PMI Duty Free unveiled a new IQOS area at Narita International Airport in Japan this year.

In an extended Q&A, Beste Ermaner, Vice President at Philip Morris International (PMI) Duty Free tells TRBusiness that while the tobacco/nicotine alternatives segment remains a core part of duty free sales, there is more work to do to create opportunities – and space – for so-called reduced-risk products.

To view an exclusive on-location video interview with Beste Ermaner at the recent TFWA World Exhibition & Conference, click here.

Beste, you took on the role of VP PMI Duty Free in March this year. How are you settling in and what has surprised you most about the business?

I came into this role expecting the unique level of complexity and dynamism inherent in the duty free market, with its ever-changing regulations, diverse consumer preferences, and fluctuating market conditions. This multi-faceted environment offers vast opportunities to grow our brands and expand our multi-category portfolio. I’m not surprised but rather amazed by our solid and diverse organisation – a talent hub that embodies agility and the ability to embrace challenges and drive impact on a global scale. Our global team has proven its capability to navigate complexity and ambiguity with remarkable skill and resilience.

Moreover, I have been incredibly impressed by the collaboration with our business partners and key stakeholders. Their dedication to building a strong business together has been instrumental in achieving significant milestones and expanding our multi-category presence.

The synergy we’ve developed in working towards common goals has been a critical factor in our success. Navigating these variables has been a fascinating challenge, but it’s also been deeply rewarding to see how we’ve further strengthened our organisation and forged robust partnerships. The collective effort and shared commitment have enabled us to make substantial progress, and I am excited about what we will continue to achieve together.

Beste Ermaner, Vice President, PMI Duty Free.

Can you characterise the performance of PMI Duty Free’s tobacco/nicotine alternatives business year-to-date and in which regions/territories are you seeing the strongest performances and potential growth?

This year has been positive for PMI in travel retail across the world with the pace of growth in Asia being higher with the help of the travel recovery. We are continuing to accelerate the achievement of our vision for a ‘Smoke-Free Future’. Japan, the Middle East and Africa have been key regions for growth with our most recent product launches.

No single product will address all adult smokers’ individual preferences. That’s why PMI, as the global smoke-free champion with leadership positions in the largest category of heat-not-burn and the fastest growing category of oral nicotine, is delivering a multi-category portfolio of science-based better alternatives than cigarettes with a variety of usage, technology, taste, and price options for adult smokers who would otherwise continue to smoke.

In Japan, we launched IQOS Iluma i in March. This also marks the 10-year anniversary of IQOS, originally launched in Nagoya, Japan. IQOS Iluma i is the latest and most innovative addition to our growing portfolio of smoke-free products for adults who would otherwise continue to smoke or use nicotine products. In the Middle East and Africa markets, we have expanded our multi category portfolio with the launch of VEEV Now, our all-in-one pocket-sized e-vapor device. Similarly, we have also expanded our nicotine pouch presence with ZYN in various markets in the Middle East and Africa.

International departing passenger traffic is tipped to surpass pre-Covid levels this year, according to forecasts from IATA/m1nd-set. However, higher footfall/penetration doesn’t automatically translate to conversion as we know, and macroeconomic pressures continue to weight on shoppers’ wallets. Can the tobacco/nicotine alternatives category be doing more in your view to capture spending from adult consumers? 

This category is a core part of the travel retail and duty free sector, but more work can still be done to create opportunities and space for reduced risk products. We at PMI believe in technology and science and we have worked over two decades to develop, assess, and commercialise less harmful alternatives to cigarettes. These products are not risk-free and are addictive, but they represent a better choice for adult consumers than continuing to smoke. Creating and delivering this choice is vital for the future of the category in duty free.

One other area where we see the opportunity to engage with legal-age consumers is in the digital and omni-channel space. Travelling shoppers expect the same level of service as they would receive elsewhere in their consumer journey. As a result, digitalisation is paramount, and in-store experiential retail is becoming a must-have.

IQOS corner within the KIX Duty Free store at Kansai Airport.

We are currently working in partnership with retailers to achieve this as it is a true ‘win-win’ for the sector, catering to legal-age consumers and converting sales as seamlessly as possible. The consumer is always at the forefront of our plans at PMI and will continue to be the driver of innovation in this area.

Saudia Arabia has adopted exemption requirements for duty free arrivals, unlocking the door for tobacco sales. What’s your assessment of this development and what it could mean for the PMI Duty Free business?

Duty free and travel retail remains a cornerstone of the modern airport ecosystem, generating significant levels of non-aeronautical revenue as well as an enhanced traveller experience. Since we are committed to switch all adults who would otherwise continue to smoke to better smoke-free alternatives, a new market creates an opportunity to provide adult consumers with better alternatives to cigarettes and it is vital that we ensure travelling legal-age consumers are given the full choice of reduced-risk products, where possible, when they shop.

Conversely, we’ve seen Thailand move to abolish on-arrival duty free sales at the country’s eight international airports meaning visitors will no longer be entitled to purchase 200 cigarettes (or 250gm of tobacco or cigars). Other examples include Norway halving the inbound tobacco allowance for returning residents. How worried are you about the optics of such decisions on the DF&TR industry?

It is naturally disappointing for markets to introduce policies restricting duty free operators and limiting adult consumer choice. As mentioned earlier, duty free and travel retail remains a cornerstone of the modern airport ecosystem, generating significant levels of non-aeronautical revenue that can deliver as much as 45% of total airport revenue – supporting reinvestment, route development, job creation and lower ticket prices for travellers.

It is important for governments to recognise the globally accepted norm for inbound duty free allowances set by the Revised Kyoto Convention – a long standing international agreement establishing customs standards and practical guidelines for customs administrations worldwide. The convention is designed to balance the ease of enforcement with the need to prevent smuggling and other illicit activities.

Altering inbound allowances below the internationally accepted norm undermines the consistency and predictability that are crucial for effective customs administration, and negatively impacts a customs agency’s ability to effectively enforce importation limits, while also focusing on clear threats posed by organised crime and sophisticated international smugglers.

It is also important to note that reducing inbound allowances, or the availability of duty free products, more generally does not lead to a boost in domestic excise revenues. In fact, based on evidence supported by market studies and consumer behaviour research, international passengers are unlikely to shift their duty free purchases to the domestic market if they cannot buy them while travelling. Instead, they may purchase fewer items overall or wait until another destination for an opportunity to shop duty free.

VEEV Now forms part of an expanded multi-category portfolio.

PMI’s aim is to ultimately replace cigarettes with smoke-free alternatives. The company says that 38% of total revenues come from its smoke-free business. What is your plan to increase this share?

We have made significant and unparalleled progress on our smoke-free transformation, developing a more sustainable growth model while making important contributions to tobacco harm reduction, as more adult smokers switch to our smoke-free products and leave cigarettes behind. By 2030, our ambition is to be a substantially smoke-free company, with over two-thirds of our total net revenues coming from smoke-free products.

It’s important to underline that scientific research underpins everything we do, and PMI is committed to providing a portfolio of science-backed better alternatives for adults who would otherwise continue to smoke. In fact, more than 1500 R&D professionals are working on the development of the industry’s most advanced portfolio of smoke-free alternatives in our R&D facilities in Switzerland and Singapore. We continue to be committed to providing science-backed better alternatives for adults who would otherwise continue to smoke.

Also keeping the consumer at the core of everything we do, PMI will remain steadfast in understanding and addressing the needs of adult smokers seeking better alternatives to continued smoking. We’re continuously enhancing our portfolio based on consumer feedback, ensuring they align with our consumers’ expectations and evolving preferences, and our multi-category approach—ensuring we provide options for each adult consumer.

What do you see as the key challenges and opportunities facing the wider smoke-free business in duty free in 2024 (i.e. allowances, display/packaging etc)?

The industry remains relentlessly focused on the defence of the duty free tobacco category at the upcoming Fourth Meeting of the Parties to the Illicit Trade Protocol (MOP4), due to take place in November 2025.

At the Third Meeting of the Parties (MOP3) in February this year, Parties to the Protocol agreed to commission planned evidence-based research into the impact of duty free on illicit trade, as called for in Article 13.2 of the Protocol. The duty free industry welcomes a fair and objective study and remains confident that such a study will conclude there is no substantive link between genuine duty free products and illicit trade.

It is, however, vital that Parties to the Protocol insist on a robust study methodology, administered by researchers with understanding and expertise of the unique nature of the duty free channel. The researchers must also draw a distinction between illicit trade involving genuine duty free products, and the ongoing reputation threat posed by criminals who fraudulently mislabel counterfeit tobacco products as duty free – despite these counterfeit products never entering the duty free supply chain. Without these important considerations, there is a risk that the final version of the study will contain inaccurate or misleading conclusions and recommendations.

The duty free channel boasts one of the most secure, transparent and trusted supply chains in the world, while travel retailers

IQOS is celebrating its 10-year anniversary in 2024.

maintain close working relationships with customs and enforcement agencies to ensure that illicit trade, counterfeiting and intellectual property theft cannot gain a foothold in the channel. Genuine duty free accounts for less than 1% of the total illicit trade market globally, and we as an industry want to continue to support efforts to eliminate criminal behaviour in all its forms.

Additionally, we continue to focus on our multicategory portfolio expansion bringing our range of smoke-free alternatives to an increasing number of duty free markets. PMI Duty Free is at the forefront of the company’s multi-category expansion as we pioneer the roll-out often bringing unique solutions working in collaboration with our business partners and key stakeholders.

This year we have enhanced our legal age consumer shopper experience with a new IQOS Corner in Osaka International Airport, a new IQOS shop in Narita International Airport, a new IQOS pop-up in Geneva International airport and dedicated ZYN pop-ups in Dubai International Airport.

In addition to our enhanced in-shop experience it is important to delight our legal-age nicotine users with products unique to duty free through limited editions, novel offers, and unique packaging among others. In 2024 we have already launched a Limited Edition IQOS and a Limited Edition TEREA 10 Year anniversary pack design, with more to come by the end of the year.

Finally, 2024 also marks the 10-year anniversary of IQOS. What do you have planned to mark the occasion in duty free?

As the world’s number one selling smoke-free heating system, IQOS celebrated this year its 10 year anniversary —a moment to reflect and celebrate 30 years of innovation and 10 years of real-life experience. An uninterrupted journey of reinvention. A continuous journey of growth. A life-changing decision for the more than 36.5 million users around the world who have either switched completely away from cigarettes or are in various stages of their conversion journey. IQOS net revenues surpassed Marlboro in Q4 2023 to become the number one international nicotine brand on this measure.

As mentioned earlier, we launched in March IQOS Iluma i in Japan duty free, the latest and most innovative addition to our growing portfolio of smoke-free products for adults who would otherwise continue to smoke. The launch also marked the 10-Year anniversary of IQOS, originally launched in Nagoya, Japan in 2014. Following the launch of IQOS Iluma i, and to continue to celebrate IQOS this year we also launched a Limited Edition IQOS Neon Purple device and a Limited Edition TEREA 10 year anniversary pack design. With more exciting launches to come this year…

For more on PMI Duty Free, click here to read the TRBusiness October edition.

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