Overview of New Tobacco Products in 2018: The Data Speaks

In 2018, global tobacco control continued to advance, with slight growth in cigarette sales in emerging markets, but a continuous decline in cigarette sales in mature global markets. At the same time, new tobacco products experienced rapid growth, leading to more intense market competition, with multinational tobacco companies vigorously promoting product innovation and significant disparities in operating performance.

According to Euromonitor International, the number of consumers of new tobacco products exceeded 40 million in 2018, and is expected to grow to 64 million by 2022, potentially replacing about 4.6 million cartons of cigarettes;

Sales of new tobacco products reached $24.7 billion in 2018, a year-on-year increase of 45.8%, equivalent to the 9th largest cigarette market, approaching the annual sales of cut tobacco and cigars;
 
It is expected that by 2020, new tobacco products will become the second-largest category by sales after cigarettes.

Among them, e-cigarettes remain the largest category by sales, with sales of approximately $14.52 billion in 2018, a year-on-year increase of 27%, although the growth rate continues to slow;

Next are heated tobacco products represented by iQOS, with sales of approximately $10.2 billion in 2018, a year-on-year increase of about 100%, contributing the most to the sales growth.
 
In terms of subcategories, the fastest-growing segment is closed-system e-cigarettes, which are growing faster than heated tobacco products, mainly due to changes in the structure of e-cigarette categories in the U.S. market.

Heated Tobacco Products

By region, Japan remains the largest market for heated tobacco products, with sales of approximately $5.54 billion in 2018, a year-on-year increase of 8.5%, although the growth rate is gradually slowing;

South Korea is second, with sales of approximately $2.12 billion in 2018, showing the fastest growth;

Italy ranks third, with sales of approximately $220 million in 2018, showing a significant acceleration in recent growth.

Additionally, the growth rate in the Russian market exceeded expectations, with Romania, Greece, South Africa, and other regions also being major consumer markets.

New Markets Grow Rapidly, Old Markets Slow Down:

The growth momentum in the Japanese market has significantly slowed. According to Philip Morris International data, since the first half of 2018, the growth rate of heated tobacco products has been significantly lower than expected, mainly due to a slowdown in consumer conversion rates, with those yet to convert being more conservative and finding it difficult to switch;

The growth in the UK market is slow. Although the official attitude towards new tobacco products is relatively clear, the high prices of heated tobacco products and restrictions on advertising and promotions make development challenging;

The Italian market is also growing slowly. Although the country was one of the first regions to launch iQOS, heated tobacco products have not shown advantages in competition with e-cigarettes. Even with the tax burden on e-cigarettes, they still achieved high growth rates in the market;

The South Korean market is growing rapidly, benefiting from an environment similar to that of Japan and driven by a surge of products entering the market. In addition to several major multinational tobacco companies, South Korea's KT&G has also launched new products, and the subsequent large-scale marketing has accelerated the market penetration of heated tobacco products.

Despite a richer product offering and more intense competition, iQOS remains in a leading position. Following Philip Morris International's iQOS, British American Tobacco's Glo, Japan Tobacco International's Ploom Tech, Imperial Brands' Pulze, and KT&G's Lil have all joined the market competition.

To capture market share, British American Tobacco's Neocore has received FDA approval to launch in the U.S., but only as an equivalent product to Eclipse, not as a reduced-harm product. Eclipse was sold in the U.S. for a year but failed.

Pricing Differences:

The price of pods is comparable to mid-to-high-end cigarettes. For example, in the Japanese market in 2018, the iQOS and Ploom Tech compatible heating sticks were priced at 460 yen/pack (equivalent to premium cigarettes), while Glo compatible heating sticks were priced at 420 yen/pack (equivalent to mid-range cigarettes).

However, there are significant differences in the prices of heating devices. The iQOS device is priced at 10,980 yen/set, while Glo devices range from 4,980 to 16,880 yen/set, and Ploom Tech devices range from 3,240 to 7,980 yen/set. Due to the significantly lower tax burden on heated tobacco products compared to cigarettes, the Japanese government plans to raise the tax rate on heated tobacco products to about 80% of that of cigarettes over five years while increasing cigarette consumption taxes. The first phase of the tax increase was implemented in October 2018, and companies have accordingly raised product prices, with iQOS heating sticks increasing by 40-500 yen/pack, Glo heating sticks by 40-460 yen/pack, and Ploom Tech heating sticks by 30-490 yen/pack, but to maintain competitiveness, the price increases are all lower than those of cigarettes.

Regulatory Policies Are Uncertain:

Currently, countries like Russia, Ukraine, and Kazakhstan have introduced product standards for heated tobacco products, setting minimum requirements for device quality and safety;

In the EU, most countries require new product applications or market reviews to be submitted six months in advance. Philip Morris International submitted a reduced-harm product recognition application for Heets heating sticks in Italy, but it was rejected due to insufficient evidence;

The UK health department released a research report indicating that new tobacco products like iQOS used in experiments can significantly reduce health risks compared to traditional cigarettes.

Additionally, similar research reports have been released by relevant departments in Germany, the Netherlands, and South Korea. The New Zealand health department stated that e-cigarettes could contribute to the goal of a smoke-free 2025. The Wellington court in New Zealand ruled to allow Philip Morris International to sell iQOS in the country.

E-Cigarettes

The U.S. is the largest market for e-cigarette sales, with sales of $5.6 billion in 2018, a year-on-year increase of 20.5%. The UK market follows, with sales of $2.43 billion, a year-on-year increase of 36.6%. Italy, Germany, and France are also major e-cigarette consumption countries.

The U.S. e-cigarette market has undergone significant changes, with closed-system e-cigarettes represented by Juul rising to prominence. In 2016, the U.S. e-cigarette market was dominated by Reynolds American's Vuse (33.6%), Imperial Brands' Blu (23.6%), Japan Tobacco International's Logic (14.5%), and Philip Morris USA's MarkTen (5.9%). However, according to Juul's reports, by 2018, Juul e-cigarettes surpassed Vuse to become the largest brand in the U.S. market.

Juul is a closed-system e-cigarette, compact and portable, resembling an elongated USB drive. When it was launched in 2015, it was during a period of rapid development for open-system e-cigarettes and was not considered part of the mainstream e-cigarette category. However, Juul's significant difference lies in its innovative e-liquid formulation and matching vaporizer system, achieving a high degree of simulation of the taste of traditional cigarettes. Its tobacco material is liquid nicotine based on nicotine salts rather than the freebase nicotine found in traditional e-cigarettes, and it includes organic acids to lower the pH of the vapor, reduce vaporization temperature, and make the vapor smoother on inhalation, alleviating throat irritation. Juul also employs airflow sensing technology, allowing it to be inhaled without a switch and charged by plugging it into a computer. Juul's rapid development highlights the importance of innovation.

Currently, new tobacco products are rapidly evolving, with many products offering richer flavors, simpler usage, greater portability, stronger battery life, and faster charging. Juul's rapid growth has changed the product type landscape, with the once-fastest-growing open-system e-cigarettes dropping to a 36% share in 2018, down from 68% in 2014.

At present, nearly 40 countries and regions worldwide have banned the sale of e-cigarettes, including Canada, Brazil, India, Japan, Argentina, Austria, Belgium, Thailand, Lebanon, Cambodia, Vietnam, Egypt, and Hong Kong. Some EU countries have banned online sales of e-cigarettes to prevent youth from using them.