Tag: South Korea

  • KT&G Celebrates Korea-Indonesia Ties

    KT&G Celebrates Korea-Indonesia Ties

    KT&G celebrated the 50th anniversary of South Korea-Indonesia diplomatic relations by organizing various global CSR activities, including support for university student startups, cultural festivals and improvements in the education environment.

    On Sept. 28, KT&G selected the finalists in a competition for business ideas at UNTAR University’s Imagination Entrepreneurship School in Jakarta, Indonesia. A day earlier, the South Korean cigarette maker hosted a similar event at the State University of Jakarta.

    Meanwhile, the KT&G Welfare Foundation finished renovating an elementary school in the Bogor region, transforming an old building into a new educational facility with an earthquake-resistant construction.

    In 2014, KT&G established the KT&G Korean Language Institute in Indonesia, providing approximately 2,800 people with opportunities to learn Korean. In addition, the company operates Imagination University, which supports the development of the capacity and cultural experiences of Indonesian youth. In 2021, it established the KT&G Vocational Training Center at Malang’s UKCW University, teaching marginalized youth sewing, computer technology and other skills.

    “We are taking the lead in promoting communication between the two countries through cultural exchanges in celebration of the 50th anniversary of Korea-Indonesia diplomatic relations,” said a KT&G representative. “We will continue to make efforts to spread Korean culture and enhance exchanges through various platforms.”

    Indonesia is an important market for KT&G, which aims to earn half of its sales from overseas business by 2027. The company operates a tobacco factory in Indonesia and recently announced the construction of a second manufacturing facility.  

  • South Korea: Smoking Down After Covid

    South Korea: Smoking Down After Covid

    Photo: Taco Tuinstra

    The smoking rate in South Korea decline in the wake of the Covid-19 pandemic, reports The Korea Bizwire, citing figures from the Community Health Survey.

    On Oct. 26, the Korea Disease Control and Prevention Agency (KDCA) released the results of an analysis of changes in the Community Health Survey conducted before and after the pandemic.

    The smoking rate among adults decreased by 1.8 percentage points, dropping from 21.2 percent before the pandemic to 19.4 percent after. The smoking rate for men also saw a decrease of 3.8 percentage points, going from 39.6 percent to 35.8 percent during the same period.

    The KDCA utilized the average figures for the 2017 to 2019 period as the pre-COVID index and the data from 2020 to 2022 as the post-Covid index.

  • Korea to Require Ingredient Disclosure

    Korea to Require Ingredient Disclosure

    Image: luchschenF

    South Korea’s National Assembly approved the Law on the Control of Harmful Effects of Tobacco during its full session on Oct. 6, according to The Korea Bizwire. The law mandates the disclosure of the types and amounts of harmful ingredients used in cigarettes.

    The law will take effect two years after it is officially announced. It is expected to be put into practice by October 2025.

    Following implementation of the law, cigarette makers, importers and distributors will have to regularly test harmful ingredients in their products every two years and disclose the results and information on ingredients in the cigarettes with the Ministry of Food and Drug Safety.

    Data about the dangerous ingredients will be made available to the public online. The Tobacco Harmfulness Control Committee will decide which specific harmful components will be disclosed.

    E-cigarettes, including liquid and cigarette varieties, are also included in the law.

    Previously, South Korea disclosed tar and nicotine levels in cigarettes but did not examine or reveal content of carcinogenic substances, including naphthylamine, nickel, benzene, vinyl chloride, arsenic and cadmium.

  • BAT Plants Flowers to Address Litter

    BAT Plants Flowers to Address Litter

    Image: Marquicio

    BAT Rothmans, the Korean unit of BAT, has started a flower planting campaign called “Kkot BAT” to help prevent litter and cigarette butts in alleys.

    “Kkot” translates to “flower” and “BAT” translates to “plot;” the campaign is placing flowerpots or flowerbeds in neighborhoods suffering from litter and illegal waste disposal.

    BAT Rothmans has secured partnerships with nongovernmental organizations with close relationships to local communities.

    “Our Kkot BAT campaign is a meaningful campaign in which companies join hands with the local community for environmental solutions,” said Kim Eun-ji, the country manager of BAT Rothmans. “We will continue to give positive influence on neighborhoods with environmental, social and corporate governance efforts.”

    BAT Rothmans signed a memorandum of understanding with the Korean National Council for Conservation of Nature Seoul branch in June and planted its first flower garden in Jung-gu, Seoul, near BAT Rothmans’ headquarters.

    Following its first campaign, BAT Rothmans will plant about 20 flower gardens all over Seoul, with plans to expand its influence to Gwanak-gu, Dobong-gu and Nowon-gu by the end of the year.

  • Korean Court Overturns PM Tax Refund

    Korean Court Overturns PM Tax Refund

    Photo: mnimage

    The Supreme Court of Korea has overturned a ruling that awarded Philip Morris Korea a tax refund, reports Business Korea. The case has now been sent back to the Suwon High Court.

    The dispute stems from 2014, when fiscal authorities announced new cigarette taxes that caused the price of pack of cigarettes to increase from KRW2,500 ($1.95) to KRW4,500 in January 2015.

    The National Tax Service (NTS) argued that Philip Morris Korea had sold cigarettes stored in purpose-build warehouses to wholesalers at an inflated price after January 2015, but had manipulated the sale to appear earlier in order to evade the additional special consumption tax that followed the price increase.

    When the NTS demanded tax payments of KRW99.7 billion, Philip Morris Korea challenged the decision, first the Tax Tribunal and then in court.

    The lower court accepted the company’s claim that the cigarettes in question were shipped to wholesalers in 2014, before the special consumption tax was applied.

    However, the Supreme Court viewed Philip Morris Korea’s temporary warehouses as a stopgap measure intended to accumulate as much inventory as possible before the price increase, in order to profit from the price differential later on.

    “Even if the computer system shows that the cigarettes were sold in advance before the tax increase, the special consumption tax should be levied based on Jan. 1, 2015, when the cigarettes actually moved from the temporary warehouses to the wholesalers,” the court said in its ruling.

  • Korean Ministry Urges Vape Show Canceled

    Korean Ministry Urges Vape Show Canceled

    Photo: Taco Tuinstra

    South Korea’s Ministry of Health and Welfare (MOHW) has urged events organizer The Fairs to cancel its Korea Vape Show 2023, reports Korea Biomedical Review.

    The exhibition is scheduled to take place July 21-23 in Goyang, Gyeonggi Province.

    “We sent a letter asking for the event to be canceled because we had concerns from a health promotion perspective,” a MOHW official was quoted by Yonhap News as saying. “We are also concerned that adolescents may visit the show if access to the convention is not properly controlled.”

    The ministry also expressed worries about advertised vaping contests that it said would violate indoor smoking restrictions. South Korea allows indoor smoking only in separate, fully enclosed areas.

    The MOHW said it plans to inspect the venue on the day of the event and impose penalties if the organizers fail to create a fully enclosed smoking room inside the venue.

    The organizers said they had submitted plans to resolve the issues raised by critics and said it would not cancel the convention.

    The official also stressed that previous conventions had been held without problems. “During the past three conventions, officials from the local public health center visited the convention and found no wrongdoings,” she said. 

  • The Heat is On

    The Heat is On

    Photo: lunx

    Competition in South Korea’s heated-tobacco products market is intensifying.

    By Stefanie Rossel

    When it comes to adoption of heated-tobacco products (HTPs), South Korean consumers are second only to their Japanese counterparts. Sales of HTPs have increased significantly since their introduction to the South Korean market in 2017, cannibalizing sales of traditional cigarettes. In 2023, the country’s HTP market is estimated to reach a value of KRW2.2 trillion ($913.39 million), up from KRW1.6 trillion in 2019 and KRW2 trillion in 2021, according to Euromonitor. By 2025, the business intelligence firm predicts that the Korean HTP market will be worth KRW2.4 trillion.

    While the number of tobacco products sold in South Korea rose by 1.1 percent from 3.59 billion packs of 20 cigarettes in 2020 to 3.63 billion packs in 2022, it was consumable sales of HTPs that drove the market. Their share increased from 380 million packs in 2020 to 540 million packs in 2022 whereas the sale of combustible cigarette packs dropped from 3.2 billion packs in 2020 to 3.09 billion in 2022, the country’s finance ministry stated in February.

    Demand for conventional cigarettes fell by 1.8 percent year-on-year while sales of HTPs rose by 21.3 percent. According to a survey by the Ministry of Finance, HTPs held a share of 14.8 percent of the total tobacco market in the first half of 2022. In 2023, the overall South Korean tobacco products market will be worth an estimated $9.2 billion, according to Statista. The country’s continuously declining smoking rate has been linked to the introduction of HTPs to the market. Smoking prevalence, which stood at 23.8 percent in 2015, dropped to 15.6 percent in 2021 and is expected to decrease by another 2.6 percent by 2026.

    Both traditional cigarettes and tobacco sticks for HTPs retail at roughly KRW4,500 per pack of 20 but are taxed slightly differently. Total tax per pack of 20 combustible cigarettes amounts to KRW3,223. For a pack of HTP consumables, it’s 90 percent of that, or KRW3,004, reflecting that the products are considered to be less harmful than traditional smokes. In April this year, South Korea’s ruling party suggested subjecting cigarettes and HTPs to the same tax rates amid a government drive to boost falling revenue, but the Ministry of Finance rejected the proposal. With a general election coming up in April 2024, the government is not expected to equalize the tax differential between the two categories in the near term.

    In January, KT&G CEO Baek Bok-in and PMI CEO Jacek Olczak turned their companies’ three-year cooperation agreement into a 15-year contract. While partnering internationally, PMI and KT&G compete fiercely for market share in South Korea. | Photo: KT&G

    Partners and Competitors

    South Korea’s HTP market is split among three players: Philip Morris International, KT&G and BAT. Recently, competition has been heating up in the category: PMI, which in 2017 introduced the first HTP (IQOS) in South Korea, remained the market leader until 2019, when IQOS sales declined from KRW800 billion in 2017 to KRW500 billion and KT&G overtook PMI with its Lil device. According to 2FIRSTS, Lil accounted for 48 percent of the market in May 2023 followed by IQOS with 42 percent and BAT’s Glo with 10 percent.

    In the past six months, all manufacturers have introduced new models of their HTP brands in Korea; they have also unleashed an aggressive price war.

    In November, KT&G launched Lil Aible, which is equipped with artificial intelligence technology that shows how long it takes to fully charge the device and preheat the consumable as well as how many times the user can puff with the remaining battery. On KT&G’s dedicated mobile app, users can check messages, phone notifications, the weather and calendar information. What sets the new model apart from other HTPs is its ability to use three different tobacco sticks with one device. Like its predecessor, Lil Aible features automatic heating, a self-cleaning system and a maximum of three consecutive uses.

    The product comes in two versions—an original version that retails at KRW110,000 and a premium version, which has an OLED touchscreen to make it easier for users to control diverse functions, at KRW200,000.

    To recapture its No. 1 position, PMI in February launched IQOS Iluma One, an economy version of its latest HTP device. The Iluma series works with a bladeless induction system and can only be used with dedicated heat sticks named Terea. The sticks are equipped with a metal heating element, a thin solid metal thread that is coated with stainless steel that heats the tobacco from within. A front plug at the end of the stick behind the tobacco element prevents tobacco residue, which means users do not need to clean the device.

    The company had been selling the more premium variants, Iluma and Iluma Prime, in major South Korean cities including Seoul and Busan since late 2022 and seized the opportunity of the Iluma One introduction for a nationwide rollout of all of its Iluma models. Iluma One is available at KRW69,000 whereas Iluma and Iluma Prime are sold for KRW99,000 and KRW139,000, respectively.

    In late November 2022, PMI had started manufacturing Terea consumables at its South Korean Yangsan plant, where the company has invested more than KRW300 billion in the production of noncombustible products since 2017.

    While battling for market share in South Korea, PMI and KT&G cooperate internationally. On Jan. 30, 2023, PMI and KT&G turned the three-year agreement they signed in 2020 into a 15-year contract. The agreement gives PMI exclusive access to KT&G’s smoke-free brands and innovation pipeline, including offerings for low-income and middle-income markets, and provides KT&G with continued access to PMI’s global commercial infrastructure and experience in commercializing smoke-free products. As a result of the collaboration, Lil, which PMI considers complementary to its existing portfolio of smoke-free products, is currently present in 31 countries in Central America, Europe and Central Asia.

    Fierce Price Battle

    Also in February, BAT launched Glo Hyper X2 in South Korea. After years of plodding along with a market share of 6 percent, the company increased its market share to 11.7 percent in 2022, according to The Korea Herald. Glo Hyper X2 is expected to further bolster the company’s position in South Korea. The all-in-one device, which features induction heating technology, faster heating and an LED indicator showing battery status, was introduced at a cut-rate price of KRW40,000. 

    In May, BAT cut prices of its HTPs in South Korea by half to expand its market share, according to 2FIRSTS.com. Glo Hyper X2 now retails at KRW19,000. According to the website, BAT Korea’s revenue in 2022 increased 14.3 percent compared to the previous year, but operating profits declined by 11.6 percent to KRW44.6 billion. Analysts fear that the low price strategy will cause BAT’s profitability to decline.

    BAT’s price reductions prompted KT&G to follow suit. The company began selling Lil Aible and Lil Aible Premium at a promotional price of KRW99,000 and KRW167,000, respectively. Analysts estimate that to maintain profit margins, the companies must sell their heating products for at least KRW30,000.

    Whether BAT’s strategy will work out remains to be seen. With an estimated 8 million smokers of combustible cigarettes, the South Korea market still holds a lot of potential for manufacturers of less hazardous alternatives.

    Stefanie Rossel is Tobacco Reporter’s editorial contributor. An experienced trade journalist, she combines sharp reporting skills with in-depth knowledge of the tobacco and vapor industries. Prior to joining Tobacco Reporter, Stefanie was editor-in-chief at Tobacco Journal International, where she worked for a decade. Fluent in English, German and French, Stefanie covers tobacco news around the world. She is based in Germany.
  • KT&G Authorized as “Economic Operator”

    KT&G Authorized as “Economic Operator”

    Kim Yong Beom, head of the KT&G Finance Office (left), and Jeong Seung Hwan, head of the Seoul headquarters of the Korea Customs Service, during the certification ceremony at the Customs’ service Seoul headquarters in Gangnam-gu on May 17. | Photo: KT&G

    The Korea Customs Service has certified KT&G as an “Authorized Economic Operator” (AEO).

    AEO is an international standard certification system in which the Korea Customs Service recognizes companies based on their performance in terms of export and import safety management, legal, internal control systems, financial soundness and safety management.

    The AEO certification provides KT&G with benefits, such as speedy customs clearance and reduced inspections of imported and exported goods.

    The certification will help the company accelerate its global expansion program as major export destinations such as the United Arab Emirates, Indonesia and Tunisia will receive similar customs clearance benefits under a mutual recognition arrangement between those countries and Korea.

    “We expect to be able to deliver products to our domestic and foreign customers more quickly under challenging trade conditions, such as rising protectionism and non-tariff barriers,” KT&G said in a statement. “In the future, we will acquire additional local AEO certifications for our foreign subsidiaries to strengthen our import and export competitiveness and accelerate our leap to becoming a global top-tier company.”

  • Exports Boost KT&G Profit

    Exports Boost KT&G Profit

    Photo: KT&G

    KT&G reported a net profit of KRW274.23 billion ($206 million) for the first quarter of 2023, up 4 percent over the comparable 2022 period, reports Yonhap News Agency.

    The South Korean cigarette maker credited increased exports for its improved numbers.

    “Increased tobacco sales in emerging markets, such as Indonesia, Africa and Latin America helped the quarterly bottom line,” KT&G wrote in a statement.

    However, quarterly operating profit fell 4.9 percent year-on-year to KRW316.55 billion, due in part to higher leaf tobacco and other raw materials costs. Sales were down 0.5 percent to KRW1.4 trillion from KRW1.403 trillion during the cited period.

    In January, KT&G signed a 15-year supply contract with Philip Morris International, the allows the South Korean cigarette maker to distribute its Lil tobacco-heating products through the multinational’s extensive global sales network.

    KT&G aims to earn more than half of its sales from overseas businesses in 2027. It targets sales of KRW10 trillion won in 2027, compared with KRW5.9 trillion in 2022.

     KT&G has exported its tobacco-heating products to more than 30 countries since 2020 through the PMI’s distribution network.

    The South Korean company earns 90 percent of its overall sales from the cigarette business division and 10 percent from its tobacco-heating products division.

     KT&G has four tobacco manufacturing plants, one each in South Korea, Russia, Turkey and Indonesia, whose combined capacity amounts to 13.6 billion cigarettes a year.

  • Korea Backtracks on Hnb Tax Increase

    Korea Backtracks on Hnb Tax Increase

    Photo: KT&G

    The government of South Korea has ditched a plan to raise the tax on heated-tobacco products just two days after the finance minister proposed the measure, reports The Korea Herald.

    South Korea currently taxes regular cigarettes at higher levels than noncombustible tobacco products because it considers the former to be more harmful to health.

    Combustible cigarettes attract a tax of KRW3,323 ($2.52) per pack, which includes a KRW1,007 tobacco excise tax, a KRW443 education tax, a KRW594 consumption tax, a KRW409 value-added tax, a KRW841 health promotion fee, a KRW24.4 waste charge and KRW5 to support tobacco farmers.

    Noncombusted cigarettes, by contrast, are subject to a tax of KRW3,004, which represents 90.4 percent of the taxes imposed on regular tobacco products.

    However, on April 17, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho said noncombusted cigarettes “should be treated similarly to regular cigarettes.” 

    His comments immediately provoked a public backlash, prompting the government to backtrack. The government “is not currently considering raising the tobacco tax at the moment,” the finance ministry said in a statement on April 19. 

    South Korea’s revenue from tobacco products has shrunk in recent years due to declining sales of combustible cigarettes. In 2022, the government collected KRW11.8 trillion in taxes on all tobacco products compared with KRW12 trillion in 2020. While sales of tobacco-heating products increased during the same periods, their comparably low volumes and lower tax rates meant that they did not offset the revenue lost due to declining cigarette sales.