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Business

Philip Morris eyes price hike for most cigarettes in Japan

Unusual circumstances highlight shift in focus to smokeless alternatives

The iQOS heated-cigarette system from Philip Morris.

TOKYO -- Philip Morris Japan plans to raise prices on around 80% of the conventional cigarettes it sells here, a rare step in the absence of a tax hike, as it tries to cope with a shrinking market by leveraging new technology.

The company will file with the Ministry of Finance for an increase of 10 yen (9 cents) a pack for 85 of 103 products under four brands of American tobacco giant Philip Morris International, including Marlboro, Parliament and Virginia S. This translates to a hike of 2.2% to 2.6%.

The ministry generally allows cigarette price hikes only when taxes are being raised, since costlier smokes can push down consumption and tax revenue.

This time, the company has apparently decided to seek a price increase anyway to maintain quality as the market continues to contract. The move would take effect as early as summer. When Philip Morris raised prices in Japan last year, worries over a sales slowdown led it to narrow the scope of the hikes to just five products.

The Japanese market for cigarettes shrank about 40% over a decade to 183.3 billion cigarettes in fiscal 2015, according to the Tobacco Institute of Japan. And the industry is seen facing stronger headwinds as debate over the harm of secondhand smoke heats up.

Where there's no smoke ...

But the advent of safer alternatives seems to have ignited some hope. Major cigarette companies are sharpening their focus on cigarettes that electronically heat liquid or tobacco leaves to release flavors and nicotine.

Philip Morris rolled out heated tobacco in Japan ahead of others last year under the iQOS brand and introduced a new version this March. It will hold prices steady on heated cigarettes even as it moves to raise prices on conventional offerings.

Heated cigarettes do not actually burn the tobacco, so they emit no smoke and less unpleasant odors. Reduced tar also makes them healthier than regular cigarettes.

Japan Tobacco has introduced its own version under the Ploom Tech brand and plans to invest around 50 billion yen in Japanese and Chinese factories to boost supply capacity.

British American Tobacco is slated to release glo heated cigarettes in Japan by the end of 2017.

Heated cigarettes require special devices that cost 4,000 yen or more, along with compatible cigarettes for 420 yen to 460 yen a pack. With the different systems helping manufacturers lock customers in, the new cigarettes may serve as a springboard for growth.

(Nikkei)

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