Why Did KT&G and PMI Join Forces... Philip Morris Accelerates Globalization of the Lil Electronic Cigarette They Sell

On the 29th, Baek Bok-in, President of KT&G (left), and Andre Calantzopoulos, CEO of PMI (right), are taking a commemorative photo after signing a global export-related agreement at the Four Seasons Hotel in Gwanghwamun, Seoul.

원본보기 아이콘

[Asia Economy Reporters Lee Seon-ae and Choi Sae-hye] South Korea's top tobacco company KT&G and the world's leading tobacco company Philip Morris International (PMI) have joined forces. This collaboration aims to globalize KT&G's electronic cigarette brand, Lil. The partnership aligns KT&G's efforts to globalize Lil through PMI's world-class distribution network and expertise with PMI's interest in shifting and fostering the global tobacco market toward electronic cigarettes, marking a true "alliance with the enemy." Although Lil and IQOS fiercely compete in the domestic market, both companies have come together to ensure the success of this agreement for the future value of electronic cigarettes.

At the 'KT&G-PMI Global Collaboration' event held on the 29th at the Four Seasons Hotel in Gwanghwamun, Seoul, KT&G CEO Baek Bok-in emphasized the significance of the partnership, stating, "Collaboration with PMI is a historic milestone in the global tobacco industry, reaffirming our brand competitiveness and product development capabilities." He expressed his ambition, saying, "We will lead the tobacco industry more innovatively by setting new market standards for the future tobacco market."

KT&G will supply Lil products to PMI, which will sell them worldwide except in South Korea. Both companies agreed to establish a global cooperation system to launch products in more countries as market performance is confirmed and to expedite sales within this year. The initial contract period is three years, with plans to establish a long-term partnership if results are favorable. The revenue-sharing structure involves PMI generating profits from sales, while KT&G receives payment and royalties based on the supply price.

The products to be sold globally through PMI include four types of KT&G's heated tobacco products currently released domestically: Lil Hybrid, Lil Plus, Lil Mini, and the liquid-type electronic cigarette Lil Vapor, with future new products also included. The companies are considering co-branding options for overseas sales, potentially using both the 'Lil' and 'IQOS' brand names.

KT&G cited PMI's vast distribution network and infrastructure as the primary reason for partnering with a competitor rather than opting for direct exports. Im Wang-seop, KT&G's Business Director, explained, "Even after detailed comparisons regarding profitability with direct exports, utilizing PMI's distribution network and infrastructure was deemed far more efficient." He added, "The strong brand power of IQOS in overseas markets also played a role in this collaboration." KT&G expects significant synergy effects by co-branding Lil and IQOS through this partnership.

PMI engaged in the collaboration based on trust in KT&G's outstanding technology and innovative portfolio. PMI CEO Andre Calantzopoulos stated, "This partnership will set new standards in the tobacco industry," emphasizing, "Through this agreement, we will offer smokers worldwide a wider range of flavors and price options based on KT&G's successfully commercialized products in the domestic market, accelerating our vision of a smoke-free future."

Launched in November 2017, Lil was the first heated tobacco product to feature continuous use functionality, allowing users to enjoy it without being constrained by charging conditions, while closely replicating the taste of traditional cigarettes. It successfully established itself in the next-generation tobacco market. Subsequently, KT&G released new models reflecting consumer needs: Lil Plus in May 2018 and the smaller, lighter Lil Mini in October 2018. In November of the same year, KT&G introduced Lil Hybrid, a unique platform combining heated tobacco with liquid cartridges. It features reduced characteristic burnt taste of heated tobacco, rich and consistent vapor production, and improved device cleaning convenience. The Lil series has received strong responses from electronic cigarette users, surpassing one million units sold within a year of launch, with total sales reaching 2.1 million units as of this month.

KT&G anticipates a sharp increase in heated tobacco exports this year due to the agreement. Im stated, "Last year, actual exports were limited to some duty-free sales in Japan and Vietnam," adding, "Starting this year, we will actively expand into many countries through strategic collaboration with PMI, significantly increasing export volumes compared to last year."

KT&G aims to become one of the 'Global Big 4' companies by 2025. The company is focusing on overseas market expansion to complete a balanced business portfolio not only domestically but also globally, planning to increase the number of countries it operates in from around 80 to over 100 by the end of this year through aggressive new market development.

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.