Chaebols Enter, Disposables Surge... Can the South Korean Vape Market Rise?

On January 15, BAT Rosmans, a subsidiary of British American Tobacco (BAT), announced the nationwide expansion of its vape product "Vuse Go 800" in South Korea, now available in 30,000 convenience stores and tobacco shops across Seoul and other regions.

 

VUSE first entered the South Korean vape market in mid-July 2023. Six months later, the brand is pushing further to expand its sales network nationwide.

 

VUSE’s move is not unique. Since 2023, many Chinese disposable vape brands have entered the South Korean market. Among them, ELFBAR entered in early February and signed an exclusive distribution agreement with the well-known Korean distributor Setopia. Other famous brands like LOST MARY and ELUX also followed suit, disrupting the market, which had previously been dominated by open-system vapes.

 

The influx of these prominent disposable brands has attracted significant attention within the vape industry. Industry insiders are speculating whether this marks the rise of the disposable vape market in South Korea.

 

Against this backdrop, on January 15, reporters spoke with several South Korean vape industry professionals to gain insight into the current state of the South Korean vape market.

Disposable Market Gaining Momentum, but No "Clear Leader" Yet

According to data released by South Korea's Customs, South Korea imported $200 million worth of vapes in 2023. Of this, more than 77% was related to vape devices (including heat-not-burn and open-system devices), while oil-based products (closed-system vapes, including disposables and pod systems, though the latter has had a relatively lackluster performance in the Korean market) accounted for 23%, or approximately $57.8 million, continuing to rise month by month. In December, oil-based products saw a 47% increase, reaching $7.2 million. This data trend aligns with the arrival of various disposable vape brands in the South Korean market.

 

However, this data does not fully reflect the actual size of the South Korean vape market. An industry professional with years of experience in the South Korean vape sector revealed that due to the stringent nicotine product testing requirements by South Korean customs, most of the disposable vapes entering the market are semi-finished products that require further processing, such as oil filling, after arriving in South Korea. Therefore, the actual market share of disposables is far higher than the $57.8 million shown in the import data.

 

Unlike the trends in Europe and the US, where open-system vapes dominate, the South Korean market, due to high taxes on vape liquids, has favored more cost-effective open-system vapes. This has also led to the development of a robust vape liquid industry in South Korea. Many specialty stores in South Korea previously focused exclusively on vape liquids and did not engage in selling devices—a contrast to markets in Europe and the US.

 

However, recently, many of these specialty stores have begun selling devices along with vape liquids, and some have even started to offer disposable vapes. Industry insiders explain that two years ago, when vape liquids were highly profitable, retailers could focus solely on liquid sales for substantial earnings. However, with many new liquid companies entering the market in the past two years, profit margins on liquids have dropped significantly, squeezing the survival space for existing vape liquid companies. This has led to a reduction in both the unit price and profit of open-system vapes. In the face of this intense market competition, these companies have had to expand their product lines and introduce closed-system vapes (mainly disposables) to cater to the diversifying market demand.

The industry professional noted that the market is currently in the "Spring and Autumn Period" (the early stages of development), and a clear "market leader" has yet to emerge. Among the brands that entered South Korea in 2023, ELFBAR stands out with the best performance, while VUSE’s results have been more modest. Meanwhile, MONS, a brand that has been in the market for a longer time (suspected to be acquired by RELX), continues to perform well.

 

Overall, while the disposable vape market in South Korea is showing some potential, it has not yet experienced a massive breakout. One industry insider familiar with the South Korean vape market explained that this phenomenon is largely due to the fact that most vape products arrive in South Korea as semi-finished goods and require assembly and oil filling locally. Given that labor costs in South Korea are high, this significantly reduces retail profits.

Taking a 10ml product as an example, various costs—including labor, vape liquid, devices, packaging, and distribution—are involved. In the past, a $1 vape product could be sold for $5, with importers and wholesalers only needing to cover distribution costs. Retailers could earn a 100% profit margin, and intermediaries also made substantial profits.

 

However, the situation has changed. For a vape priced at 13,800 KRW (about $10), if its export price is $3, the assembly cost in South Korea is $2, plus an additional $2-$3 in distribution profit, leaving retailers with only around $3 in profit. This situation has made retailers less interested in selling disposable vapes, thus restricting the large-scale development of the disposable market.

Over-Regulation Limiting Market Growth

In 2022, South Korea's population was 51.63 million. According to statistics, in 2020, around 19.2% of the South Korean population smoked. Many industry professionals believe that South Korea's vape market holds significant potential.

 

An industry professional who works as a brand agent in South Korea disclosed that South Korean consumers are very receptive to vape products, and the average spending on vapes is quite high. With these conditions, South Korea should theoretically be a good market for vapes.

 

However, the actual performance of the South Korean market has been disappointing, leading this person to describe it as "tasteless but hard to abandon." One of the key reasons for this situation is the excessive regulation of the vape industry in South Korea.

 

South Korea has a unique taxation system for vape liquids: it imposes high taxes on natural nicotine but does not tax synthetic nicotine. As a result, most vape liquids in South Korea use synthetic nicotine to avoid the high taxes on natural nicotine. There are also cases where natural nicotine is disguised as synthetic nicotine.

 

To address this, South Korean customs have been promoting technological innovations to improve the detection of natural nicotine that has been disguised as synthetic nicotine.

 

Nevertheless, there are still many cases of "misjudgment." The industry professional shared their experience of a batch of synthetic nicotine products being mistakenly identified as natural nicotine by customs, leading to a three-month detention of the goods.

 

It's not just customs enforcement that is strict. The professional noted that five major South Korean departments—the customs office, police, food and drug administration, national complaints center, and tax bureau—have an "unfriendly" attitude toward the vape industry. Specifically, from customs clearance to retail, these products are subjected to strict checks, and the five departments take turns enforcing the rules. Vape companies almost always face inspections from at least one of these departments every month. This constant enforcement environment poses significant operational challenges for vape businesses.

 

On October 26, 2023, South Korean media reported that the government had uncovered 39 companies suspected of evading vape liquid taxes, involving a total of 175.5 billion KRW (about $130 million). This revelation shocked the entire South Korean vape industry, with some insiders suggesting that this amount could even exceed the current size of the South Korean vape market.

 

However, the South Korean government appears to have recognized the flaws in this taxation system, and there is a possibility that synthetic nicotine will be taxed in 2024, with related legislation currently under discussion.

 

The Pros and Cons of Conglomerates Entering the Market

The main sales channels for vapes in South Korea can be categorized into three types: convenience stores, specialized vape shops, and emerging "outside-the-circle" channels, such as clothing stores.

 

Industry insiders revealed that, due to limitations in the growth of South Korea’s clothing and entertainment industries, some large companies led by conglomerates have started to gradually venture into the vape business. However, these large companies are still in the stages of researching new products and negotiating with the government, and they have not yet formed large-scale operations.

 

The entry of conglomerates is expected to break the established market structure in South Korea. Industry participants generally believe that their involvement in the vape industry has both advantages and disadvantages. On the one hand, because these conglomerates have more leverage in negotiations with the government, they may be able to push for lower taxes and more relaxed regulations, which could help foster the growth of the industry. On the other hand, their involvement may lead to the closure of smaller businesses, resulting in greater industry concentration.

 

Looking ahead, a professional with years of experience in open-system vapes expressed confidence in the South Korean market’s future. They believe the market holds great potential, and the involvement of well-known disposable vape brands and conglomerates will undoubtedly inject new energy into this currently sluggish market, breaking the existing market dynamics.