BUSINESS

HNB market heats up with KT&G’s entrance

By Won Ho-jung
  • Published : Nov 8, 2017 - 17:23
  • Updated : Nov 8, 2017 - 17:23
Competition in the heat-not-burn tobacco market in Korea is poised to intensify with the entrance of domestic cigarette giant KT&G’s new device lil. 

On Tuesday, KT&G announced that it would be releasing its lil device in Seoul on Nov. 20, with a trial sales period starting the week prior. 

The device is priced at 95,000 won ($85.20), and its corresponding Fiit sticks are priced at 4,300 won per pack of 20.

The announcement came at a sensitive time, as the industry is closely watching whether the Korean legislature will raise taxes levied on heat-not-burn tobacco and how it will change consumer prices.

As of now, all three companies’ products have been priced based on the existing law. The individual consumption tax on each pack of 20 tobacco sticks is only 126 won, as opposed to 594 won for combustible cigarettes. 

The lil device and Fiit sticks from KT&G (KT&G)

However, an amendment awaiting a vote in the National Assembly on Thursday, which is widely expected to pass, will raise those taxes to 529 won per pack -- 90 percent of the taxes levied on regular cigarettes. 

Philip Morris International and British American Tobacco have both said that they are considering raising prices on their HNB sticks following a tax hike. At a press conference Tuesday, KT&G said it is not yet considering a price hike.

With KT&G saying it will maintain its 4,300 won pricing, it is unclear how much PMI and BAT will be willing to raise prices on their own sticks.

For now, both companies are maintaining the position that they are considering raising prices, although nothing has been decided yet.

“We’re maintaining the position that we may be able to absorb the tax hike if it is contained to the individual consumption tax, but if other taxes rise as well we will speak to global headquarters about adjusting our prices,” said an official with PMI.

Pressure is high on PMI, which is currently leading the HNB market, as KT&G’s Fiit sticks are said to be compatible with PMI’s IQOS devices. Both PMI and KT&G have recommended that each device be used with their corresponding sticks to guarantee quality and safety -- but if PMI’s Heets sticks become more expensive, IQOS users may turn to Fiit sticks instead.

Meanwhile, BAT has aggressively expanded its distribution ahead of KT&G’s release. At the end of last month, BAT began offering Glo and its corresponding Neostiks at major cities outside of Seoul, including Busan, with plans to expand nationwide “at an early date.” 

By Won Ho-jung (hjwon@heraldcorp.com)