Japan Leads the Heated Tobacco Market, and China Tobacco May Become the Domestic Leader
Tobacco giants are rapidly expanding into heated tobacco products. In 2017, sales of heated tobacco products were about US$5 billion, and by 2021 they are expected to exceed US$15 billion, approaching the sales of e-liquid e-cigarettes and accounting for
Tobacco giants are actively investing in heated tobacco products. In 2017, the sales of heated tobacco products reached approximately $5 billion, and it is expected to exceed $15 billion by 2021, nearing the sales of e-liquids, accounting for about 45% of the total sales of new tobacco products. Multinational tobacco companies such as Philip Morris International, British American Tobacco, and Japan Tobacco are all entering the heated tobacco market, with Philip Morris's IQOS series holding a dominant position, capturing 10.8% of the heated stick market.
The development of e-cigarettes still relies on CMF (Color, Material, Finish) and the mutual support of the entire industry chain. The CMF design team has established a technical communication group for the e-cigarette industry chain, currently gathering professionals from upstream and downstream companies such as IVP, IQOS, RELX, Shanzhan Technology, Xinyikang, Sigelei, Waterdrop, Micvail, Green Yunda, Heyuan Technology, Zhuoyue, Jirui Technology, Foxconn, Wentai, and Flex, specifically for industry exchanges on materials, processes, and development trends.
Long press the QR code below to register your information and add the group owner's WeChat 13713875667, with the note "e-cigarette" to communicate with professionals!
Chart: Major tobacco giants entering the heated tobacco market
Japan's heated tobacco market is the largest. In 2017, the sales of heated tobacco products in Japan reached approximately $4.7 billion, accounting for over 90% of the total sales of heated tobacco products. Philip Morris's IQOS series holds a dominant position, with a market share of 10.8%. By the end of 2017, IQOS had a market share of 5.5% in South Korea. Outside of Japan and South Korea, the market share of heated tobacco products in European countries is around 2%.
Philip Morris's IQOS products are undergoing FDA certification. In August 2017, the FDA completed its preliminary review of Philip Morris and accepted the substantial review application, submitting the final report to the FDA in the second quarter of 2018. The United States is the largest e-cigarette market globally, and passing certification will have a significant impact on the industry and Philip Morris.
Currently, there are no regulatory measures for e-cigarettes in China, but the sale of IQOS products is banned. According to the "Implementation Regulations of the Tobacco Monopoly Law," enterprises or individuals with a tobacco monopoly retail license must purchase from local tobacco monopoly wholesale enterprises and accept supervision and management from the issuing authority of the tobacco monopoly license. IQOS is not sourced from tobacco companies, and even licensed retailers cannot sell this type of new cigarette.
Comparing with traditional tobacco companies abroad, China Tobacco is expected to become the domestic leader in e-cigarettes.
Traditional tobacco companies have significant advantages in e-liquid technology, sales channels, and brand influence, with their related e-cigarette products showing significant growth. Currently, domestic e-cigarette policies are relatively unclear. If e-cigarette regulations become clearer in China, similar to traditional tobacco giants abroad, we believe that China National Tobacco Corporation is likely to become the leader in the domestic e-cigarette market.
1) The domestic tobacco monopoly system is implemented. The "Tobacco Monopoly Law of the People's Republic of China" establishes the tobacco monopoly system through national legislation. The current monopoly model in the tobacco industry is that the state implements monopoly management over the production, sales, and import/export of tobacco monopoly products according to law and implements a tobacco monopoly license system.
2) China Tobacco has accumulated e-cigarette R&D technology. China Tobacco is advancing the R&D and innovation of e-cigarettes and heated tobacco products, with certain accumulations in e-liquid technology. The national standard for e-cigarettes has been approved by the National Standardization Administration, which helps establish industry standards and regulate industry products.
3) China Tobacco has channel and brand influence to promote and increase the penetration rate of e-cigarettes. China Tobacco has strong brand influence and channels; if e-cigarettes are promoted, their penetration rate will significantly increase, enhancing recognition and demand for e-cigarette products. The domestic e-cigarette industry chain is expected to extend to e-liquids and pods. The core of e-liquid e-cigarettes lies in the e-liquid. The core difference in e-liquid e-cigarettes lies in the e-liquid segment, whether in terms of raw materials, flavoring, food safety levels, or overall factors such as taste, vapor volume, and discomfort. Imported e-liquids have a significant competitive advantage. Although 90% of e-cigarettes are produced domestically, the vast majority of e-liquids rely on imports, and the formula and taste of e-liquids determine user experience.
The core of heated tobacco e-cigarettes lies in the pods. Heated tobacco e-cigarettes, represented by IQOS, have their main profit point in the pods. The biggest advantage of IQOS lies in the temperature control of the heating element and pod technology, where the flavor and aroma of the pods determine user experience. E-liquids and pods are consumables that users purchase frequently, representing the highest value in the entire industry chain. In the future, e-cigarette manufacturers should increase R&D in e-liquids and pods, launching e-liquids and pods that cater to smokers' preferences.
The development of e-cigarettes still relies on CMF (Color, Material, Finish) and the mutual support of the entire industry chain. The CMF design team has established a technical communication group for the e-cigarette industry chain, currently gathering professionals from upstream and downstream companies such as IVP, IQOS, RELX, Shanzhan Technology, Xinyikang, Sigelei, Waterdrop, Micvail, Green Yunda, Heyuan Technology, Zhuoyue, Jirui Technology, Foxconn, Wentai, and Flex, specifically for industry exchanges on materials, processes, and development trends.
Long press the QR code below to register your information and add the group owner's WeChat 13713875667, with the note "e-cigarette" to communicate with professionals!
Chart: Major tobacco giants entering the heated tobacco marketJapan's heated tobacco market is the largest. In 2017, the sales of heated tobacco products in Japan reached approximately $4.7 billion, accounting for over 90% of the total sales of heated tobacco products. Philip Morris's IQOS series holds a dominant position, with a market share of 10.8%. By the end of 2017, IQOS had a market share of 5.5% in South Korea. Outside of Japan and South Korea, the market share of heated tobacco products in European countries is around 2%.
Philip Morris's IQOS products are undergoing FDA certification. In August 2017, the FDA completed its preliminary review of Philip Morris and accepted the substantial review application, submitting the final report to the FDA in the second quarter of 2018. The United States is the largest e-cigarette market globally, and passing certification will have a significant impact on the industry and Philip Morris.
Currently, there are no regulatory measures for e-cigarettes in China, but the sale of IQOS products is banned. According to the "Implementation Regulations of the Tobacco Monopoly Law," enterprises or individuals with a tobacco monopoly retail license must purchase from local tobacco monopoly wholesale enterprises and accept supervision and management from the issuing authority of the tobacco monopoly license. IQOS is not sourced from tobacco companies, and even licensed retailers cannot sell this type of new cigarette.
Comparing with traditional tobacco companies abroad, China Tobacco is expected to become the domestic leader in e-cigarettes.
Traditional tobacco companies have significant advantages in e-liquid technology, sales channels, and brand influence, with their related e-cigarette products showing significant growth. Currently, domestic e-cigarette policies are relatively unclear. If e-cigarette regulations become clearer in China, similar to traditional tobacco giants abroad, we believe that China National Tobacco Corporation is likely to become the leader in the domestic e-cigarette market.1) The domestic tobacco monopoly system is implemented. The "Tobacco Monopoly Law of the People's Republic of China" establishes the tobacco monopoly system through national legislation. The current monopoly model in the tobacco industry is that the state implements monopoly management over the production, sales, and import/export of tobacco monopoly products according to law and implements a tobacco monopoly license system.
2) China Tobacco has accumulated e-cigarette R&D technology. China Tobacco is advancing the R&D and innovation of e-cigarettes and heated tobacco products, with certain accumulations in e-liquid technology. The national standard for e-cigarettes has been approved by the National Standardization Administration, which helps establish industry standards and regulate industry products.
3) China Tobacco has channel and brand influence to promote and increase the penetration rate of e-cigarettes. China Tobacco has strong brand influence and channels; if e-cigarettes are promoted, their penetration rate will significantly increase, enhancing recognition and demand for e-cigarette products. The domestic e-cigarette industry chain is expected to extend to e-liquids and pods. The core of e-liquid e-cigarettes lies in the e-liquid. The core difference in e-liquid e-cigarettes lies in the e-liquid segment, whether in terms of raw materials, flavoring, food safety levels, or overall factors such as taste, vapor volume, and discomfort. Imported e-liquids have a significant competitive advantage. Although 90% of e-cigarettes are produced domestically, the vast majority of e-liquids rely on imports, and the formula and taste of e-liquids determine user experience.
The core of heated tobacco e-cigarettes lies in the pods. Heated tobacco e-cigarettes, represented by IQOS, have their main profit point in the pods. The biggest advantage of IQOS lies in the temperature control of the heating element and pod technology, where the flavor and aroma of the pods determine user experience. E-liquids and pods are consumables that users purchase frequently, representing the highest value in the entire industry chain. In the future, e-cigarette manufacturers should increase R&D in e-liquids and pods, launching e-liquids and pods that cater to smokers' preferences.
