Japan’s Anti-Smoking Push Makes Vaping the Biggest Winner, Sales Up Fivefold Last Year (Photos)

On one hand, Japan is preparing for the 2020 Tokyo Olympics; on the other, it is trying to prevent secondhand smoke. As a result, calls for smoking bans are growing louder across the country. As an alternative to cigarettes, vaping products are booming in Japan. According to Euromonitor International data, cigarette sales in Japan fell 0.7% last year to US$32.1 billion, while vaping product sales increased fivefold to US$4.6 million.

“By 2030, annual global sales of vaping products will exceed 50 billion,” according to one view. The World Health Organization has also stated that “vaping products have the potential to replace nicotine, and the role of the tobacco industry in this market cannot be ignored.”

“Tobacco companies are seeking new opportunities in Japan’s tobacco market, and vaping products have already shown strong potential,” said a Tokyo-based analyst. “In addition, because they produce no smoke compared with traditional cigarettes, vaping products are seen as more hygienic and healthier.”

Philip Morris, one of the world’s largest cigarette manufacturers, entered the Japanese market long ago. Its heated tobacco product IQOS had already captured 2.2% of Japan’s tobacco market by the second quarter of this year. It once set a record of 250,000 units sold in a single month across 10 countries, with Japan accounting for 95% of that total.

“Our goal is to reach every consumer in Japan,” said Paul Riley, who joined Philip Morris in 1988 and became head of the Japan region in September last year. “For me, this hardly requires any thought. The most important thing is that we know smoking causes death. If there is an alternative product, then vaping products are a very good choice.”

IQOS works by inserting a “heatstick” containing tobacco into a cigar-shaped heating device priced at 9,980 yen (about RMB 650). A pack of Marlboro heatsticks sells for 460 yen (about RMB 30), the same price as a traditional pack of Marlboro cigarettes.

 “This changes the rules of the game,” said a Tokyo-based equity analyst at Credit Suisse, who had previously predicted that vaping products would capture 10% of Japan’s tobacco market.

Another player is Japan Tobacco Inc. (“JT”), which began selling its Ploom Tech product in March this year. The device is priced at 4,000 yen (about RMB 260) and must be used together with one to three Mevius-branded tobacco capsules. A pack of five capsules sells for 460 yen (about RMB 30), which is 20 yen more expensive than a traditional pack of 20 cigarettes.

In August, JT Executive Vice President Hideki Miyazaki revealed that sales had to be suspended just one week after the launch of Ploom Tech because demand exceeded supply. After supply resumed, the company received about 100,000 online orders within 15 days.

JT’s share price has already fallen 14% this year, broadly in line with the decline in the MSCI Japan Food, Beverage & Tobacco Index. Its sales volume fell 7.9% in July, which also reflects competitive pressure from vaping products. JT has already recognized how intense the market has become. On August 1, it reduced its cigarette sales target by 1 billion sticks to 107 billion sticks for the year ending December 2016.

Although most vaping products have not yet undergone extensive testing by independent scientists—so it remains unclear whether they truly reduce harm or help smokers quit—the World Health Organization said in a report released at its Geneva headquarters that, for adult smokers, these devices, which can regulate toxic substance levels, are less toxic than traditional cigarettes.