January 17, 2019 / 4:49 AM / 4 months ago

Japan Tobacco ratchets up smokeless war with new products

TOKYO (Reuters) - Japan Tobacco Inc (2914.T) on Thursday unveiled two “heat-not-burn” products, as it races against market leader Philip Morris International Inc (PM.N) for a larger share of the vaping space with conventional cigarettes steadily falling out of favor.

Models show off Japan Tobacco Inc.'s “heat-not-burn” tobacco devices Ploom TECH+ (L) and Ploom S during the unveiling in Tokyo, Japan, January 17, 2019. REUTERS/Taiga Uranaka

Despite commanding 60 percent of the local cigarette market, Japan Tobacco has been caught on the wrong side of the rising popularity of heat-not-burn (HNB) alternatives and has lagged in the category in its own backyard versus the Marlboro maker.

Philip Morris in 2014 started selling its IQOS HNB device in Japan, which has emerged as a fertile test ground for vaping products since e-cigarettes using nicotine-laced liquid are not allowed under the country’s pharmaceutical regulation.

Japan Tobacco managed to roll out its vaping product, Ploom TECH, only by 2017 after repeated production delays. And even then, some users have complained about its weak taste.

It is now planning to start selling Ploom TECH+ and Ploom S in Japan from Jan. 29 to tap into the HNB market that continues to grow, albeit at a slower pace.

Ploom TECH+ is priced at 4,980 yen, while Ploom S will sell for 7,980 yen - same as IQOS’ cheapest version.

“We are aiming for the No. 1 position,” said Mutsuo Iwai, head of Japan Tobacco’s domestic tobacco business.

“Japan is the biggest HNB market, a success in Japan will lead to a success globally.”

PROMISING BETTER TASTE

IQOS had a 71.8 percent share of Japan’s HNB market last year, while British American Tobacco’s (BATS.L) glo had 20.1 percent and Ploom TECH’s 8.1 percent, Nomura estimates.

HNB products accounted for 20.9 percent of Japan’s tobacco market in 2018, versus 12 percent a year ago, according to an estimate by Satoshi Fujiwara, an analyst at Nomura.

Japan Tobacco has said it expects vaping products to account for 30 percent of the domestic tobacco market by end-2020 and will spend heavily in the field as cigarette sales drop.

Japan Tobacco’s conventional cigarette sales volume in the country fell 11.4 percent over Jan-Nov last year.

The former state monopoly, still one-third owned by the government, has been scrambling to launch new HNB products after many smokers found the taste of its current one weak.

Unlike IQOS and glo, Ploom TECH does not directly heat tobacco rolls. Instead, it generates vapor that goes through a tobacco-packed capsule, emitting far less smell but, according to users, less potent than rival products.

Japan Tobacco Inc. displays “heat-not-burn” tobacco devices Ploom TECH+ (L) and Ploom S during the unveiling in Tokyo, Japan, January 17, 2019. REUTERS/Taiga Uranaka

This has partly hurt sales, with the firm in October cutting its Ploom TECH capsules sales forecast by 30 percent for 2018.

Iwai said the new products were Japan Tobacco’s answer to user complaints as they are designed to give a stronger taste.

“We believe we can lure back those who tried Ploom TECH but stopped using it,” he said.

Reporting by Taiga Uranaka; Editing by Himani Sarkar

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