Heated Tobacco Industry Watch: KT&G Retains No.1 Share in South Korea’s Domestic E-Cigarette Market
On April 11, according to South Korean media bizwatch, there have been new changes in the operating profits of major participants in South Korea's domestic e-cigarette market in 2022. Philip Morris International's operating profit in South Korea increased by 163%, while BAT Korea's operating profit decreased by 12%. KT&G's operating profit margin was 30%, maintaining the number one market share in South Korea at 84%.
PMI's operating profit rebounds against the trend
In 2022, there were new changes in the revenues of KT&G, PMI Korea, and BAT Korea.
KT&G and PMI Korea are the top two participants in South Korea's e-cigarette market, while BAT Korea has stagnated in growth.
Analysts in the South Korean tobacco industry believe that as the tobacco market shifts from cigarettes to e-cigarettes, the e-cigarette market will hold the key to future profitability.
According to industry insiders, PMI Korea's sales in 2022 were 686.8 billion won, a 21.5% increase from 2021. Operating profit increased by 162.5%, reaching 80.6 billion won. The operating profit margin rose from 5.4% in 2021 to 11.7% in 2022.
In 2022, KT&G's revenue was 3.694 trillion won, a 5.8% increase from 2021. During this period, operating profit grew by 3.4%, reaching 1.123 trillion won. The operating profit margin reached 30.3%.
The growth was driven by KT&G's overseas tobacco exports and e-cigarettes, as the total demand in the domestic tobacco market decreased by 1% in 2022. KT&G's overseas cigarette sales in 2022 were 1.98 trillion won, a 47.2% increase from 2021. Additionally, the sales of the company's next-generation cigarettes (NGP) grew by 73.9% in 2022, reaching 87.63 billion won.
BAT Korea's revenue in 2022 was 539.8 billion won, a 14.3% increase from 2021. However, during this period, operating profit decreased by 12% to 44.6 billion won. The operating profit margin fell from 10.7% in 2021 to 8.3% in 2022. The net profit for 2022 (28.5 billion won) also decreased by 33.6%.
E-cigarette share continues to grow
Although cigarettes remain dominant in the South Korean tobacco market, accounting for about 85% of the share, e-cigarettes are replacing cigarettes and are becoming the driving force for future profits for tobacco companies.
In 2023, according to the "2022 Tobacco Market Trends" released by the South Korean Ministry of Strategy and Finance, the share of e-cigarettes in the domestic tobacco market has been increasing from 2.2% in 2017, 9.6% in 2018, 10.5% in 2019, 10.6% in 2020, 12.4% in 2021, to 14.8% in 2022. After a stagnation period in 2019 and 2020, growth resumed in 2021.
In 2022, KT&G's market share (based on convenience stores) was 47.5%. In 2022, KT&G's e-cigarette device share reached 84%.
PMI Korea has been actively targeting the e-cigarette market, launching the iCos Illuma in October 2022, followed by its new lineup "iCos Illuma One" in February 2023.
While KT&G and PMI compete in the domestic market, they have formed alliances overseas. In January 2023, KT&G signed a 15-year agreement to provide PMI with smoke-free products for overseas markets (excluding South Korea). In exchange for KT&G's marketing, distribution, and sales rights for e-cigarettes overseas, PMI guarantees a minimum distribution quantity of tobacco sticks to ensure KT&G's profitability.
On the other hand, it was reported today that BAT holds about 10% of the e-cigarette market share in South Korea. The company recently launched the 'Glo HyperX2' in South Korea to achieve a rebound, but there has not been a significant change in market share yet.
A South Korean industry insider stated, "After a period of stagnation, the domestic e-cigarette market began to grow slowly from 2022, and the challenge is how to further develop the market."
