Business / Corporate

BAT to debut new tobacco device in Japan in challenge to Philip Morris

Bloomberg

British American Tobacco will begin selling its heated tobacco product Glo in Japan next month, ratcheting up competition in a nation that’s become the foremost battleground for next-generation cigarettes.

Glo, a silver device that resembles an iPod and heats tobacco without burning it, will go on sale in around 600 stores in Sendai, London-based BAT said in a statement Tuesday. A starter kit will sell for ¥8,000 ($77), about 20 percent cheaper than Philip Morris International Inc.’s rival iQOS device.

“Japanese consumers are always hungry for innovation and we want to be the No. 1 in the Japanese market,” said Donato Del Vecchio, a spokesman for BAT’s next-generation products.

Gadget-loving Japan — the world’s fifth-biggest tobacco market — is the only country to have three heat-not-burn smoking alternatives on the market.

BAT will play catch-up with Japan Tobacco Inc. and Marlboro-maker Philip Morris, which have been the pacesetters.

With smoking on the decline around the world, tobacco companies are in a race to come up with safer products to feed nicotine addiction, even as the $770 billion industry leans on old-fashioned cigarettes to sustain profit. Philip Morris, which has been outspending BAT on such research, has already grabbed 5 percent of the Japanese cigarette market with iQOS since the device became available nationwide a year ago.

When Japan Tobacco started selling Ploom Tech, another alternative product using vapor and granulated tobacco in a capsule, in March in Fukuoka Prefecture, shipments were suspended in about a week as demand outstripped supply. The Tokyo-based company said in September it will expand sales of Ploom Tech to several major Japanese cities in early 2017, and boost production capacity of the capsules by 10 times next year.

“Of course we are learning from the supply issue that some of our competitors face,” said Roberta Palazzetti, president of BAT Japan, in a briefing held in Tokyo Tuesday. “We are not expecting to have a capacity issue — we have enough capacity to cover the Japanese market.”

Japan Tobacco shares, which have slumped 12 percent this year through Monday, rose as much as 2.2 percent in Tokyo trading Tuesday. BAT shares rose 0.6 percent by the close of trading in London on Monday, and are up by 21 percent this year.

In addition to relatively wealthy consumers, Japan has strict regulations on liquids containing nicotine, limiting competition from e-cigarettes. That makes the country an ideal testing ground for heated tobacco devices.

“If iQOS can replicate the demand it’s seen in Japan elsewhere, then it will really lock in first-mover advantage,” said Euromonitor analyst Shane MacGuill. “That could be a significant problem for BAT.”