South Korea: Tobacco Market

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June 2024

KT&G discontinues the micro-slim “ESSE Change Icefall” cigarettes that were launched in March 2023. Manufactured with the proprietary odor reduction technology, ESSE Change Icefall contains 29.9% “Ice Leaf”‘ (i.e. a leaf tobacco that is freeze-dried at -78.5°C). It is also the thinnest cigarette sold in South Korea, with a diameter of 4.7mm. The ESSE Change Icefall was the third micro-slim added to the ESSE lineup after the ESSE Change Lean (2017) and ESSE Change Gram (2021). KT&G’s discontinuation decision aims to streamline the portfolio in the declining combustible segment and direct the resources towards the growing heated tobacco segment.

All across the world, tobacco majors are shifting their innovation and commercial investments from traditional to next generation products. The global market leader, Philip Morris International, allocated 99% of its R&D expenditure and 74% of its marketing spending in smoke-free products in 2023.

January 2024

Total cigarette sales in South Korea inched down in 2023 for the first time in four years as the heated tobacco growth failed to compensate for the decline in traditional cigarette volume1. South Koreans purchased 3.61Bn packs (72.2Bn sticks) in 2023: down -0.6% from 3.63Bn packs (72.6Bn sticks) in 2022.

Traditional cigarette volume fell 2.8% to 3Bn packs in 2023, heated tobacco volume increased 12.6% to 610Mn packs. The weight of heated tobacco in total sales is up to 16.9% in 2023 from 2.2% in 2017, 10.5% in 2019 and 12.4% in 2021.

Duty-free sales surged 60.7% to 140Mn packs (2.8Bn sticks) in 2023 in line with the growth in the number of tourists. All together, tobacco sales went up +0.8% to 3.74 billion packs in 2023, marking the second consecutive year of growth.

In an effort to reduce smoking, the government raised the price of cigarettes by 80% in January 2015 from ₩2,500 per pack to ₩4,500. In 2021, the Ministry of Health announced a plan to raise the price further to around ₩8,000 won over the next decade.

Feburary 2023

South Korea is the world’s fourth largest Heat-not-Burn (HnB) market, after Japan, Russia and Italy. And, it is turning into the second most HnB competitive market (after Japan) as the largest tobacco companies are rushing to launch their latest & greatest products and to deploy the newest improvements in their commercial toolbox there.

In Feburary 2023, PMI introduced its latest heat-not-burn product, IQOS Iluma One, in South Korea2 as part of its efforts to surpass KT&G and reclaim its No 1 spot in the growing RRP market.

Also, in Feburary 2023, BAT launches Glo Hyper X2 in South Korea to take on KT&G and PMI3:

– to be available on Feb 27 in Korea in c-stores and online (first launch: July 2022 in Japan)

– RSP: ₩40k ($31.6)

– Cheaper than the competition, but two times the price in Japan

Recall: South Korea is the only HNB market where PMI is not the market leader with its IQOS product. The former South Korean tobacco monopoly, KT&G (65% SoS in conventional cigarettes) leads with HnB segment with its lil product.

Meanwhile, in January 2023, PMI announced the agreement to extend and deepen collaboration with KT&G to commercialize KT&G’s RRPs outside South Korea4:

– 15 years

– Performance-review cycles and volume commitments for each three-year period

– Commitment for the first 3-year period equivalent to 16Bn consumables.

References:

  1. https://en.yna.co.kr/view/AEN20240131003800320 ↩︎
  2. https://www.koreatimes.co.kr/www/tech/2023/02/129_345076.html ↩︎
  3. https://koreaherald.com/view.php?ud=20230214000696 ↩︎
  4. https://businesswire.com/news/home/20230127005442/en/Philip-Morris-International-Inc.-PMI-Announces-Agreement-to-Extend-and-Deepen-Collaboration-With-KTG ↩︎

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