September 8, 2010 - Demand for cigarettes has soared ahead of the scheduled tobacco tax hike on October 1, 2010 and tobacco companies and convenience stores are trying to cash in as consumers stock up before prices rise.
Plans are being made for after the tax hike as well--drugstores are expanding their lineup of products to help people kick the habit, while Japan Tobacco Inc. (JT) plans to remodel its products to prevent a sharp decline in sales.
The price of most cigarette brands will be raised by 60 yen (0.71 USD) to 140 yen (1.67 USD) per 20-cigarette pack, the highest increase ever. JT's major brand, Mild Seven, will be raised from 300 yen (3.57 USD) to 410 yen (4.88 USD), and Philip Morris Japan's Marlboro will go from 320 yen (3.81 USD) to 440 yen (5.24 USD).
The upcoming price increase will be the largest ever for cigarettes in this country. JT expects cigarettes sales in September to be double the average amount for that month.
Sales are expected to peak in late September, when many company employees receive their salaries at the end of the month. Tobacco manufacturers and retail shops are promoting cigarette sales. Convenience stores are particularly desperate, as cigarettes are one of their major sources of revenue. "[Sales of cigarettes] account for about 22 percent of our total sales," an official of FamilyMart Co. said.
Giving discounts on cigarettes is banned by law. Therefore, convenience store operators including Seven-Eleven Japan Co., Lawson Inc. and FamilyMart are conducting sales campaigns in cooperation with tobacco companies, offering lighters, bags and other gifts to customers who purchase certain amounts of certain brands.
To prevent its stock from running out, Circle K Sunkus Co. is distributing leaflets urging consumers to make reservations to buy cigarettes. However, the current surge in demand may eat into future demand, and tobacco-related industries are concerned cigarette sales will drop sharply after the tax hike.
Based on overseas examples of tobacco tax hikes, JT projects cigarette sales will drop by 25 percent over the year through the end of September 2011 from the previous year. Many people also buy coffee, alcoholic drinks or magazines when they purchase cigarettes at convenience stores, so these retailers fear lower cigarette sales may affect their overall performance.
Some convenience stores are preparing to sell candy and chewing gum at a discount, believing smokers will substitute such items for cigarettes.
In an effort to boost its cigarette sales, JT plans to remodel Mild Seven and other key brands over several years, changing their package designs to make them look more sophisticated. "Cigarettes will become luxury items after the tobacco tax hike. We're willing to invest to make our products worthy of their price," JT President Mitsuomi Koizumi said. (Japan Tobacco (JT) - Mild Seven adding a new menthol and redsigning 15 varieties to keep domestic market sharegrowth..)
JT also plans to develop new products, following the success of the company's popular Zero Style Mint smokeless tobacco, which has been in short supply due to its extreme popularity. (Japan Tobacco, Inc. Zero Style Mint, company says it is selling well..)
Antismoking goods also strong.. The scheduled tobacco tax hike has given a boost to businesses targeting people trying to quit smoking. At Sugi Holdings Co., a major drugstore chain headquartered in Aichi Prefecture, sales of nicotine gum and e-cigarettes increased 50 percent in May and June from the same period last year.
The increase followed JT's application to the Finance Ministry on April 28 to raise the tobacco tax.
An increasing number of customers have asked store clerks about effective ways to stop smoking, the company said. In response, Sugi Holdings plans to have pharmacists offer counseling services in some of its stores in Osaka and Aichi prefectures for people who want to quit smoking.
In late August, Tokyo-headquartered Cocokara Fine Holdings Inc., which operates the Seijo chain of drugstores, set up a section for nicotine gum and other smoking cessation aids in some of its major stores.
Reference: Smokers stock up before tax hike, Mamoru Kurihara / Yomiuri Shimbun Staff Writer, Daily Yomiuri.co.jp, 9/7/2010.
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