Phillip Morris International (PMI) Shaping the Future of Smokeless Tobacco Products

Philip Morris International (PMI) is shaping the future of smokeless tobacco products," said former Philip Morris Korea CEO, Jung Rhee-yoo.

Five years ago, the introduction of Philip Morris' IQOS to the Korean market created a stir in the once-quiet tobacco industry. IQOS was a type of electronic cigarette that was not yet available in South Korea at the time.

At the time, the most talked about aspect was Philip Morris' marketing strategy for IQOS. The product emphasized its lower levels of harmful substances as it heats, but does not burn tobacco, unlike traditional cigarettes. Regular cigarettes are known to cause harm to the body, while some believe that the dangers of e-cigarettes with a coil are not as significant. Philip Morris appeared to be attempting to change the landscape of the cigarette market.

The "pound-style electronic cigarette" that is changing the cigarette market.

Philip Morris emphasized that the toxic carcinogens in cigarettes come from the smoke produced by burning them. In the case of IQOS, there are also arguments that the emissions are "vapor" rather than cigarette "smoke." Philip Morris explained that harmful substances were reduced by over 90% compared to regular cigarette smoke.

Consumers responded immediately, with approximately 2 million IQOS devices sold in the first year of its launch in South Korea. Even accounting for multiple purchases, at least 1 million people became "IQOS users." Subsequently, competitors British American Tobacco (BAT) and KT&G hastily launched their own cigarette-shaped electronic products in the same year, but IQOS captured 80% of the market share in its first year of release.

Since then, the market has gradually developed in an unexpected direction. This is because KT&G, which has long dominated the domestic tobacco market, continues to fiercely counterattack. In addition to having a well-equipped domestic sales team, KT&G has also expanded its product line and increased its influence by constantly launching new products.

KT&G has finally surpassed IQOS in the first quarter of this year after five years of trying, taking the top spot in the market. According to market research firm Euromonitor, the market share for cigarette-type electronic cigarettes in the first quarter of this year were as follows: Lil (KT&G) with 45%, IQOS with 43%, and Glo (BAT) with 11%.

During this period, the market for tobacco-based electronic cigarettes also grew rapidly. In 2017, when IQOS first entered the market, tobacco-based electronic cigarettes accounted for only 2% of the domestic tobacco market. However, last year, their market share had increased to 12.4%, a growth of six times in four years. Additionally, the annual sales of tobacco-based electronic cigarettes increased from 79 million packs in 2017 to 444 million packs last year. On the other hand, the packaging quantity of traditional tobacco cigarettes decreased from 3.445 billion packs to 3.146 billion packs during the same period.

From this series of developments, it can be understood that after a gap of three years, Philip Morris recently launched a new IQOS product in the domestic market. In fact, while the overall tobacco market for traditional cigarettes has been declining, sales for electronic cigarettes in the form of heating tobacco have continued to grow. However, despite being a market pioneer, IQOS lost its leadership position within five years.

On October 25th, Philip Morris Korea launched the IQOS Illuma series. Its main distinguishing features from previous products are that it does not require cleaning, leaves no residue in the cigarette device, and automatically heats the cigarette without the need to press a button. It is seen as an upgraded version of existing models rather than a completely new product.

Competition intensifies as three e-cigarette companies launch new products.

KT&G, currently ranked number one, has also launched a new product in response to Philip Morris International's move. "Lil Able," released on November 9th, is a follow-up version of "Lil Solid 2.0," which was introduced in 2020. It is possible that BAT may also launch a new product in South Korea this year.

It is expected that Philip Morris and KT&G will intensify their competition for the top spot in the domestic electronic cigarette market, with BAT following closely behind.

Furthermore, an interesting aspect to watch out for in this competition is the expected changes to the existing traditional cigarette market. Globally operating companies such as Philip Morris and British American Tobacco are aiming to convert regular tobacco cigarette consumers to electronic ones. On the other hand, KT&G, the top-ranked domestic tobacco company, is still striving to find a balance between the two types of cigarettes.

Philip Morris Korea CEO Baek Young-jae presented the company's future vision at the IQOS Illuma launch event. By 2025, the company has set a goal to convert at least 40 million adult smokers to non-combustible alternatives by introducing these products in 100 countries/regions. This would also increase the net sales share of non-combustible products to 50%.

The CEO, Baek, stated that "because IQOS heats the tobacco without burning it, harmful emissions on average are reduced by 95% compared to regular cigarettes. We are providing adult smokers with a better choice.

At the same time, CEO Baek also stated that the government needs to take a proactive stance on regulating cigarette-type electronic cigarettes. "I believe the most important thing is a communication process based on science," he said. "The government must implement policies based on accurate facts.

“According to the research findings, the harm of cigarette-shaped electronic cigarettes is less than tobacco cigarettes,” he said. This is a marketing strategy that is not significantly different from when IQOS was first launched five years ago.

Previously, BAT's domestic subsidiary BAT Rothmans attracted attention by releasing research findings that showed lower harm of e-cigarettes compared to traditional cigarettes through hosting an event. On October 11th, BAT Rothmans held a press conference to announce the results of a one-year clinical study that aimed to reduce risks through writing.

BAT Rothmans has explained that they conducted a year-long clinical study involving 500 adult participants aged 23 to 55, who were divided into four categories: non-smokers, ex-smokers, current smokers, and those who switched to e-cigarettes. BAT tested their key biomarkers and potential risk markers for specific diseases on a monthly basis. The study's findings were published in the medical journal, Internal Medicine and Emergency Medicine.

As a result of the study, it is claimed that some health indicators have improved when switching from traditional cigarettes to "Glo." In particular, the results of chemical and biological tests show that the toxicity released when inhaling Glo is 90% to 95% lower than that of tobacco smoke.

Kim Eun-ji, CEO of BAT Rothmans, has stated that individuals who use e-cigarettes are exposed to toxic substances at similar levels to those who quit smoking at the beginning of the year. Kim emphasized that there has been a slight decrease in this measure.

In particular, BAT Rothmans announced plans to use the findings of this research for marketing purposes. CEO Kim stated, "We will inform consumers that Glo is a product that 'reduces harm' and plan to reflect this in our advertisements." "I'm considering how to deliver this message to consumers," he said, "I believe that the recent increase in market share for Glo is largely due to the increasing awareness of its risk-reducing properties.

On the other hand, KT&G has not been as proactive as its competitors in promoting a transition to e-cigarettes. Exports only account for 30% of KT&G's total sales. With the need to face the conditions of the domestic market, the proportion of traditional tobacco products remains high, and a drastic strategic shift would be a burden.

KT&G shareholders are forced to focus on core business.

Interesting enough, a shareholder of KT&G recently questioned this management measure. Flashlight Capital Partners, a Singapore-based private equity fund founded by former CEO of Carlyle Korea, Lee Sang-hyun, and which reportedly holds about 1% of KT&G's shares, has submitted a shareholder proposal to KT&G stating the need for the company to "focus on its core business.

Shareholders have proposed that KT&G separate its ginseng business and prioritize non-core businesses such as real estate development. The proposal also requires the company to increase sales of cigarette alternatives such as electronic cigarettes by at least 50% by 2027 and expand its global market presence. A private equity fund created a video including these proposals and posted it on YouTube to generate public opinion. This is a concern that KT&G cannot ignore.

On the other hand, there are tobacco companies who hold a negative view on this. They point out the irony that tobacco companies are promoting research results that they dominate, claiming that their products have less harm on health.

On September 16th, the Ministry of Health and Welfare and the Korea Health Promotion Institute held the first smoking ban policy forum with the theme "Is the spread of e-cigarettes acceptable?

Professor Min-Kyung Lim of the Medical School at Inha University stated at a forum, "Regarding cigarette-style e-cigarettes, according to reports, the concentrations of many harmful components are lower than in cigarettes, but no new components have been found in e-cigarettes. Cigarettes are currently being tested.

At present, we rely on research conducted by tobacco companies, lacking information on the ingredients of their products," he said. "We need a dedicated institution to carry out research.

There are criticisms of tobacco companies' marketing methods. Lee Seong-gyu, the director of the Korean Center for Tobacco Control Research and Education, stated, "All e-cigarettes sold with the claim of being less harmful have the same harmful effects as regular cigarettes.

The government needs to improve regulations for electronic cigarettes, which are currently in a legal gray area.

Therefore, attention is focused on the government's future direction. On the same forum, Vice Minister Li Jiyi of the Ministry of Health and Welfare stated, "E-cigarettes are in a regulatory blind spot, and there is an urgent need for legal and systemic improvements. I hope that laws and systems will be thoroughly discussed for improvement plans.

Recently, the Food and Drug Administration (FDA) in the United States allowed IQOS to be sold as a "low-risk tobacco product" in 2020, attracting attention. IQOS was the first to receive this approval. Philip Morris continues to emphasize this and is pressing the South Korean government on the matter.

However, as far as the South Korean Ministry of Food and Drug Safety is concerned, in 2018, "taking into account foreign research data, there is no evidence to suggest that the harm from electronic cigarettes is lower than that of regular cigarettes." Since then, they have not released any further testing results or official comments.

The tobacco industry representative stated that it is an undeniable fact that electronic cigarettes pose a health risk, and therefore it is difficult for the government to change its views in a short period of time and recommend electronic cigarettes. "It is likely to remain cautious until reliable scientific data is accumulated.

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