SEOUL, Nov. 7 (Korea Bizwire) – South Korean tobacco firm KT&G has thrown its hat into the HNB (heat-not-burn) tobacco product market with the release of “Lil”, unsettling market incumbents Philip Morris Korea and BAT Korea.
A HNB tobacco product consists of an electronic device that, as its name suggests, heats tobacco sticks instead of requiring a flame to burn like a traditional cigarette. Pack of 20 sticks weighing six grams each are sold separately.
In June, Philip Morris Korea’s “IQOS” (e-device) and “Heets” (tobacco sticks) were the first HNB tobacco products introduced into the South Korean tobacco market, and sales data showing that more than 1.41 million Heets packs have been sold confirm the company’s head start advantage. BAT Korea followed two months later with the release of its own product “Glo” along with “Neostix” tobacco sticks.
The emergence of “Lil” was preceded by bad news for the HNB tobacco market overall, but particularly so for the two foreign companies. On November 6, an all-hands meeting of the Legislation and Judiciary Committee agreed to a revision of the Individual Consumption Tax Act that would raise taxation of one tobacco stick pack from the current 126 won to 529 won.
The ramifications of the intended tax hike would normally see prices for Heets and Neostix rise accordingly, but the circumstances demand that the respective tobacco companies proceed cautiously. At the moment, modifying prices and risking consumer ire could be crippling, since Lil manufacturer KT&G, with its position as the domestic tobacco market leader secure and armed with deeply entrenched distribution channels, is expected to maintain its initial rollout price of 4,300 won per pack regardless of any future tax increases (both Heets and Neostix are currently priced at 4,300 won each).
A way out of the struggle may be found in the law courts and away from South Korean consumers’ predilections. The Lil announcement has already drawn criticism from certain corners of the tobacco industry for the device’s noticeably similar features to the American and British companies’ products. Experts have pointed out that the “heating blade” function bears resemblance to the IQOS’, while “Fiit”, the tobacco sticks for Lil, are basically interchangeable with Heets, so much so that a stick of Fiit can be smoked using the IQOS e-device.
Facing the possibility of losing ground in the lucrative HNB tobacco product market (a Nov. 7 Ministry of Strategy and Finance report revealed 352 million grams of Heets and Neostix packs had been moved by September, for an estimated 218 billion won in revenue), the possibility of patent infringement suits being filed is not out of the question.