BAT begins heated tobacco production in Korea
[THE INVESTOR] SACHEON -- Machines hum as they churn wheels of paper, rolling them into long tubes that are then packed with tobacco leaves and cut into noncombustible sticks of tobacco.
This is the first production facility in Korea capable of making Neostiks, Dunhill maker British American Tobacco’s entry into the heated tobacco products market that is slated to go into full swing in the second half of this year.
For now, the plant, built as part of a 200-billion-won ($177.8) expansion of BAT’s Sacheon Factory, is mostly empty, but capacity will increase steadily throughout the rest of the year in step with rising market demands.
“We are scheduled to fill the rest of the floor within the year,” said Koo Hyun-sung, the site service manager for BAT, as he led a tour of the factory floor Friday. For now, the Sacheon Neostiks plant will be in charge of supplying the Japanese market, alongside the company’s Russian plant.
The first shipment of Neostiks produced in Sacheon will be sent out to Japan on Monday.
“The Sacheon plant has been noted as the best factory for supplying the Japanese market, whose consumers are extremely sensitive about quality,” said Park Kie-seon, the production manager at the Sacheon Factory.
Now, BAT offers its tobacco heating device Glo and the specialized nonburning tobacco sticks Neostiks in the Sendai region of Japan.
Once Glo is rolled out in Korea, the Sacheon Factory will exclusively supply the Korean market as well.
Distribution is expected to be expanded to the Tokyo, Miyagi and Osaka regions soon, and nationwide in Japan by the end of the year, according to Lee Seong-kwon, operations director for BAT. In Japan, Glo is competing against Philip Morris International’s heated tobacco device IQOS as well as the tobacco vaporizer Ploom from Japan Tobacco, which is set for release in Tokyo in late June.
Philip Morris has already released the IQOS device in Korea, where consumers had been buying the products directly from Japanese sellers. BAT is aiming to launch Glo here in August, with domestic tobacco maker KT&G announcing that it is planning to release its own tobacco-heating device in September.
Heated tobacco products, which are called reduced-risk products by Philip Morris and Next Generation Products by British Tobacco, work by heating tobacco sticks to deliver nicotine instead of burning them. By removing combustion, the companies say that heated tobacco reduces the release of harmful substances by upwards of 90 percent.
These alternative tobacco products are showing strong promise in Japan, where IQOS was able to take 10 percent of market share in April, according to news reports. It is yet unclear how the products will fare in Korea, where many smokers already use alternative products that utilize nicotine-laced liquids that are banned in Japan.
Still, BAT remains optimistic. “Glo was developed keeping in mind the discomforts that consumers have told us regarding their use of IQOS, and we believe that it is very competitive,” said Park.
Meanwhile, the expansion of the Sacheon Factory increased the plant’s production capacity for traditional combustible cigarettes to 40 billion sticks annually. Through the expansion, Sacheon will solidify its position as a supply hub for BAT brands in the Asia-Pacific region, with the proportion of exports “almost doubling in 2017 from 2015 figures,” the company said.
By Won Ho-jung/The Korea Herald (firstname.lastname@example.org)