Japan ‘Panics’ Over Lack of Cigarettes

Foreign cigarette makers have taken the unusual step of air freighting cigarettes to Japan to make up for a plunge in supplies, after last month’s natural disaster knocked out a third of the country’s cigarette production.

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British American Tobacco and Philip Morris are racing to import cigarettes from the US and Europe to meet strong demand for their products, following earthquake damage to two cigarette factories of Japan Tobacco, the country’s dominant producer.

“We have received what might be described as panicked orders from retailers after the March 11 disaster,” said a representative of BAT Japan.

“Certainly demand for our products has increased, since some people who buy JT products are buying our products (instead),” a Philip Morris representative said.

JT, which controls 65 per cent of the market, suffered damage at two cigarette production facilities in northeastern Japan and has stopped all cigarette shipments in the past 10 days in order to reorganize production to focus on its best-selling brands and build inventory.

It will try to resume production at two factories next week and will only be shipping 25 per cent of its normal volumes this month, it said.

To meet potentially pent-up demand, BAT has doubled inventories from one to two months while Philip Morris also said inventory levels had risen.

JT is also suffering a shortage of cigarette filters, after one of four filter producing factories owned by a subsidiary was damaged in the disaster.

The group aims to bring cigarette production back to 90 per cent of normal volumes by the end of May, when it will ship 25 of its leading brands that represent about 65 per cent of its revenues.

JT’s plight comes as an unexpected windfall for BAT and Philip Morris, whose market share in Japan is about 11 per cent and 20 per cent respectively.

Japan is the fifth largest cigarette market in the world by volume but the high price of cigarettes – a pack of the leading brand costs Y440 – makes it a lucrative market.

Consequently, Japan “is a very important market for companies that sell premium products”, said BAT.

CNBC - Disaster in Japan - Japan Earthquake and Tsunami
CNBC - Disaster in Japan - Japan Earthquake and Tsunami

The boost to profits in Japan comes as global cigarette groups face tighter regulations in Australia, which isimposing plain packaging for all makers.

Cigarettes are among a diverse range of daily goods that are in still in short supply as a result of the March 11 earthquake and tsunami, which led to the death or disappearance of more than 27,000 people.

The disaster has highlighted the role of the earthquake and tsunami-devastated Tohoku region as a production base for many products that are low-tech but nonetheless constitute a crucial link in the supply chain of everyday goods.

Production of bottled drinks, for example, has had to be cut, in part due to a lack of bottle caps.

Two of Japan’s top three bottle cap makers, Japan Crown Cork and Yamamura Glass, which supply about two-thirds of the Japanese market, have not been able to resume operations at their Tohoku factories since last month’s disaster.