Korea Tobacco & Ginseng Corporation executes a long term agreement with global tobacco giant PMI
For the purpose of introducing its next-generation product, "lil," onto the international market, KT&G has engaged into a new, long-term contract with Philip Morris International (PMI) that will last 15 years.
KT&G and PMI held a KT&G-PMI GLOBAL COLLABORATION event on the 30th at the Seoul Conrad Hotel to celebrate their supply agreement for the international distribution of KT&G's smoke-free product "lil." Senior executives from both businesses, including the CEOs of each, Baek Bok-In of KT&G and Jacek Olczak of PMI, were present as the deal was signed. They also posed for pictures to commemorate the occasion.
The 15-year contract, which runs from January 30th, 2023, through January 29th, 2038, is a long-term collaboration with three-year performance review cycles that give flexibility for changing market conditions. With the exception of Korea, PMI will continue to sell the smoke-free goods that KT&G will continue to provide to it.
The agreement covers heat-not-burn tobacco products that have already been released in Korea, such as the "lil Solid," "lil Hybrid," and "lil Aible" devices and their corresponding dedicated sticks, which are the "Fiit," "Miix," and "Aiim," respectively, as well as other cutting-edge products that will be released in the future.
The stability of the business was ensured by the two companies setting volume commitments for NGP consumables. Three-year performance review cycles that give the volume commitments flexibility for shifting market conditions are a must. From 2023 to 2025, the first year of the contract, PMI will promise to sell at least 16 billion sticks.
KT&G predicts that the CAGR of its global NGP revenue over the next 15 years will be 20.6% and that the CAGR of its global NGP consumables volume over the same time period will be 24.0%, based on its own independent assumptions. Additionally, the arrangement gives KT&G's smoke-free products access to PMI's distribution network and commercialization resources, which will maximise resource savings and improve financial efficiency.
The first version of "lil" was released by KT&G in 2017, and the company has since launched a variety of unique goods that incorporate its own independent technology. In the domestic smoke-free market last year, KT&G's products recorded the largest market share.
In order to launch a full-fledged international growth of and establish a distribution network for "lil," KT&G engaged PMI as its partner in January 2020. With the addition of KT&G as a strategic partner, PMI was able to provide a wider range of cutting-edge goods.
The two companies initially launched "lil" in three markets, including Japan, in 2020. By expanding their international market coverage to include important European nations like Italy and Greece as well as the Central American region, they were able to expand "lil" into 31 markets globally.
Baek Bok-In, CEO of KT&G stated, "we are now able to further raise the competitiveness of KT&G's smoke-free products in the overseas market and establish a basis for stable growth of our global business through the advancement of the strategic partnership with PMI", as he added "KT&G will make efforts to acquire world-class capabilities to become a global top-tier company in NGP earlier than planned and to lead the next generation tobacco market".
Jacek Olczak, CEO of PMI stated, "Smoke-free products of the two companies will play a complementary role to each other, providing a more innovative product portfolio to more consumers", as he added "This agreement clearly shows the two companies' commitments to provide better alternatives to about one billion smokers around the world"