South Korea: Trends for Cigarettes and the Impact of E-Cigarettes
By Vin Ne Foo, Research Analyst at Euromonitor International
South Korea has the second highest cigarette per capita consumption in Asia Pacific after China, at 1,430 sticks per person. The country’s male smoking prevalence is 39%, which is among the top five highest in developed countries globally.
For global players like Philip Morris International, British American Tobacco, and Japan Tobacco, South Korea is a lucrative market which sits amongst its top five Asia Pacific markets in terms of volume contribution.
Cigarettes decline amidst rising health awareness
Sales are suffering though; volume sales continue to decline in the wake of rising health awareness and government led anti-smoking initiatives. The South Korean government has identified smoking as the “biggest threat to national health” in view of high smoking prevalence and aims to lower the nation’s smoking rate.
A variety of measures have been taken in recent times to curb tobacco usage, such as steep hikes in cigarette prices, smoking bans in restaurants, bars, and cafés, and the introduction of graphic warnings on cigarette packaging. While smoking prevalence remains high, consumers have shown a rising preference for low-tar cigarettes. More than 90% of cigarettes consumed in South Korea are low and ultra-low tar, unlike other markets in Asia Pacific except Japan, a clear indication of consumers’ willingness to adopt what they perceive as less harmful alternatives, despite their reluctance to drop the habit.
Rise and fall of vapor products
Prior to 2016, vapor products were the solution to this predicament. During the fourth quarter of 2014, following the announcement that taxation on cigarettes was set to increase by 120%, sales of vapor products surged and grew by 337% in retail value sales, as consumers rapidly switched to more affordable and less harmful alternatives.
Prior to legislation banning the use of advertisements claiming that vapor devices can be used as a smoking cessation aid, many manufacturers and retailers marketed their products as that – a device to help users quit smoking. Nicotine free e-liquids and the option to vary the nicotine content of the device made the products extremely popular amid rising health concerns.
Adding to this, manufacturers often stress that unlike traditional tobacco products, vapor products are not harmful to others around them, making it convenient to use in public. This prompted further growth in demand as the legislation banning smoking in public space expanded further.
In 2016, however, consumers began to question the safety of vapor devices following numerous accounts of serious injuries caused by exploding vapour devices. The effectiveness of vapor products as a smoking cessation aid was also brought into question when the South Korean government announced that a study conducted by the Ministry of Health and Welfare found that 30 of 105 varieties of e-cigarettes examined had a nicotine concentration of 1.18-6.35g per cubic m, which is twice the nicotine content of regular cigarettes.
The government believes that the use of vapor devices, whether containing nicotine or not, is at least as harmful as smoking cigarettes and the category therefore does not aid smoking cessation and cannot be considered a harmless tobacco product. With existing devices no longer able to convince consumers to turn to them for a safe and less harmful alternative to cigarettes, the category saw a 68% decline in retail value sales in 2016.
Vapor products: hot prospect for tobacco giants?
With reliable vapor products in short supply, tobacco giants may now find themselves in a better position than ever before to gain share. Leading tobacco player, Japan Tobacco is already present in the category through its brand Ploom and Logic Pro. In May 2017, tobacco market leader, Philip Morris also announced its entry into the category through the launch of iQOS, a heated tobacco product which produces a nicotine vapor by heating tobacco leaves known as Heets.
It is positioned as a less harmful alternative to cigarettes based on the fact that it heats the tobacco instead of burning it. Following the success of iQOS in Japan, the product will now be available for sale in South Korea from 27 May. Phillip Morris claims to have invested billions in order to meet the demand for alternatives to tobacco cigarettes.
In South Korea, where vapor products are taxed differently from combustible counterparts, heated tobacco products such as iQOS will be taxed at a lower rate than cigarettes. In fact, Phillip Morris has announced that a pack of Heets with 20 sticks will be sold at KRW4,300 (US$3.75), an average of KRW200 lower than leading cigarette brands like Esse, Dunhill, and Marlboro.
The clampdown on cigarettes will continue to drive consumers towards suitable alternatives. Consumer concerns regarding local and Chinese-made vapor products present a lucrative opportunity for reputable tobacco companies with established portfolios in vapor products, placing these companies in a better position to weather the decline in cigarettes.