Japan Tobacco Rebrands Mild Seven To Compete With Marlboro

Japan Tobacco recently announced the re-branding of its flagship brand Mild Seven to Mevius in an attempt to gain international market share and take on the world’s best selling cigarette brand, Philip Morris’s (NYSE:PM) Marlboro.

Mild Seven holds the largest market share for premium cigarettes in Japan and is sold in 16 other countries, including Taiwan, South Korea and Russia. The brand had global shipment volumes of 76.5 billion units in 2011 compared to Marlboro’s 302 billion units. The re-branding would enable the company to sell cigarettes in new markets such as Canada and the EU, which have the potential to generate higher margins due to higher purchasing power.

Ironically though, Philip Morris is shifting its focus away from the EU to Asia due to changing regulations and trends in smoker demographics. It currently generates 19% and 48% of its total revenues from Asia and Europe, respectively. Based on our forecasts, around 36% of the company’s revenues will come from Asia and 23% from Europe by 2019.

The global tobacco industry is facing a hard time lately as a result of unfavorable litigation and a sharp decline in demand due to the growing awareness of the harmful effects of tobacco. The global market size of the tobacco industry is gradually trending downward, and tobacco companies are having to resort to price increases and aggressive market share gaining tactics to drive revenue growth. Further, the price increases have led the existing customer base to look for alternatives such as smokeless tobacco products, cigars and rolling tobacco.

We currently have a Trefis price estimate of $89 for Philip Morris, which is about 3% below the market price.

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