BAT: Boosting Profit Margin of HTP Devices in Convenience Stores

Key points of interest:

British American Tobacco has increased the convenience store profit margin for HTP devices to 7.5%.

Increasing profit margins is a measure to address unfair profit margin issues.

According to a report from v.daum on March 4th, British American Tobacco Korea (BAT) has increased the profit margin for its HNB device "Glo" at convenience stores. According to industry sources, this adjustment raises the profit margin for convenience store owners selling such devices from the original 6% to 7.5% as of the beginning of this year. The consumer sales price remains unchanged.

A spokesperson for BAT stated that the adjustment was made to improve the profitability of convenience store owners and enhance their partnership with them.

Previously, South Korean Tobacco and Philip Morris International (PMI) also increased the profit margin of their HNB devices in convenience stores from the original 6% to 7%.

The increase in profits for convenience store owners in the e-cigarette industry is largely attributed to the unfair profit margin issue exposed during last year's congressional hearings. Last year, Congresswoman Oh Se-hee pointed out during a congressional hearing that KT&G, which entered the market in November 2017 and has maintained the highest market share, did not engage in discussions with the convenience store industry.

According to the report, convenience stores have a profit margin of 9% on the sale of e-cigarette products, while the profit margin on HNB devices is only 6.1%. As a result, convenience store owners are actually forced to sell HNB devices at a lower profit margin in order to support sales of e-cigarette products.

Convenience store owners sell HNB devices with a profit margin of 6.1% and operate 24 hours a day, while also bearing credit card fees. As cigarette sales account for 45% of their total revenue, owners face a double challenge. The true purpose of KT&G's HNB devices in convenience store business is not the sale of the devices themselves, but rather the sale of cigarettes. We should view the sale of devices as a service, rather than a source of profit.