KT&G Successfully Explores Niche Markets for Cigarettes Overseas
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KT&G Successfully Explores Niche Markets for Cigarettes Overseas
The tobacco and ginseng monopoly firm sees its gamble with low-nicotine content pay off in big way, helping annual cigarette exports grow to over $700 million

05(Sun), Feb, 2017

Korea Tobacco and Ginseng Corp. has turned its operation around in recent years to become an export-oriented company that is no longer dependent on Korea’s domestic market alone for survival.

The company now boasts $700 million in overseas sales, joining the list of domestic firms who do better overseas than at home. The company credits positive overseas marketing and products that are tailor-made for customers overseas.

To overcome economic downturns, companies need to adapt management strategies. They either have to employ colorful new marketing to attract customers, or attack niche markets.

KT&G did both, selling 46.5 billion cigarettes overseas, compared to domestic sales of 40.6 billion cigarettes in 2015. 

According to its sales figures, some 10 billion more cigarettes were through the third quarter of 2016 year-on-year, bringing total sales in the first three quarters of the year to 36 billion cigarettes. It is likely that annual sales in 2016 will be the highest in KT&G’s history. KT&G exports its cigarettes to some 50 countries, making it the 5th largest cigarette maker in the world. Only a scant five years ago, the company had a hard time matching the sales of some of the top cigarette makers in the world, such as Philip Morris of the United States, BAT of Britain, and JTI of Japan. 

The market was so crowded that KT&G had to come up with something new.

What KT&G came up with to compete with rival cigarette makers was a new slim-type cigarette, 5.4 mm thick, which was marketed as “Esse.” 

The effort paid off as sales around the world soared. 

Now, slim-type cigarettes take up half of the company’s overseas sales, an impressive record for Korean-made cigarettes.

A key factor of the success of the new type of cigarette has been the low-nicotine content compared to the other types of cigarettes that have much higher nicotine content. They also have different tastes. 

KT&G has been marketing a premium class of slim-type cigarettes to give customers a wider choice. They have been pushing the sale of those cigarettes in diverse regions around the world, and now they are shipped to around 50 countries.

The tobacco firm has further room for growth. According to figures announced by the Financial Services Commission, KT&G saw its operating profit rise 15 percent year-on-year in the first three quarters of last year marking 426.3 billion won on sales of 1.220 trillion won, up 7.6 percent year-on-year.

KT&G may be able to increase the dividend payment to its shareholders this year, KT&G officials said, judging from the profits earned in the first three quarters of last year and its fund management plan. Last year, the dividend payment for 2015 came to 3,400 won per share and a stock analyst said a 3 percent dividend payment for this year may not be too far off in estimating the dividend based on the earnings for 2016. 

KT&G's business prospects seem to improve by the day, according to analysts. As South Korea's top cigarette maker, it enjoys about a 70 percent market share and exports its products under more than 20 brand names to the U.S., China, and Central and Southeast Asia. About 20 percent of KT&G's sales come from outside its home country. 

KT&G, which in 2011 was buying a 60 percent stake in Indonesian tobacco firm Trisakti, partners with Imperial Brands to make its Davidoff brand in South Korea. The firm escaped government control in 2002 and has since added bio and pharmaceutical production and real estate to its core cigarette-making efforts. 

It got its start in 1899 as the Korean imperial household's exclusive supplier of tobacco and ginseng, hence the name KT&G. 

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