Tobacco Asia

Volume 19, Number 3

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tobaccoasia 33 consumers' needs and promptly respond to their changes. In addition, we'll continue to seek cost competitiveness," he added. Meanwhile, PM identified its biggest challenge in the circumstance that "all retail pricing for to- bacco products must be approved by the Ministry of Finance as stipulated under the Tobacco Busi- ness Law. This price approval system prevents all tobacco companies from pursuing competitive pricing strategies," said the company's corporate affairs manager for communications and contribu- tions, Gregory Melchior. Currently, PM markets four cigarette brands in Japan: Marlboro, Lark, Parliament, and Virginia S., each one of them divided into several sub-brands. "Each of the 48 new SKUs launched in the Jap- anese market during 2014, 11 were launched by Philip Morris," said Melcior. The provided list is indeed impressive: Un- der the Lark brand the company launched Lark Black Hybrid 10 KS Box, Lark Hybrid Selection 1 100's Box, Lark Hybrid Selection 6 100's Box, Lark Ice Mint Selection 1 100's Box, Lark Lights KS Box, Lark Royal Blend One 100's Box, and Lark Smooth Taste KS Box, while to its Marlboro brand it added Marlboro Clear Hybrid 1 100's Box, Marlboro Fusion Blast 5 KS Box, Marlboro Fusion Blast 8 KS Box, and Marlboro Fusion Blast One 100's Box. And in May 2015, Philip Morris Japan expanded its Lark brand even further by launching Lark Tropical Ice Menthol 5 KS Box and Lark Tropical Ice Menthol 1 100's Box. E-Devices and PREPS Not Big With regards to e-devices and cigarette alternatives like heat-and-burn devices, Japan, a country often associated with enthusiastically adopting new products and innovations, surprisingly lags behind several other westernized nations. This is due to the country's Pharmaceutical Affairs Law, which defines nicotine as "medicine", and correspond- ingly any e-cigarette or other nicotine-dispensing devices as "medical equipment". Therefore, those require approval from the Ministry of Health, La- bor, and Welfare (MHLW) before they can be marketed legally. According to JTI, there are cur- rently no nicotine-containing e-cigarettes ap- proved by MHLW. Sales of heat-not-burn and e- cigarettes in Japan therefore have been very limited. But consumers are permitted to order such devices from abroad as long as they only for their private use. The import quantity for re-fill cartridges is limited to one month's personal con- sumption volume. JTI in 2013 nevertheless introduced its pro- prietary Ploom device, a heat-not-burn tobacco product, on a trial basis in six markets, including Japan (the others are Austria, France, Italy, Korea, and the UK). PM, meanwhile, held the world's first pilot launch of its iQOS heat-not-burn device in No- vember 2014 in the city of Nagoya. "Nagoya is a city that traditionally welcomes innovation. It also is the third-largest metropolitan area and fourth- largest city in Japan, making it an ideal location for our city test," explained Melchior. "The adult smoker reception of iQOS has been very positive and has exceeded our expectations. However, as of today, iQOS is only available in Nagoya." Mel- chior said the awareness rate of iQOS exceeds 42%, and that over 30% of adult smokers who have purchased an iQOS device are fully or pre- dominantly using it instead of regular cigarettes. "We plan to expand iQOS coverage in the second half of this year," he said. Outlook and Forecast In line with the prevailing relatively unfavorable market conditions, volume sales of cigarettes in Japan are expected to continue their slump over the coming years, forecasted Euromonitor in its Japan report (See Table 6). While the decline in the smoking population triggered by the rising health concerns remains the most significant reason, migration of cigarette smokers to other tobacco products also negatively affects cigarette sales. Since the tobacco tax increase in 2010 and the earthquake in 2011, which damaged the produc- tion facility of Japan Tobacco, cigarette smokers started to explore other products, such as RYO tobacco, as an alternative. RYO tobacco enables smokers to control the amount of tobacco to be used for each stick, which they perceive as a way to economize, the report said. But widening con- sumer preferences towards flavors also placed cigarette sales into a decline. In terms of total value sales in the years 2015 thru 2018, Euromonitor attempted the following forecast: Acknowledgement: TOBACCO ASIA wishes to thank Euromonitor International ( for kindly providing their Passport country report "Tobacco in Japan" (October 2014). PRODUCT CATEGORY 2015 2016 2017 2018 Cigarettes 3,843.1 3,793.8 3,754.1 3,724.0 Cigars 3.2 3.2 3.3 3.3 Smoking Tobacco 0.8 0.8 0.8 0.8 Cigarettes, including RYO 3,843.4 3,794.1 3,754.3 3,724.2 Stick Equivalent Tobacco 3,847.2 3,797.9 3,758.2 3,728.1 Table 6. Tobacco Sales Forecast by Value and Category 2015-2018 (in JPY billion) Source: Euromonitor International; from trade assosiations, trade press, company research, trade interviews, trade sourses. Virginia S. Sophia 6 100's Box Lark Super Lights KS Box

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