Is Japan The New Battleground For Tobacco Firms?

Many tobacco companies have come to acknowledge the growing importance of having reduced-risk products in their portfolio to attain long-term success. In this regard, Philip Morris International (NYSE:PM) launched its heat-not-burn technology device called iQOS in Nagoya Japan in November 2014. Since then, the product has been rolled out in over a dozen locations, including Italy and Switzerland. Japan can be considered as a key region for the company, as it is the only country where the national roll-out of the device has occurred. Now, rival British American Tobacco is also looking to launch its answer to the cigarette alternative in the island nation.

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Tremendous Growth Seen By iQOS In Japan

iQOS has witnessed phenomenal growth in Japan, since it was first launched, with its market share steadily climbing. During FY 2015, the iQOS launch was expanded in Japan to reach 60% of the adult smoking population, and the national roll-out was completed in the beginning of the second quarter. For the third quarter, the HeatSticks market share increased to 3.5%, an increase of 1.3 points, compared to the second quarter. Furthermore, the share in the last week of September, reached an estimated 4.3%, and an even higher 7.3% in Tokyo, despite limited expansion due to supply constraints. According to the latest data supplied by the company, the weekly market share increased to 4.9% in October. Moreover, the level of cannibalization has also come down, from 40% seen earlier, to 35% in the second quarter.

BAT Enters The Fray

In the beginning of November 2016, British American Tobacco (BAT) announced the launch of glo, a tobacco heating product, with a reduced risk potential. According to the company, the product delivers a “cleaner experience,” with around 90% less toxicants than a standard cigarette. The company has invested over $1 billion in the past five years on its development, involving more than 100 experts across five continents. Similar to the Marlboro Heatsticks used in the iQOS platform, BAT’s glo device heats Kent Neostiks, to approximately 240 degrees Celsius. The product will initially launch with three distinct flavors called Intensely Fresh, Fresh Mix, and Bright Tobacco. Japan will be the first launch market for the device, and it will be available in retail outlets in December.

Why Japan Is Considered Crucial

The main reason for the choice of Japan by BAT can be considered to be the success garnered by Philip Morris in the region. The latter has reached an almost 5% market share, which is even more impressive when the limited sale, given the supply constraints by the company, are taken into consideration. Japanese consumers can be considered as gadget-loving, and it will be the only country to have three heat-not-burn devices present in the market. BAT will play catch-up to Japan Tobacco’s Ploom TECH device, and besides Marlboro’s iQOS. BAT will use the traditional competitive tactics to eat into iQOS’s share. Glo will enter the market at a cheaper price than iQOS – a starter kit will sell for 8,000 yen ($77), about 20% cheaper than the rival iQOS device.

When Japan Tobacco first started selling its Ploom TECH device, in March of this year in Fukuoka Prefecture, shipments were suspended in about a week, as the demand far outstripped the supply. The company stated in September that it would expand the sales of the device to several cities in Japan by the end of 2017, and boost the production capacity by ten times next year. In addition to the relatively wealthy consumers, Japan also has strict regulations with regard to liquids containing nicotine. This has stunted the progress of e-cigarettes in the region, making it an ideal testing ground for this technology. iQOS’ first-mover advantage in the region may prove to be beneficial to the company in the long run, especially if it is able to replicate the success seen in the country, elsewhere in the world.

iQOS vs glo

Besides the aforementioned price difference, the two devices, despite being similar, do have some contrasting features. Like the iQOS system, the Neostik has to be inserted into the glo device, and turned on for it to start heating. However, unlike iQOS, which is a pen-shaped device, glo is more like a small box. While the former was made to be as small and slim as possible, the larger format of the latter can be attributed to the better battery life. For iQOS, a full charge is sufficient for just one heatstick, though it does come in a portable charging case, which can recharge the device on the go. According to BAT’s claims, a fully charged glo holds enough power to vape over 30 Neostiks. One advantage of launching first in Japan for BAT, can be the direct head-to-head competition it will face with iQOS, wherein the gamble it has taken on the extended battery life, can be proved to be a success or a failure. Another difference between the two devices is also the temperature at which it heats. iQOS heats at 350 degrees Celsius, while glo reaches 240 degrees Celsius. The lower temperature would mean fewer toxicants in the vapor; however, what effect it will have on the consumer experience remains to be seen.

Have more questions on Philip Morris? See the links below:

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