KT&G Partners with Philip Morris... Lil's First Overseas Market Target: Japan and Russia

Japan, the World's No.1 in Heated Tobacco, Selected as the First Overseas Market for Lil
Considering Expansion to 3 Countries Including Japan and Russia Within the Year... Focus on Securing Overseas Intellectual Property Rights

[Asia Economy Reporter Lee Seon-ae] KT&G's heated tobacco product 'Lil' will enter three countries within this year. These three countries are where 'IQOS' is the best-selling product, with Japan being the first stage of overseas expansion.

According to industry sources on the 13th, KT&G and Philip Morris International (PMI) have selected Japan and Russia, where the heated tobacco product 'IQOS' sells the most, as countries for 'Lil' to enter within this year.

Earlier, in January, KT&G signed a product supply contract with PMI for overseas sales to ensure stable entry into foreign markets. The contract period is three years and aims to sell in countries worldwide by utilizing PMI's distribution network. Currently, Japan ranks first in IQOS sales, followed by Korea and Russia. PMI has established e-cigarette sales and distribution networks in about 50 countries. Except for Japan, Korea, and Russia, sales volumes are at similar levels. Accordingly, the remaining one country, excluding Japan and Russia, is under consideration among several possibilities in Southeast Asia, Europe, and the Middle East. However, KT&G and PMI are cautious about mentioning the confirmed countries of entry due to confidentiality clauses and other reasons.

The reason for choosing Japan as the first overseas market for Lil is due to the high popularity of e-cigarettes and the immense market growth potential. Japan boasts the largest heated tobacco market in the world (USD 7.72 billion as of 2018). The reason global e-cigarette companies rush to enter the Japanese market is because it shows the steepest growth annually. Russia also shows explosive growth. Russia ranks third globally in sales value but is second in heated tobacco stick sales volume, surpassing Korea.

The remaining country may be one of the Southeast Asian countries such as Vietnam. The Southeast Asian region is attractive because KT&G has established distribution networks through tobacco exports. The United States was excluded due to strict regulations.

KT&G expects that its export ratio will increase significantly compared to last year once it begins full-scale exports in cooperation with PMI this year. KT&G aims to become one of the 'Global Big 4' companies by 2025. Through aggressive new market development, it plans to increase the number of countries it has entered from about 80 currently to around 100 this year.

To facilitate smooth exports, KT&G is also focusing on securing overseas intellectual property rights for Lil. As of now, intellectual property rights for the Lil e-cigarette have been filed with a total of 3,384 applications, including 694 patents in 13 countries including Korea, 2,033 trademarks in 66 countries, and 657 design rights in 14 countries. Overseas filings (2,600) are more than three times higher than domestic filings (784).

Im Wang-seop, head of KT&G's NGP (Next Generation Products) business unit, said, "So far, Lil's exports have been limited to some duty-free shops in Japan and Vietnam," adding, "Since we are entering the global market by leveraging the brand value of 'IQOS,' which holds a leading position in the e-cigarette market, we expect Lil's exports to increase significantly."