Philip Morris International, maker of Marlboro, said its e-cigarette products have rapidly captured market share close to 3% of Japan’s tobacco sales, cutting into a market on which Japan Tobacco (JT) depends for around 40% of its profits. In what may be
Philip Morris International, the manufacturer of Marlboro, says its e-cigarettes have quickly captured 3% of Japan Tobacco's sales, which relies on a 40% profit share in the market.
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In what may be an early vindication of Philip Morris's e-cigarette strategy, iQOS accounted for 2.2% of Japan's tobacco sales for the quarter ending June 30, according to a company spokesperson. This figure climbed to 2.7% by the end of June after Philip Morris launched the 9,980 yen ($98.53) e-cigarette device accompanied by "HeatSticks," which cost the same as regular cigarettes.
"These numbers clearly indicate that iQOS is stealing a significant chunk of the tobacco market," said analyst Naoki Takagi of Credit Suisse in Tokyo. Overall cigarette sales in Japan shrank by 5.2% in June.
Last Friday, JT reported a 3.4% drop in monthly cigarette sales revenue in Japan to 53.4 billion yen.
Unlike conventional e-cigarettes that vaporize nicotine-infused liquids, iQOS generates a smoke-free aerosol by heating tobacco sticks inserted into the device.
So far, it has tested the gadget in seven countries, including cities in Switzerland and Italy. In Japan, it has been regulated under drug laws that restrict the sale of nicotine liquids for "vaping" only to specific areas nationwide.
For iQOS, demand has already exceeded supply, causing Philip Morris to be unable to meet the demand for most of its earlier entries into Japan. Some limited edition IQOS models are selling online for as much as 80,000 yen.
"When Philip Morris can provide enough to meet demand, it is likely to accelerate its market push," said UBS Securities analyst Naomi Takagi.
E-cigarettes alleviate some health concerns for smokers and mitigate the social stigma associated with tobacco. Tobacco companies are racing to take early leads in emerging markets as overall cigarette sales shrink globally.
E-cigarette sales, however, have been booming, growing fivefold from 2010 to 2014 to $8 billion, according to research firm Euromonitor International. By 2020, the market is likely to be 20 times the level of 2010, Euromonitor International predicts. Global cigarette revenue is approximately $750 billion.
Philip Morris plans to expand iQOS sales to 20 countries by the end of this year.
Japan Tobacco, the former state monopoly with a 60% share of the domestic market, is struggling to cope with the challenge of its own devices. Japan Tobacco's e-cigarette sticks, known as Ploom TECH, are created by vaporizing tobacco through liquid steam.
However, the world's third-largest cigarette manufacturer has yet to match iQOS's nationwide launch, with no clear indication of when it will have sufficient production capacity to do so.
"It is doubtful that JT will manage to launch a wider range by the end of this year," Takagi of UBS Securities stated.
