivery mechanism of marijuana, a substance in which Altria has also made venture capital investments!
Juul’s secret has been to make itself the cool ‘iPhone’ of the vaping world, with a sleek format that is about the length of an old-fashioned cigarette and about the width of digital memory stick. Better still, as it only burns nicotine salts – a tiny but highly potent part of the tobacco leaf – it is less harsh for new users and doesn’t produce the huge tell-tale cloud of water vapour of earlier e-cigarettes. Finally, it has used adolescent focussed social media marketing and, like other e-cigs, it has launched sweet, fruity flavours to enhance its appeal to new users.
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