Heated Tobacco Products

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PMI: IQOS ILUMA i (March 2024)

Marking the 10-Year anniversary of IQOS (first launched in Nagoya, Japan in Nov 2014), Philip Morris International (PMI) launches IQOS ILUMA i-series (the next generation of ILUMA devices) in Japan. ILUMA i comes with a new design and advanced features:

– Touchscreen: Allowing users to view the use-related information easily

– Pause Mode: Allows users to pause and resume their use by swiping up or down on the touch screen (addressing the worry about wasting a stick). Only available in Performance Mode, during the first 3 minutes or 8 puffs of use. When Pause is activated, Performance Mode offers up to two consecutive uses and Pause is available only for one of them

– FlexPuff: Adaptive to use patterns. FlexPuff activation and number of puffs depend on individual use, thus extra puffs don’t not apply in all cases. FlexPuff does not activate when Pause is used

– FlexBattery: Longer lifespan for the holder’s battery. Only when fully used on Eco Mode throughout the lifespan of the holder.

ILUMA i One (all-in-one design) is also equipped with the Auto-start and FlexPuff features inherited from its IQOS ILUMA i-series counterparts. ILUMA Prime i retails at ¥9,980 ($67.5), ILUMA i at ¥6,980 ($47) and ILUMA One i ¥3,980 ($27). IQOS device prices in Japan are significantly lower than elsewhere due to the intense competition for customer acquisition / retention.

Altria: CAGNY Conference (Feburary 2024)

Altria estimates heated tobacco to make up ~5% of the US nicotine space over the long term (against PMI’s aspiration to capture 10% of the cigarette market within 5 years after IQOS ILUMA launch) and provides update on the product pipeline under development:

– PMTA filing for Ploom (through JV with Japan Tobacco) is expected in H1 2025 and MRTP application is expected later in 2025. Altria believes Marlboro-branded heatsticks will offer an approachable and familiar heated tobacco proposition to the otherwise hesitant US smokers

– Heated tobacco capsule product, SWIC, is an attractive offer for the smokers interested in innovative heated tobacco products that don’t have the visual cues of cigarettes. Altria’s consumer research (home use test) shows that SWIC’s nicotine satisfaction and product design outperforms both IQOS3 and glo. Altria intends to test SWIC internationally using a similar approach as on! PLUS.

PMI: CAGNY Conference (Feburary 2024)

PMI claims that there is no slow-down in consumer momentum for the heated tobacco category and the 2024 in-market sales growth will be at a similar level as 2022-23.

Specifically, in Japan, heated tobacco reaches 40% share in the total tobacco market in Q4 2023 (i.e. 37.9% in FY23). PMI outpaces the category growth in FY23 (i.e. 14% in-market sales increase), thanks to the performance of IQOS ILUMA, and increases its segment share from 69.2% (FY22) to 70.5% (FY23). In January 2024, heated tobacco (50.4%) overtakes cigarette (49.6%) in monthly consumer off-take in Tokyo for the first time.

Apart from repeating the traditional statements on “key cities leading the way for national share growth over time” and “IQOS could be successful in emerging markets”, PMI explains its strategy for the low & middle-income markets: establish IQOS ILUMA as the reference premium offer (similar to Marlboro for cigarettes) to build the brand equity and expand the portfolio to different price points through lil and Bonds to capture the full volume potential.

BAT: glo Hyper Pro launch (January 2024)

BAT launches a new version of its tobacco heating device from its glo range, Hyper Pro, which offers new HeatBoost technology (for better taste satisfaction compared to glo Hyper X2 in Standard mode) and features new EasyView screen (displaying performance settings and information)1. The glo Hyper Pro device is lightweight, pocket-sized and comes with performance improvements. The charging time is reduced to ~90 minutes for Hyper Pro (vs. 210 minutes for Hyper X2 and 120 minutes for Hyper Air). Once charged, the device lasts all day and consumers can expect to use the device for 20 sessions in total.

The wider glo range is available in over 20 markets. The glo Hyper Pro device is launched in Japan, Italy and Poland, with further global market roll-outs planned during 2024.

Recall: In H1 2023, BAT reported a (relatively) muted growth in the heated tobacco category due to the share losses in the largest & most competitive markets (Japan, Italy and S. Korea). BAT is trying to strengthen its heated tobacco portfolio in order to reverse the share losses. For further information: BAT – Interim Business Update: Preview.

Taxation of heatsticks with no tobacco (December 2023)

At the 2023 Investor Day, PMI disclosed its intention to proactively engage with the authorities to set a tax for non-tobacco heatsticks even if it could be assumed that the product (PMI: LEVIA, BAT: veo, Imperial Brands: iSenzia) can be launched without an excise tax obligation as it does not fit into any existing (excisable product) categories.

In the revised tax bill2, Greece specifies a new category called “smoke-free electrically heated product” in addition to the already existing “electrically heated tobacco product” category. The new category is defined as a manufactured product, which does not contain tobacco, is intended to be inhaled by means of a heating process rather than combustion and contains nicotine (or nicotine substrate) and other nicotine-free substances (or other substances), in solid form, excluding products intended for medical and pharmaceutical use. Both categories are subject to an excise duty of €156.7 per kilogram.

Moreover, “nicotine pouches” are also defined as a new excisable product category: a manufactured product, which does not contain tobacco, is intended to be taken orally, without inhalation and without a heating or combustion process, and which contains nicotine (or nicotine substrate) and other substances, in solid form, excluding products intended for medical and pharmaceutical use. Nicotine pouches are subject to an excise duty of €50 per kilogram. The standard VAT rate in Greece is 24%.

PMI: Morgan Stanley Global Consumer & Retail Conference (December 2023)

PMI provides an update on the IQOS growth outlook and commercial plans:

– High-end of the 180-200Bn target is reachable by 2026 if some key markets allow heated tobacco (note: our “Heated Tobacco Market: 2023-2030” report offers expert assessments and fact-based/granular growth projections prepared by the people in the know)

– IQOS ILUMA is already present in all major heated tobacco markets, except Russia (target: 50 markets at the end of 2023)

– Heated tobacco is now ~40% of the Japanese market and IQOS is gaining share in a highly competitive environment and despite being retailed at 30%-40% premium to the competition

– LEVIA (tobacco-free heatstick) is now available in Czechia

– PMI expects an acceleration in user acquisition in Q4 2023 (in comparison to 200k in Q3 2023)

– No additional disclosures are made about the IQOS launch in the US (Recall: IQOS: The US launch)

– BONDS is available in the Philippines and Colombia as a “good enough” heated tobacco product at a much cheaper price (a global strategy to be drafted based on the launch results and to be shared in 2024)

One notable change: PMI now defines LEVIA as a nicotine substrate in proxy to e-cigarettes (i.e. an electronic nicotine delivery system with no tobacco) or nicotine pouches (i.e. a traditional product being retooled to contain no tobacco).

Imperial Brands: iSenzia (November 2023)

Imperial Brands follows BAT (veo for glo) and PMI (Levia for IQOS ILUMA), launching iSenzia (for Pulze 2.0) – a flavored heatstick with no tobacco. iSenzia (referred as “herbal-tea based nicotine consumables”) is available in 5 flavors: Peach, Watermelon, Forest Berry, Lemon and Menthol. iSenzia sticks retail at 105Kč (€4.3) in Czechia – with a “buy 10, pay 7” promotion.

PMI: IQOS ILUMA roll-out (November 2023)

At the end of Q3 2023, IQOS ILUMA was present in 27 markets which represent ~75% of PMI’s IQOS business by volume. With additional 6 launches, the number of markets reached 33 at the of October 2023. In November, PMI launched IQOS ILUMA in Malaysia, Saudi Arabia, Kuwait, Bahrain and Canada3 (available only in select stores and only with four tobacco flavors) in a pursuit to reach around 50 markets by the end of 2023 and complete the roll-out next year. Considering that IQOS is sold in close to 80 markets, IQOS ILUMA will still not be available in more than 25 markets at the of 2023 (presumably, mostly low-/middle- income markets).

IQOS ILUMA is first launched in August 2021 in Japan. The global IQOS ILUMA roll-out is now set to take about 3 years as the commercialization process has been slowed down the global chip shortage. IQOS ILUMA works with TEREA, SENTIA and LEVIA heatsticks. In markets where ILUMA trademark is not available, PMI introduces IQOS ILUMA as IQOS SMARTCORE INDUCTION SYSTEM.

Japan Tobacco: Ploom X Advanced launch in Japan (October 2023)

JT will launch Ploom X Advanced in Japan4 in c-stores and tobacco shops as of Nov 21, 2023. The product will be available for pre-sale online from Oct 31, 2023. Recommended RSP is ¥1,980 ($13.3). The sales of “Ploom X” will be discontinued in Japan after Nov 20, 2023.

Selling propositions of Ploom X Advanced are:

– delivers a temperature of up to 320°C and consistently maintains the ideal heat level (“Power Heatflow” technology) => consistent tobacco taste experience from the initial puff to the final draw

– automatic heating function initiates the heating process upon stick insertion

– battery sustains ~20 sticks before recharging (now takes only 90 minutes)

– unique compact design

BAT: veo launches (October 2023)

BAT continues with the market expansion of veo sticks5. After its launch in the Czech Republic, veo is now available in Germany (Sept 2023) and Italy (Oct 2023). veo is a tobacco-free heatstick compatible with the glo device (similar to the PMI’s Levia). veo sticks are made from a reconstituted rooibos leaf that is infused with highly pure nicotine and flavors during the manufacturing process. Note: Rooibos is a plant that is commonly consumed as a caffeine-free herbal tea.

veo sticks retail at €5.8 in Germany, €3.80 in Italy and 95Kč (€3.88) in Czechia. As BAT is forced to remove the flavored neo sticks from the EU markets (due to the EU ban on flavored heated tobacco products), they are launching “regulatory compliant” veo sticks as a workaround/replacement.

BAT’s (low) heatstick pricing in Italy underlines the franchise’s troubles in Europe’s largest heated tobacco market: glo’s category share is down to 12.3% in H1 2022 from 14.5% in FY22 (-2.2pp).

IQOS: ILUMA launch in the Philippines (October 2023)

Philip Morris Fortune Tobacco (PMFTC; a 50/50 JV between Philippines’ LT Group and PMI) launches IQOS ILUMA in the Philippines6. IQOS 3 and BONDS by IQOS (a more affordable HnB device; resistive external heating with no blade) are already available in the Philippines and PMFTC earlier reported that about 75,000 Filipino smokers have switched to IQOS since the product was first introduced 3 years ago. PMFTC also expects to launch ZYN in the Philippines soon.

PMFTC owns 62% SoM in the Philippines market. However, the legal cigarette sales volume in the Philippines halved to 52Bn sticks in 2022 from over the past decade (109Bn sticks in 2012) as the sale of cheaper smuggled cigarettes boomed following the massive excise taxes hikes.

IQOS: New Heated Tobacco products (September 2023)

At the 2023 Investor Day, PMI introduced two new lines of heated tobacco products:

Levia: An IQOS consumable (with nicotine, but) without tobacco. Exclusive to IQOS Iluma. Vivid & satisfying taste with pleasurable aromas

Terea Crafted: Botanicals enhanced tobacco taste. Natural ingredients & natural sensations (i.e. no artificial flavors): rosemary & menthol, star anise, clove. Rich taste, distinctive experience.

These new product lines are strategically important as

– Levia could eliminate/reduce the regulatory (e.g. flavor bans) and fiscal (e.g. taxation) disadvantages associated to a tobacco containing product

– Terea Crafted could allow PMI to offer a naturally flavored heated tobacco product despite a flavor ban (- if the regulatory definition only refers to the synthetic added flavors). Clove heatsticks also fill an important portfolio gap for the critical Indonesian market.

PMI also confirmed that their latest & greatest IQOS system, IQOS Iluma…

– improves Net Promoter Score & Conversion (step change in consumer experience)

– accelerates share growth (driving double digit growth in launch markets)

– offers higher product reliability

– lowers customer complaints and service costs.

This is in line with our own assessment and market (real-life) observations.

Ploom X: Market Expansion (September 2023)

Japan Tobacco (JT) speeds up the international expansion of Ploom X and announces Romania as the 10th launch country7. The product will be available in select points of sales in Bucharest, as well as on www.ploom.ro. Ploom X is now available Japan, the United Kingdom, Italy, Portugal, Czech Republic, Lithuania, Switzerland, Poland, Hungary and Romania.

JT plans to invest more than JPY300Bn in RRPs globally, mainly in the heated tobacco category, between 2023 and 2025 to support its ambitious geographic expansion.

Ploom X Advanced (September 2023)

JT launches Ploom X Advanced, an upgraded version of Ploom X, in the UK8 and Switzerland. The Advanced version brings two improvements: (1) optimized HeatFlow system, offering higher vapour volume during initial puffs; (2) faster charging (<90 minutes for full charge). Ploom heat sticks (“Evo”) retails at £4.5 per pack in the UK. A £19 bundle offer (Ploom X Advanced plus two packs of Evo) is available at retailers within the Greater London area and online.

with (July 2023)

JT launches a new infused tobacco vapor device, “with 2” in Japan9
– to be available on-line for pre-sales as of Aug 7 and to be sold at retail as of Sept 5

– features JT’s infused technology which generates vapor while an atomized liquid passes through a capsule containing granulated tobacco (tobacco leaves are not directly heated)

– No waiting time, almost no tobacco smoke smell

-Dual mode: High (150 puffs per 5 capsules), Normal (250 puffs per 5 capsules). The high mode produces 1.3 times more vapor than the normal mode, delivering a more intense flavor experience

– RSP: ¥1,980 ($14) for device, ¥580 ($4.1) for Mevius consumables

Imperial Brands: Pulze 2.0 (Feburary 2023)

Imperial launches the first all-new upgrade of Pulze heated tobacco device10

– compact design with more than 25 sessions from a single charge

– iD sticks now available in 10 different flavors

– initially available in 4 markets: Italy, Poland, Czechia, Greece

KT&G: Lil Aible (November 2022)

KT&G unveiled its series of new HnB devices, Lil Aible, equipped with AI11

3 Smart AIs

– Preheating AI: heating the device to an optimal temp

– Puff AI: calculating the remaining # of puffs

– Charging AI: measuring battery percentage

The Premium version of Lil Aible, comes with an OLED touchscreen and an exclusive mobile app that connects to the device

Once connected to the app, the user can receive calls and check their messages/calendar schedule and the weather on their HnB device

References:

  1. British American Tobacco – BAT launches Hyper Pro, its most innovative glo device yet ↩︎
  2. Tax bill: Imposition of excise duty on non-tobacco products | Proson ↩︎
  3. Rothmans, Benson & Hedges Launches New Smoke-Free Heated Tobacco Product in Push to Lead Smoking Harm Reduction (newswire.ca) ↩︎
  4. https://www.jt.com/media/news/2023/pdf/20231030_E01.pdf ↩︎
  5. https://www.presseportal.de/pm/12459/5602811 ↩︎
  6. PMFTC expects more smokers to abandon cigarettes through latest IQOS technology • BMPlus (businessmirror.com.ph) ↩︎
  7. JTI launches Ploom X in Romania – Business Review ↩︎
  8. https://www.betterretailing.com/br/product-news/jti-launches-ploom-x-advanced ↩︎
  9. https://www.jt.com/media/news/2023/pdf/20230727_E01.pdf ↩︎
  10. https://www.imperialbrandsplc.com/media/key-announcements/2023/imperial-accelerates-innovation-with-launch-of-pulze-2-0-heated- ↩︎
  11. https://www.koreaherald.com/view.php?ud=20221109000576 ↩︎

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