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The heat of Japan's tobacco market has not decreased

2021/08/31|Knowledge

The market share of traditional cigarettes has shrunk as Japanese consumers have switched to heated tobacco products. To this end, Asia tobacco interviewed the Japan Tobacco Company on the latest progress.

Heat Not Burn Stick

Heat Not Burn Device

Although some people still call it "heating without heating" (HNB) product, tobacco enterprises in Japan and other countries prefer to use the term "heating tobacco product" (HTP) or "low-risk product" (RRP). Either name refers to the same method of inhaling smoke: by means of electric heating, heat the tobacco below the ignition point, and then inhale almost tasteless steam.

The world's largest HTP Market

In 2014, PMI officially launched a groundbreaking iqos device in Nagoya, which caused HTP to set off a storm in Japan, and countless curious consumers lined up in front of retail stores. Philip Morris International then expanded the sales of iqos in the Far East in 2016, but the company's "unique" position did not last long. Major competitors Japan Tobacco (JT) and British American Tobacco (BAT) soon launched their own heating tobacco equipment, and the development speed is amazing. "By 2020, Japan has become the world's largest HTP market," said Dinesh Babu thotakura, general manager of Japan Tobacco media and investor relations

No longer a "gimmick"

According to the "national health and Nutrition Survey" carried out by the Ministry of health, labor and welfare of Japan in November 2019, the adult smoking population in Japan is 16.7%, including consumers of traditional tobacco products and next-generation products such as HTP. About 78% of them are men and 22% are women. The survey also showed that more than a quarter of smokers had used HTP, of which 27.2% were men and 25.2% were women. A few years ago, some industry observers believed that HTP was just a "gimmick". In the long run, HTP is unlikely to defeat traditional tobacco products. In view of this, the above figures are considerable.

Of course, it turns out that the observers are wrong. In terms of sales and sales, HTP must have a place in Japan. According to the data provided by the Japan Tobacco Research Institute (tioj), in 2020, the sales volume of combustible cigarettes of all brands in Japan was about 99 billion, with a value of about 2475 trillion yen (US $22.58 billion). In the same year, about 41.3 billion HTP bombs entered the retail counter, creating a revenue of 1.064 trillion yen ($9.71 billion). This is quite good for a "gimmick".

Numerous factors boost HTP success

Various intertwined and interactive factors may explain the rapid success of HTP. Dinesh Babu thotakura of Japan Tobacco Corporation said: "for example, the improvement of citizens' health awareness must have played a role, and the annual increase in tobacco tax also played a role. But then we must also consider tightening indoor smoking regulations and expanding the scope of outdoor smoking prohibition. Heated tobacco products will neither burn nor emit the smell of cigarettes, so they are welcomed by consumers, especially those who are very environmentally conscious. " One of the biggest advantages of HTP is that it only produces water vapor without smoke particles produced by burning organic materials.

Philip Morris International took the lead in launching iqos, followed by Japan Tobacco in 2018. It launched the first HTP in history, namely ploom tech, and promoted it nationwide. Meanwhile, bat's glo equipment also made its debut in Japan. Thotakura acknowledges that iqos still has an absolute market share, but the three companies jointly dominate today's market. "We lag behind our competitors in layout speed, which must be seriously accepted," he told Asia tobacco

Catch up with market leaders

In order to catch up, JT hopes to provide consumers with diversified product choices, which is an effective strategy for the company's traditional tobacco business. Thotakura explained: "for example, in 2020, we launched ploom s 2.0, an upgraded heated tobacco product. Our consumer research shows that about 70% of HTP consumers choose menthol taste, so we have equipped ploom s 2.0 with a new heating mode, 'taste accel', which effectively prolongs the duration of peak heating temperature compared with ploom s of the previous generation. It realizes the balance between the freshness of menthol, rich steam and the taste of alcohol and tobacco, making it an ideal equipment for consumers who like menthol taste. "

"Diversified" product selection

However, JT is not limited to introducing new ploom device versions to enrich consumer choices. Even before selling traditional "heating smoke bombs", the company began to launch "Seven Star refillable smoke bombs" for ploom devices. For the latter product, the smoke liquid is electrically heated at low temperature, and the generated steam passes through the smoke bomb, which is enough to make the tobacco in the smoke bomb emit flavor and nicotine for users to inhale“ As the demand for heated tobacco market continues to grow and diversify, we think it is very important to continuously provide consumers with a variety of choices, "thotakura said.

Priority investment and R & D

In order to meet the ever-changing needs of consumers, JT will give priority to its investment in R & D and marketing, and improve the functions and characteristics of existing products. Thotakura insists that all these areas are moving forward steadily, and the company has even developed a new member of the ploom series for its product line. Thotakura disclosed: "we are launching the next generation product PLOOM X in Japan and other international markets in the second half of 2021 as planned." Citing the company's first quarter performance report for 2021, thotakura said that this carefully planned approach ensured the overall market share of JT in the HTP field, which was estimated to be 26% by 2020.

Market positioning of atomized smoke

Of course, HTP should not be confused with atomization equipment; Especially in Japan, the position of atomization equipment in Japan is very strange. According to the pharmaceutical law of the country, all electronic cigarette liquids containing nicotine are classified as "drugs", and the inhalation equipment (i.e. atomizer) using this nicotine rich tobacco oil is classified as "medical devices". Because of this legal classification, any atomization product sold on the counter must be completely nicotine free, whether it is an open or closed atomization system, a single electronic cigarette cartridge or a refillable cigarette cartridge. This effectively excludes the entire atomization segment from "tobacco products".

Tax calculation system is complex

In addition, HTP and its tobacco atomizer are strictly considered to be tobacco products subject to relevant taxes. Although the retail price of traditional cigarettes in standard packaging includes 61.8% of various tobacco taxes and other taxes, the tax of HTP is not so clear.

In October 2018, a new tax category of "heating tobacco products" was added to the Japanese tax law. The new tax category formulates a very complex tax calculation method, takes into account the "taxable tobacco weight" of HTP atomizer and converts it into "cigarette unit", and then finally determines the proportional tax levied on HTP (excluding consumption tax) according to the actual retail price of "cigarette unit". Don't dwell on confusing details. According to Dinesh Babu thotakura, the ad valorem tax on the retail price of a pack of six seven star cigarette bombs is equivalent to the tax on 10.339 cigarettes.

Smoking restrictions also apply to HTP users

Although neither atomized nor heated tobacco products produce annoying smoke, and the steam has little smell, like consumers of traditional tobacco products, consumers using both products are limited to designated smoking areas. Fortunately, Japanese food operators should be one of the most tolerant and enthusiastic people in the world. Most restaurants and cafes have set up separate smoking areas with physical isolation, good air circulation and ventilation, and a few restaurants and cafes use high-tech "air curtains". Thotakura pointed out that some restaurants and cafes now even reserve smoking areas for HTP users, so they don't have to mix with traditional smokers. All government buildings, schools, hospitals and similar places prohibit any form of smoking, including the use of atomized smoke and HTP, but these places are equipped with appropriate outdoor smoking areas“ Bars, clubs and other places with "smoking as the main purpose" do not need to set up smoking areas.

Sit firmly in the Japanese market

According to its global strategy, Fimo international plans to "phase out traditional cigarettes in Japan within 10 years" (see sidebar). Unlike Philip Morris International, JT has not set such a goal, which is related to its determination to provide as many consumer choices as possible. In view of JT's focus on investment and R & D in the HTP field, the company is likely to compete with Philip Morris International in the HTP field. As for combustible cigarettes, JT doesn't have to worry. According to its own data research, JT is now far ahead with a market share of 59.8%, followed by Philip Morris International (20.9%) and British American Tobacco (16.2%). The Seven Star brand of Japan Tobacco ranks first in popularity in Japan with a market share of 27.6%.

Philip Morris International: plans to phase out combustible cigarettes in Japan within "10 years"

In early May, Jacek olczak, the newly appointed chief executive officer of Philip Morris International, said in an interview with Japan news agency Nikkei index that the company's goal is to "phase out traditional cigarettes in Japan within 10 years". Japan will become the first country for Philip Morris International to achieve its long-term goal of replacing combustible cigarettes with low-risk alternatives such as HTP, and finally completely abandon the use of combustible cigarettes. In an interview with the Nikkei, Philip Morris International announced for the first time the specific time for it to achieve this goal in a specific market. Olzac: "we hope Japan will become the first market to phase out combustible cigarettes. Our goal is that by 2025, more than half of our global net income will come from smokeless products. " Prior to his appointment as CEO, he held several senior positions at Philip Morris International over the past 25 years.

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