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BAT Takes On Philip Morris In Japan With New Tobacco Device

Published on Nov 8 2016 12:30 PM in A-Brands tagged: Trending Posts / BAT / Japan Tobacco / iQos / Glo

BAT Takes On Philip Morris In Japan With New Tobacco Device

British American Tobacco Plc will begin selling its heated tobacco product Glo in Japan next month, ratcheting up competition in the country that’s become the foremost battleground for next-generation cigarettes.

Glo, a silver device that resembles an iPod and heats tobacco without burning it, will go on sale in around 600 stores in Sendai, a city in the north of Japan, London-based BAT said in a statement Tuesday. A starter kit will sell for 8,000 yen ($77), about 20 percent cheaper than Philip Morris International Inc.’s rival iQOS device.

“Japanese consumers are always hungry for innovation and we want to be the number one in the Japanese market,” Donato Del Vecchio, a spokesman for BAT’s next-generation products, said by phone.

Gadget-loving Japan -- the world’s fifth biggest tobacco market -- is the only country to have three heat-not-burn smoking alternatives on the market. There, BAT will play catch-up with Japan Tobacco Inc. and Marlboro maker Philip Morris, who have been the pacesetters.

With smoking on the decline around the world, tobacco companies are in a race to come up with safer products to feed nicotine addiction, even as the $770 billion industry leans on old-fashioned cigarettes to sustain profit. Philip Morris, which has been outspending BAT on such research, has already grabbed 5 percent of the Japanese cigarette market with iQOS since the device became available nationwide a year ago.

Supply Issues

When Japan Tobacco started selling Ploom Tech, another alternative product using vapor and granulated tobacco in a capsule, in March this year in Fukuoka Prefecture, shipments were suspended in about a week as demand outstripped supply. The Tokyo-based company said in September it will expand sales of Ploom Tech to several major Japanese cities in early 2017, and boost production capacity of the capsules by ten times next year.

“Of course we are learning from the supply issue that some of our competitors face,” said Roberta Palazzetti, president of BAT Japan, in a briefing held in Tokyo Tuesday. “We are not expecting to have a capacity issue -- we have enough capacity to cover the Japanese market.”

Japan Tobacco shares, which have slumped 12 percent this year through Monday, rose as much as 2.2 percent in Tokyo trading Tuesday. BAT shares rose 0.6 percent by the close of trading in London on Monday, and are up by 21 percent this year.

In addition to relatively wealthy consumers, Japan has strict regulations on liquids containing nicotine, limiting competition from e-cigarettes. That makes the country an ideal testing ground for heated tobacco devices.

“If iQOS can replicate the demand it’s seen in Japan elsewhere, then it will really lock in first-mover advantage,” said Euromonitor analyst Shane MacGuill. “That could be a significant problem for BAT.”

A pack of twenty so-called Neostiks -- tubes of reconstituted tobacco which users insert into the Glo device -- will retail at 420 yen. That’s on a par with a pack of regular cigarettes sold under BAT’s Kent brand.

Once activated, the Glo device heats the Neostiks to about 240 Celsius. They last roughly the same amount of time as a standard cigarette. By avoiding combustion, Glo produces 90 percent fewer toxicants than cigarettes, though that doesn’t necessarily make them safer, BAT said.

For a QuickTake analysis on the war on smoking, click here.

The launch of Glo comes as the board of Reynolds American Inc. reviews BAT’s $47 billion takeover bid, which is partly predicated on strengthening the companies’ alliance to develop next-generation smokes.

Japan Tobacco is the market leader for cigarettes in its home country, with about 60 percent share. BAT, which said it has a 13 percent share in Japan, plans to later sell the Glo device across the country, and then expand to other markets.

“Our goal is to become the undisputed market leader in the next generation product category in the world,” said Palazzetti. “We have offered more choices to consumers in the past to make it happen. And we are doing exactly the same in Japan.”

News by Bloomberg, edited by ESM. To subscribe to ESM: The European Supermarket Magazine, click here.

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