Big Tobacco Is Starting To Cash In On Vaping

TOKYO (Reuters) - Two tobacco giants are seeing strong demand for their reboots of the e-cigarette in Japan, with Philip Morris International twice postponing a nationwide rollout and Japan Tobacco suspending shipments - both due to supply shortages.

Japan has become a key testing ground for the two companies and their new, real tobacco e-smokes as they grapple with shrinking demand for traditional cigarettes in other developed countries.

Philip Morris, the world's largest tobacco company, has postponed the nationwide rollout of its iQOS to April 18.

"We believe that the success of iQOS commercialization in Japan will accelerate its global expansion," Philip Morris Japan president Paul Riley told Reuters.

Japan Tobacco CEO Mitsuomi Koizumi told an earnings briefing in February: "We have very high expectations for growth of the so-called tobacco vapor category in five years or so from now."

The iQOS is a tobacco stick that is heated just enough to produce an aerosol but not combust. The company is betting the presence of real tobacco will make it more satisfying to smokers than existing e-cigarettes.

The new device, priced at 9,980 yen ($89), appears similar to other e-cigarettes in that it is pen-shaped and battery-powered, and is heated to release tobacco vapor.

A key distinction is the refills, sold as Marlboro HeatSticks. Most e-cigarettes sold elsewhere use nicotine-laced liquid, which is heavily regulated in Japan. A pack of 20 HeatSticks sells for 460 yen, the same as regular Marlboro cigarettes.

Philip Morris has introduced the products in major cities in Switzerland, Italy and other countries, but Japan is the first country it plans a nationwide release.

The company had originally planned to sell the product throughout Japan on March 1, but postponed the launch to the end of the month due to a potential supply shortage after it saw stronger-than-expected sales in 12 prefectures where it has been test marketing.

The company estimates the market share of Marlboro HeatSticks reached 2.4 percent in Tokyo at the end of January.

Japan Tobacco, which commands about 60 percent of Japan's cigarette market and is the world's third-largest tobacco maker, has also got in on the action by acquiring two overseas e-cigarette makers in the past two years.

In Japan, it has launched the Ploom TECH, priced at 4,000 yen and sold with 460-yen packs of five capsules. Ploom TECH's selling point is that vapor generated from a liquid cartridge passes through the capsules' granulated tobacco, creating a taste the company says is close to the real thing.

"There is definitely a need for products that are smokeless but are still satisfying as cigarettes," said Masanao Takahashi, director at Japan Tobacco's emerging products marketing division.

Like iQOS, Ploom TECH's initial launch in the southern Japanese city of Fukuoka proved so popular that the shipment of the device were suspended after a week due to a supply shortage.

It is currently working on a nationwide launch and is also eyeing a global expansion later this year.

(Editing by Nick Macfie)