GS Retail, which operates the GS25 convenience store chain, teamed up with KT&G on the 30th to introduce a private-label (PB) electronic cigarette device. It is the first time in the convenience store industry to roll out a PB electronic cigarette device. This move is drawing criticism in the health care and retail sectors. They noted that, as politics and the government tighten tobacco regulations, this is a push into a regulatory blind spot.
According to related industries on the 7th, tobacco regulations have recently been tightening. On the 22nd, the National Assembly's Strategy and Finance Committee held the Economic and Finance Subcommittee and passed an amendment to the tobacco law. The core of the amendment is to include synthetic nicotine, which until now had not been regulated as tobacco, within the tobacco category. It still must pass the National Assembly's plenary session, but the prevailing view is that it will pass without difficulty.
Synthetic nicotine is a raw material for liquid-type e-cigarettes, yet it has not been regulated as tobacco until now. It took nine years from raising the issue to getting the amendment past the first hurdle in the National Assembly. A person in the health care industry said, "It was a very hard-won change."
The "lil Hybrid" electronic cigarette device that KT&G and GS Retail are rolling out is a heated tobacco product that uses both liquid and dedicated tobacco sticks. It does not use synthetic nicotine. So at first glance, it may seem unrelated to this tobacco law amendment. But the retail and health care sectors raise concerns that electronic cigarette devices remain in a regulatory blind spot.
Electronic cigarette devices are essential products for consuming tobacco. They are effectively the same as tobacco but are not regulated. They are essentially the same in nature as synthetic nicotine. When discussions first began years ago on amending the tobacco law, there were voices saying that electronic cigarette devices should also be brought within the scope of the law.
The U.S. Food and Drug Administration (FDA), in defining electronic cigarettes, also included "components." Based on this, there were calls that Korea should likewise regulate electronic cigarette devices. But in the tug-of-war between the tobacco industry and the health care sector, only synthetic nicotine ended up being included as a regulatory target.
In this context, what worries the retail and health care sectors is the variety of marketing strategies GS25 could pursue using PB electronic cigarette devices going forward. Because electronic cigarette devices are classified as industrial goods, active sales and promotion are possible, avoiding the various regulations that apply to tobacco.
What they fear most is a scenario where convenience stores apply character intellectual property (IP) marketing, which they often try. For example, they could market by putting "Sanrio" characters favored by young people from their teens to 30s on electronic cigarette devices and selling them as limited editions, or by tying in the currently popular "K-pop Demon Hunters" with electronic cigarette devices.
A retail industry official said, "There is a risk that, based on PB tobacco devices, pushing flashy designs could draw in new smokers such as teenagers and women." Because it can have the effect of encouraging smoking, they said it runs counter to the recent regulatory tightening.
There is also a view that the timing is problematic, with a private-label electronic cigarette device launched just days after the tobacco law amendment passed. A corporate government relations official said, "The tobacco law amendment has only just cleared the National Assembly's first hurdle, and with a national audit ahead, it is questionable whether there was any need to roll out a PB electronic cigarette device in a regulatory blind spot."
Of course, it has industrial significance. Recently, cigarette sales at convenience stores have steadily declined. This is due to falling smoking rates and the popularity of synthetic nicotine cigarettes sold at general stores rather than convenience stores. From the convenience stores' perspective, attempts to boost tobacco sales were needed. For KT&G, it is meaningful as an attempt to raise market share in electronic cigarettes at a time when it trails Philip Morris.
Within the convenience store industry, there is a mood of weighing gains and losses while watching GS25, which has "shouldered the burden." A convenience store industry official said, "I think it could contribute to raising cigarette sales. But considering that it runs counter to the smoking cessation policies pursued by the Ministry of Health and Welfare, and that if it conflicts with the social contribution activities carried out so far, even its sincerity could be questioned, the launch of PB electronic cigarette devices should be approached cautiously." In fact, in the retail industry, GS Retail is regarded as a top "honors student" in sustainable management. Through various social contribution activities, GS Retail received an integrated A+ grade in the Korea Corporate Governance Service assessment. Among these, the evaluation for the social area is A+.
Lee Seong-gyu, head of the Korea Tobacco Control Research and Education Center, said, "If aggressive marketing combined with popular characters is actually implemented, it poses a high risk of turning teenage nonsmokers into smokers." He added, "In particular, marketing ideas such as releasing limited editions with designs that young people consider 'hip (being up on the latest trends, trendy, and distinctive)' could mass-produce new teenage smokers. Regulation seems necessary."