Daily Times

TOKYO: Japan Tobacco Inc plans to spend $500 million to quadruple its smokeless tobacco production capacity by the end of 2018, as it races against bigger rival Philip Morris for a larger share of the Japanese vaping products market.

Global tobacco firms see Japan as a fertile test ground for vaping products since e-cigarettes using nicotine-laced liquid are not allowed under the country’s pharmaceutical regulation. While the Marlboro maker’s heat-not-burn “IQOS” tobacco device is already enjoying strong demand in Japan, Japan Tobacco’s launch of its “Ploom Tech” product has run into delays.

“It’s embarrassing for a tobacco company top to say this, but I did not expect this,” said Japan Tobacco CEO Mitsuomi Koizumi, referring to the popularity of IQOS, which had about a 10 percent market share in April, from 7.6 percent in January.

Japan Tobacco is looking for mergers and acquisitions (M&As)in emerging markets, such as Southeast Asia, Africa and Latin America, as well as opportunities to invest in startups that have patents and technology for alternative tobacco products, the CEO of the world’s No.3 tobacco company said.

With more people shifting to smokeless products such as IQOS due to health concerns, Japan Tobacco’s domestic cigarette sales volume is likely to fall 9.6 percent this year.

“It’s shocking. I am doing this business for more than 35 years but I have never experienced losing 10 percent in volume in one year,” said Koizumi, a career insider who took the top job at the company in 2012.

Demand for traditional cigarettes may come under further pressure given the prospect of tougher regulations as Japan tries to introduce an anti-smoking law ahead of the 2020 Summer Olympic Games in Tokyo.

Koizumi said he expects vaping products, including Ploom Tech and IQOS, to grab as much as 25 percent of Japan’s cigarette market by the end of 2018.