KT&G Signs Overseas Sales Agreement with Philip Morris
15-Year Long-Term Partnership... Expanding to 31 Countries
KT&G and global tobacco company Philip Morris International (PMI) have once again joined forces by signing a supply agreement for overseas product sales. While fiercely competing for dominance in the heated tobacco market domestically, they are pursuing a 'win-win' strategy in overseas markets by leveraging their respective strengths in product quality and global distribution networks.
On the 30th, at the product supply contract signing ceremony for overseas sales of the electronic cigarette Lil held at the Conrad Hotel in Yeouido, Seoul, Baek Bok-in, President of KT&G, and Jacek Olczak, CEO of PMI, are shaking hands. Photo by Song Seung-yoon
"Cooperation Overseas, Competition Domestically"
According to industry sources on the 31st, KT&G and PMI signed a product supply agreement the day before for the overseas sales of the electronic cigarette device Lil. This long-term contract spans 15 years, under which KT&G will sell electronic cigarette products worldwide through Philip Morris's global distribution network. The two companies initially signed a supply agreement for overseas sales in 2020. As the contract expiration approached this year, they renewed their partnership for another 15 years. The contract period extends until 2038 and covers devices such as Lil Solid, Lil Hybrid, Lil Able, and their dedicated sticks, as well as future products to be launched. KT&G’s products are expected to be sequentially distributed in all countries where PMI currently supplies its products.
So far, KT&G has entered 31 countries through PMI, including EU countries, Central Asia, and Central America. They plan to continuously increase the number of countries entered and distribution volumes. KT&G forecasts an average annual sales growth rate of 20.6% and an average annual stick sales volume growth rate of 24% for its overseas NGP (Next Generation Products) business over the next 15 years.
The partnership between the two companies has also attracted attention in the distribution industry. For KT&G, the biggest advantage is reducing distribution costs required for global expansion by utilizing PMI’s global distribution network and minimizing risks associated with independent market entry. They judged that the benefits of cooperative entry outweigh those of going solo. The vast scale of PMI’s global distribution network also played a significant role. PMI views the biggest advantage as enhancing its product portfolio beyond the highly market-shared IQOS by incorporating KT&G’s innovative products.
While they actively cooperate overseas, competition to secure market share is intense domestically. In the heated tobacco market, KT&G holds about 50% and Philip Morris Korea about 40%, maintaining a fierce two-horse race. Philip Morris Korea led the domestic electronic cigarette market for about five years after launching IQOS in 2017 but lost the top market share position to KT&G in the first quarter of last year. KT&G introduced the AI-equipped new product ‘Lil Able’ in November last year, and Philip Morris Korea officially launched the new IQOS Iluma series in the same month. This year, Philip Morris Korea plans to release a new IQOS Iluma product next month. BAT Rothmans, ranked third in the market, also announced plans to launch a new ‘glo’ product in the same month, intensifying the competition in the heated tobacco market.
A KT&G official said, "By additionally utilizing PMI’s commercialization capabilities and distribution infrastructure, we have strengthened financial efficiency and maximized resource-saving effects. We have established minimum purchase quantity standards for electronic cigarette sticks to enhance business stability and plan to review performance every three years to flexibly respond to changing market conditions."
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