JT to Spend 600 Billion Yen on "American Spirit"

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– the Cigarette of Choice for Men Who Want to Be Popular
@Nikkei Business

On September 29, Japan Tobacco (JT) announced that it will acquire the overseas operations of the popular cigarette brand “Natural American Spirit” from Reynolds American, a major U.S. tobacco company, in early 2016. Known in Japan as “Ame-Spi,” the brand has been gaining popularity, especially among younger consumers. JT will acquire the trademark rights and nine overseas distribution subsidiaries, mainly in Japan and Europe, for approximately 600 billion yen, aiming to expand sales in markets outside the U.S. Production facilities and domestic sales rights within the U.S. will remain with Reynolds.

American Spirit, launched in 1982 and produced by Santa Fe Natural Tobacco, a subsidiary of Reynolds, is known for its packaging featuring Native American imagery. The cigarettes are made without additives such as flavoring or preservatives and use only natural, high-quality tobacco. A notable characteristic is that they contain about 25% more tobacco than typical products.

Japan’s tobacco market has been in long-term decline. JT’s domestic sales volume in 2014 was down 3.6% year-on-year to 112.4 billion sticks. The overall market is projected to continue shrinking by 3–4% annually. The decline is driven by a growing health consciousness, leading to fewer smokers, as well as tax increases causing price hikes, further reducing demand.

Dominant Support from People in Their 20s and 30s Globally, American Spirit sold about 7 billion cigarettes in 2014, with approximately 3.1 billion of those sold outside the U.S. Among these, Japan accounted for 1.5 billion — nearly half of the non-U.S. total. What’s particularly noteworthy is the growth rate in Japan: from 2011 to 2014, sales increased by an average of 36% per year. While its market share in Japan was 1.3% (from January to August 2015), far below leading brands like “Mevius” (about 30%), JT states that American Spirit is “rapidly expanding, especially in convenience stores.”

Another strength of American Spirit is its overwhelming popularity among younger consumers. According to JT’s research, the average share of smokers in their 20s and 30s across all brands is 33%, but for American Spirit, it's 52%, meaning more than half of its smokers are in this age group. In an aging society where the smoking population is also getting older, a brand so strongly supported by younger generations is a rare exception.
In a statement, JT President Koizumi emphasized, “In Japan, the brand has grown at an astonishing speed, driven by strong support from people in their 20s and 30s living in urban areas,” and called the acquisition “a golden opportunity to strengthen top-line growth in our domestic tobacco business.” Though it is technically an overseas M&A, the move clearly reflects JT’s focus on capturing the younger domestic market.

American Spirit’s appeal among the youth stems from savvy branding. The brand incorporates product characteristics like “additive-free” and “natural” into its promotions, using catchphrases such as “Tobacco is agriculture” on posters. Coupled with its striking packaging, it has cultivated an image of being “cool,” particularly among younger consumers. Though priced at 480 yen per pack — higher than JT’s mainstay brands like “Mevius” (430 yen) and “Seven Stars” (460 yen) — JT believes the premium pricing and high-quality brand image give American Spirit a strong competitive edge.