The hottest Korean tobacco with changing face

Face changing Korean tobacco

in the past six months, unless you are isolated from the world, you will not fail to pay attention to some things that happen in the Korean tobacco market

from the outside to the inside, including "corporate raider" Carl? Investor groups including Icahn are trying to take over the former government tobacco monopoly Korea tomorrow and global corporation (KT g). As this issue came to the press, the group managed to obtain a seat on the board of directors, and through this position, they undoubtedly intend to constantly exert pressure in order to seize control of KT G from its management

the bitter power struggle labeled "hostile" in the media, whether it is the impact on the tobacco industry or the investment climate in South Korea, is still unclear, but the Korean tobacco industry will never be cold and boring

of course, the question that urgently needs to be answered is, why is KT g regarded as such a plum that was first picked? Obviously, the answer to this question can't be so simple. Therefore, we have carefully conceived about a dozen questions to help us understand the dynamic situation of South Korea's growing tobacco industry

unfortunately, KT g refused to be interviewed about this article, saying that "now is not a good time to be interviewed." Philip Morris also felt that "due to some business reasons", they could not answer the questions we prepared. Therefore, maybe the questions we conceived were finally right

we are very grateful to British American Tobacco and Japan Tobacco International for taking the time to respond to this, giving us inspiration, and for sharing their understanding of the Korean market with us

history

South Korea has a long history of tobacco use. In the not too distant past, tobacco was a common thing as part of soldiers' wages. The military service that Koreans must perform is still regarded as one of the main places to recruit new smokers. However, the number of smokers in South Korea is obviously decreasing

until recently, more than 50% of Korean men smoked. According to a survey conducted by the Korean public opinion survey company, the number fell to 49.2% by March 2006 The survey also showed that in the past year, the proportion of male smokers fell further sharply from 53.3%. In 1980, the smoking rate among men reached a record high of 79.3% On the whole, these figures are compared with the smoking rate of adults around the world. In the 2002 World Health Organization report, the smoking rate in South Korea belongs to the medium category, and the highest smoking rate among men is Kenya (67%), China and Russia (both 64%). Male smokers account for 26% in the United States and 27% in Australia According to the South Korean survey, the percentage of Korean women smoking has remained below 10% since 1985, while in March 2006, the smoking rate of Korean women was 3.3%

the South Korean Ministry of health cited tax rate increases and health actions to explain the decline in smoking rates. According to the South Korean Ministry of health, after the South Korean government raised the cigarette tax by 500 won in December 2004, the price of a pack of cigarettes in South Korea is now about 2500 won (US $2.56), which has triggered a decline in the smoking rate

the Korean government has also carried out active anti smoking actions. At present, government buildings, hospitals, schools and office areas have been set up as smoke-free areas. There is also a debate in the media about banning smoking in restaurants. In the past 12 months, there has been no further legislation on this issue, especially the addition of more than 700 enterprises in 2016, but there are many disputes

South Korea's ratification of the Framework Convention on tobacco control has triggered many debates on anti smoking and price hikes. The tax increase in 2004 transferred 25% of the price of each pack of cigarettes to consumers. The South Korean Ministry of health took the lead in promoting this tax increase. In 2005, a petition signed by 158 influential people and the former president of South Korea was submitted to Congress by the former leader of the National Cancer Center. The petition hopes to ban tobacco completely within 10 years. For the media and consumers, this measure is considered unrealistic, but it clearly shows that the pressure on the tobacco industry may be increasing. According to the executive communications manager of British American Tobacco Company Celine? Xin said, "bat is working hard to create a more practical regulatory environment by establishing a dialogue with the government, the Ministry of health and non-governmental organizations through the Korean Tobacco Association, which is composed of KT g and foreign tobacco companies."

the latest round of negotiations on the Framework Convention on tobacco control held in Geneva may provoke more controversy in the highly regulated market

Xin said, "the Framework Convention on tobacco control" The negotiation has added more content to the debate on GHW and smoking areas. We don't expect any new laws to appear this year, but the South Korean Ministry of health is trying to start a tobacco management law. At present, the Ministry of health and the Ministry of finance supervise the tobacco industry, and the Ministry of health hopes to have complete control over the tobacco industry. This is a worrying measure for companies that replace tobacco in a timely and free manner. "

market

just like Japan Tobacco in Japan, KT g continues to dominate the Korean tobacco market for similar reasons

before the liberalization of the market and the privatization of KT g in 2002, due to the unbearable price of imported cigarettes and the difficulty for most Koreans to buy, KT g almost took all the tobacco market. Since then, the market has gradually increased its acceptance of foreign brands, such as polyamide. In particular, British American tobacco has quickly surpassed its competitors through its flagship brand dunhill, thus establishing its position in imported products, and has achieved brilliant success. At present, KT g (Korea tomorrow and global company) controls 72% of the market in terms of sales. British American tobacco, which ranked second, increased its market share from 1% in 1999 to 16% This growth rate is incredible. Philip Morris International followed, controlling 8% of the market, and Japan Tobacco International controlled 3% of the market

according to Christopher, brand manager of Dunhill? Zhu said, "anyone will be surprised by the amazing success British American Tobacco achieved in South Korea at first." He admitted that so far, such performance has "significantly" exceeded the original more conservative plan

bat attributes the differences between international brands to its vision and confidence in market potential, identifies and promotes good brands in its product portfolio, and is always committed to obtaining and retaining the best talents. Obviously, it is now benefiting from such a strategy

Zhu said: "although there was a slightly stable situation after high development in 2004, bat has continued to expand its initial success. By adhering to its own strategies, complying with its continued plans and implementing these plans and strategies, bat is expected to continue to reap rewards from its efforts."

South Korea produces tobacco, but KT G is the only buyer of tobacco produced in South Korea. British American tobacco company, which owns a tobacco factory in South Korea, uses all imported tobacco leaves in its production plants, because according to Zhu, "the locally produced tobacco leaves in South Korea are really not suitable for the current products of British American tobacco company, and there is no law to purchase locally produced tobacco leaves." KT G's products are produced from 70% of domestic tobacco leaves and 30% of imported tobacco leaves. However, many people in the tobacco industry believe that this is the role of national pride. Korean tobacco used to be an important issue in Korea, but it is now so important

trend

in the past two years, there have been two obvious trends in the market: low tar products (such as cigarettes with 1 mg tar content) and ultra-fine products. To some extent, driven by the increasing number of smokers who "have chosen and will deal with the health risks related to smoking by choosing products with reduced tar content", in the words of British American tobacco, South Korea may be the world's lightest market based on the average tar measured by sales. The maximum content is 6 mg, which is very low according to international standards. There have been actions to change products from 6 mg content to Mg content, and there are more and more types of products with 1 mg content. The appearance of slender type or super slender type is related to this trend. In other markets, this product is basically composed of female smokers aged 25 to 30. In South Korea, the typical smokers of ultra slender products are men over the age of 40

in terms of the development dynamics of other markets, there has been a trend towards high-quality priced cigarettes. In the past two years, this kind of cigarette has made significant development, and now, it has occupied nearly 70% of the market in terms of sales

according to Xin, "South Korea is also a market with a high trend of consumers trying new products - these newly launched products are not always successful, and there are also many examples of failure of newly launched products - in the past 12 months alone, nearly 10 new brands/skus have been launched in this market." (SKU is a term used to refer to a specific inventory product.) He said: "For example, the generation of static electricity will bring a lot of harm to our experimental machines. If we take the past two years into account, this number will double. In terms of the main competitive market, this may be different from other tobacco markets in the world, because in other tobacco markets, legal restrictions basically mean that operating activities in stores have become the key to obtain the competitive advantage of marketing. This special channel has gradually become a A highly competitive environment. "

(see Table 1 below)

attract customers

Korean smokers like to try new products, and are often attracted by marketing strategies such as packaging changes

according to Zhu, "bat Korea has always been the catalyst for the wave of innovative products in the past two or three years. Dunhill first appeared in the market with beveled cigarette box packaging, like some new innovative products launched in 2004, such as the" wallet "packaged Kur brand cigarettes, which are very popular in the market."

before these products were launched, the packaging was quite stable. Now, packaging innovation has become the standard. KT G's response to this is to launch products with golf prints, Christmas cigarette packs, and hot foil prints on brand variant products. The essay special version of KT G is packed in cigarette cartons, and recently introduced a lengthened and slender entz cigarette. In the past one or two years, many new designs have appeared, and the most successful design of British American tobacco company is the designer team of Dunhill perfectionist series

obviously, it is very important to effectively push products to the market. For bat, the direct distribution model has proved to be extremely effective. A recent customer satisfaction study showed that retailers rated bat's sales representatives as able to compete with KT g, a sign that bat's much smaller sales team paid a lot to satisfy consumers