KT&G's Performance and Competition with Four Major Tobacco Companies

KT&G has set a goal to become the fourth largest multinational tobacco company in the world and to take a leading position among global tobacco companies by 2025. In terms of market competition, how does KT&G compare to the world's four largest tobacco companies, Philip Morris International (PMI), British American Tobacco (BAT), Japan Tobacco Group (JTG), and Imperial Brands? Which of KT&G's performances are worth watching?

KT&G is performing well in the Russian market by focusing on heating without burning.

The tobacco market, known for its high profits and consistent consumer demand, has long been an important component of Russia's federal fiscal taxation. As a country interested in non-combustible tobacco products (HNB), Russia presents a potential market for this type of product.

KT&G's heated tobacco products experienced a consecutive decrease in market penetration in the Korean market for the second quarter prior to exportation. In 2019, this ratio stood at 13%, but it decreased to 12.6% in the first quarter and further to 12.4% in the second quarter. However, the company indicated that this does not signify a growth plateau for their heated tobacco products due to expansion in overseas markets.

In January 2020, Korean tobacco company KT&G signed a strategic cooperation agreement with its rival PMI. This agreement enables KT&G to export its "lil" tobacco heating products to 180 international markets through PMI's global sales network.

In July 2020, KT&G announced in its second-quarter earnings report that it had exported electronic cigarette products worth KRW 12.5 billion (approximately $10.54 million) to the Russian market.

In February 2022, as the international political landscape shifted, Russia faced a series of economic sanctions from major Western powers, including the tobacco industry.

The four largest tobacco companies have faced setbacks in the Russian market. Beginning in March, these companies have announced their withdrawal from the Russian market and have established varying exit strategies.

Tobacco company British American Tobacco has revealed to the media that its assets will be sold to the distribution company SNA Group (a company that deals with wholesale product procurement). After the transfer of assets, the new owner will continue production and other business processes.

Executives from the Imperial Tobacco Group have reported on the transfer of their business operations. Four senior Russian managers have been appointed as their successors, having previously worked for companies associated with the tobacco giant.

Fimo International is considering restructuring its operations in Russia, which may include potential asset transfers.

Japan Tobacco has suspended new investments in Russia and is currently evaluating various options for its business development, including potentially transferring ownership.

After the conflict between Russia and Ukraine, South Korean tobacco company KT&G continued its operations in Russia, unlike the four other major tobacco companies which suspended or terminated their operations there. KT&G maintained its cigarette manufacturing factory in the Kaluga region, located approximately 150 kilometers southwest of Moscow. This factory produces around 4.8 billion cigarettes annually.

From Russia to South Korea: The Love-Hate Relationship Between KT&G and PMI.

According to a Forbes report, the international tobacco company Phillip Morris International (PMI) has become the largest foreign company in the Russian market in 2020. KT&G has recognized this opportunity and expressed a strong desire to collaborate with PMI.

In August 2020, South Korean tobacco company KT&G and Philip Morris International (PMI) collaborated to launch their heated non-burning product, lil Solid, in the tobacco market of Russia. This partnership marks KT&G's first attempt to enter the tobacco market in Russia by collaborating with a tobacco company.

Subsequently, the two companies launched their exclusive pod product for the second time in Ukraine.

Two companies have joined forces to launch a product, expanding from Russia to Ukraine in Eastern Europe, making an all-out push into the global non-burning heating market. This partnership has given the impression of a "deeply collaborative economic community" to the external world.

However, two years later in the Korean market, KT&G and PMI began battling for the top spot. Upon its introduction in Korea, the IQOS product sold approximately 2 million units in its first year. The number of IQOS users reached 1 million, capturing 80% of the Korean market share.

KT&G has hastily rolled out a line of electronic cigarettes in a bid to expand their product offerings and increase their influence. They continue to launch new products, mounting a fierce counteroffensive against competitors.

In the first quarter of 2022, KT&G's Lil product surpassed PMI's IQOS product and claimed the top spot in the Korean market share.

According to data from a South Korean market research company, in the first quarter of 2022, the market shares for cigarette-like electronic cigarettes were Lil (KT&G) at 45%, IQOS (Philip Morris International) at 43%, and Glo (British American Tobacco) at 11%. KT&G, a giant in the South Korean tobacco industry, managed to defeat both PMI and BAT.

Nowadays, KT&G has expanded its presence to over 120 countries worldwide. The company not only focuses on increasing the number of countries it exports products to, but also on expanding its sales coverage and increasing its market share in various markets.

The four major tobacco companies have not ceased their developmental progress, with KT&G pushing to catch up at an accelerated pace.

In the third quarter of 2022, all four major tobacco companies attempted to take a series of actions to make their businesses more sustainable.

British American Tobacco (BAT) has invested £48.2 million (USD 57.4 million) in Charlotte's Web Holdings, a producer of CBD health products. The company's chief growth officer stated that this investment represents another step forward for BAT in exploring beyond tobacco and nicotine.

During the first half of 2022, British American Tobacco (BAT) announced that their global user base for their heated tobacco products has exceeded 20 million. These products, which do not burn tobacco, now account for 14.6% of BAT's total revenue, marking a 2% increase from the previous half. The company expects this new category of products to generate profits of £5 billion for BAT by 2025.

Philip Morris International (PMI) has launched a new product called Bonds under its IQOS system, along with its complementary tobacco sticks, Blends. This new product also features the latest patent design of an unheated tobacco cartridge. In addition, PMI successfully acquired Swedish Match in the same month. Swedish Match's nasal snuff and nicotine pouches are expected to greatly enhance PMI's smoke-free and harm reduction strategies.

During the third quarter of 2022, Philip Morris International (PMI) generated 30.1% of its net revenue from smoke-free products. Within the IQOS market, the market share of the heating tobacco unit (HTU) increased by 1.3% to reach 7.7%. Moreover, the global user base of IQOS products reached a total of 16.4 million during the same quarter.

Japan Tobacco Group (JTG) has launched PloomX in the UK and plans to accelerate its international distribution by 2023, according to the company. JTG reported a 13.7% year-on-year increase in revenue and a 17.5% increase in adjusted operating profit to ¥637.8bn ($5.8bn) in the first nine months of 2022. Net profit rose 19.2% to ¥403.8bn ($3.7bn).

Imperial Brands has announced a focus on its Pulze brand of heated tobacco in the European market, while directing attention to the Blu brand of electronic cigarettes in the United States. The company will continue to concentrate on its oral nicotine products in the European market. The company has seen a rise in its share of the US cigarette market for the fourth consecutive year, reaching 10.1%. Net income in Europe also saw growth, increasing by 34.2%, while the company's market share and revenue in Africa rose by 3%.

KT&G, a South Korean tobacco company, sold a total of 11.05 billion cigarettes in the third quarter of this year, a decrease of 0.4% from the same period last year, which accounts for a 65% share of the Korean cigarette market. However, due to the continuously growing demand in emerging markets, KT&G’s overseas sales for the third quarter of this year surged to 12.2 billion cigarettes, an increase of 30% from the same period last year.

Article by Luna Lu

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