After 13 Years, High Exchange Rates Cause Duty-Free Cigarette Prices to Surpass Market Prices... Some Sales Suspended at Duty-Free Shops

Won-Dollar Exchange Rate Surpasses 1,340 Won
Foreign Cigarettes at Jeju Duty-Free Shops Exceed Market Price
Temporary Sales Suspension Until Exchange Rate Drops
Duty-Free Industry on Edge... Whiskey Sales Strong

[Image source=Yonhap News]

[Asia Economy Reporter Song Seung-yoon] As the won-dollar exchange rate surpassed the 1,340 won mark for the first time in over 13 years since 2009, duty-free cigarette prices have exceeded retail prices. From the consumer's perspective, there is no longer a reason to buy duty-free cigarettes, which were considered essential purchases at duty-free shops. This is due to a price inversion phenomenon where applying the won-dollar exchange rate makes duty-free prices more expensive than market prices. Some foreign cigarette brands have temporarily suspended sales at duty-free shops due to this ironic situation where duty-free prices have become higher.

According to the duty-free industry on the 23rd, as of 8 a.m., the won-dollar exchange rate reached 1,343 won, breaking the 1,340 won level for the first time since the 2009 financial crisis. The price of a pack of 'Heets,' a foreign exclusive cigarette for the IQOS heated tobacco product sold at duty-free shops, is $34. Applying this exchange rate, the purchase price at duty-free shops amounts to about 45,662 won, which is actually more expensive than the market price of 45,000 won. As of this date, the JDC duty-free shop had set the price at 45,100 won, but due to the high exchange rate making it more expensive than the market price, sales at the duty-free shop have been temporarily suspended.

The same applies to BAT Korea's foreign heated tobacco product, Glo. Domestic cigarettes are priced in won and sold at 38,000 won. A duty-free shop official said, "Due to the loss of price advantage, products with reversed prices are temporarily not being sold," adding, "If the exchange rate falls and prices become lower than market prices again, sales will likely resume."

This issue is not limited to cigarettes. Similar situations occur with luxury goods and cosmetics as well. Due to the nature of duty-free prices being set in dollars, even excluding taxes, prices are as high as or higher than domestic products, eliminating the price advantage.

However, the situation is expected to be somewhat different for whiskey. It is generally classified as a relatively competitive item even in high exchange rate conditions. When purchasing whiskey in the market, taxes such as customs and VAT, as well as liquor tax and education tax totaling about 160%, are added, but buying at duty-free shops is much cheaper. Currently, the duty-free purchase price of Ballantine's 30-year-old whiskey is about 476,400 won, while in the market, even with discounts at liquor shops, it sells in the high 500,000 won range. Even if the price advantage is not significant, some brands are experiencing scarcity, making whiskey difficult to obtain, so purchases are expected to continue. Moreover, with the enforcement of the revised Customs Act Enforcement Rules before Chuseok, the duty-free limit for alcohol will increase from one bottle to two, which is expected to further boost alcohol consumption.

In fact, looking at the sales status of the Jeju Free International City Development Center (JDC) and Jeju Tourism Organization (JTO) designated duty-free shops, the proportion of alcohol sales is very high. Among JDC duty-free shop's sales of 351.949 billion won in the first half of this year, the best-selling item was Ballantine's 30-year-old whiskey, reaching 12.9258 billion won. Similarly, alcohol held the top sales position at JTO designated duty-free shops with 9.06724 billion won.

Meanwhile, the government recently announced a legislative notice for the revision of the Customs Act Enforcement Rules, including raising the duty-free limit before Chuseok. The duty-free industry plans to continue promotions aimed at increasing benefits for domestic customers. However, with the high exchange rate continuing, the effectiveness remains uncertain. Some express concerns that the combination of a sharp rise in exchange rates and high inflation could lead to a contraction in consumption itself.