RYO Paper in Asia: More Doom than Boom?

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By Thomas Schmid

It is normally quite impossible to summarize Asia in one short business article. The region’s countries are much too diverse from one another in so many aspects: culture, lifestyle, income level spreads, GDP, economic development, protectionist laws, monopolies, taxation, market sizes and, yes, consumer behavior and preferences. Yet when it comes to roll-your-own (RYO) cigarette paper, the task becomes relatively easy, because by and large Asia’s smokers are – spoiler alert! – not avid self-rollers.

Little Incentive to Switch to RYO

Apart from a few places such as South Korea, Japan, and Taiwan, factory-made cigarettes (FMCs) are considerably cheaper than almost anywhere else in the world, which effectively erodes the financial incentive offered by RYO in favor of sheer convenience. Secondly, in vast swaths of the continent, RYO is regarded as the resort of low-income earners or rural folks who simply couldn’t afford commercially produced cigarettes.

For many Asians, consuming FMCs is thus also a matter of self-image, of showing off to your peers that you are a “somebody.”

Perception Impedes Market Development

This attitude is markedly different from Europe and North America, where the practice of RYO is usually associated with a highly individualized, independent lifestyle – the domain of thinkers, academics, artists, and social rebels alike.

“There simply is no economic advantage in relation to factory-made cigarettes, which in most [Asian] countries are relatively cheap anyway,” explained Lisa Esser, head of corporate affairs and business development at Germany’s GIZEH Raucherbedarf GmbH. “Lifestyle factors like, for example, individuality, differentiation, personal choice, and so on, also have less relevance, because a self-rolled cigarette is still perceived as a ‘poor man’s cigarette.’ Last but not least, in many Asian countries the availability of quality fine-cut tobaccos at a good price is scarce; and without it, an enjoyable RYO smoking experience is not possible.”

Only a Fraction Goes to Asia

Of course, all of that doesn’t mean that Asia is a completely lost cause. Virtually all international brands are available across the region, even if consumers sometimes may have to search a little. For example, Gizeh is represented with its Mascotte papers in almost all Asian countries, its original house brand Gizeh trailing closely behind. Although Esser declined to disclose her company’s average market share in the region, she readily admitted that “only a small fraction of production output goes to Asia.” To her, it’s all about maintaining a brand presence to “raise Asian smokers’ awareness of a tasty, individual, and better-priced option offered by RYO” in order to be up and ready when  Asian markets can be tapped to their full potential in the future.

Adverse Market Conditions

But at least for the time being it can be quite a rollercoaster ride because of the factors already mentioned. Esser cited the case of Mascotte sales in South Korea, which suddenly took off rather strongly after a big price increase for FMCs in early 2015.

“But after trying out MYO and RYO for some months, most consumers eventually went back to factory-made cigarettes, most probably for convenience reasons,” she said. Meanwhile, in Japan, the company is confronted with a peculiar marketing situation that hampers sales of single paper booklets. Although a huge variety of RYO tobaccos and accessories is available there and consumers appear very curious to experiment, all imported fine-cut tobaccos come with rolling papers included, which effectively reduces single sales to a trickle.

RYO Paper in Asia: More Doom than Boom?

Image courtesy of Republic Technologies International

RYO Paper in Asia: More Doom than Boom?

Gabriel Alfaro, export area manager, Republic Technologies International

No Substantial Market to Capture

As for Thailand, another one of Gizeh’s more important markets, sales are mainly restricted to foreign tourists, especially British, Dutch, and German visitors who bring their RYO habit with them and want to continue enjoying it during their vacations. Apart from that rather narrow consumer segment, the outlook is otherwise rather bleak – and despite the fact that self-rolling is actually surprisingly wide-spread among locals especially in rural areas.

But Esser said there still was no substantial market to capture because those locals generally use home-grown tobaccos and cheap, non-interleaved, Thai-made papers. Often enough, the actual papers are even substituted by dried banana or pandanus leaves, which basically cost nothing. However, Esser said it was “definitely an improvement that [local consumers] are nowadays given an option through the wide-spread availability of RYO products.” But she also concluded that full market potential could only be approached “if social acceptance of self-made cigarettes grows as a matter of consumer individuality and personal choice.”

A Well-Known Brand May Ensure Better Acceptance

French company Republic Technologies has been involved in manufacturing rolling papers for a good two centuries, and through its global outfit, Republic Technologies International is well represented in Asia.

“Our key markets are Japan, Malaysia, and South Korea, where our Zig Zag, OCB, and JOB brands have been available for more than 15 years,” said export area manager Gabriel Alfaro. He claimed that through Zig Zag and OCB the company was able to secure a “significant” market share in those key countries. “The bestseller so far is our Zig Zag range of products, as Zig Zag was the first brand introduced in these countries.” On the other hand, especially the younger Asian generations nowadays are increasingly leaning towards a European lifestyle. “For this reason, OCB rolling papers are also getting more and more popular,” Alfaro noted, adding that the OCB brand will be celebrating its 100-year anniversary in 2018.

RYO Not Part of Asian Culture

But just as Esser pointed out, Alfaro also confirmed that RYO in Asia is not yet as common as it is in Europe or America.

“It’s not part of the [Asian] culture,” said Alfaro. “Our foremost job [at this time] is to educate and raise awareness on RYO products. We still have a long way to go before we reach European levels of consumption.” But steep excise tax increases frequently implemented by many governments in the region may actually unwittingly help RYO market development in the medium term because they push up retail prices for FMCs.

“If more tax is levied on manufactured cigarettes, more smokers will look for a cheaper way to smoke, and RYO appears to be a viable alternative for them,” Alfaro said. Yet even if such a theoretically possible shift towards RYO should happen (and however slight that shift may turn out to be), the already stiff competition among manufacturers is also going to intensify further.

“Competition is already existing now due to the availability of a wide range [of RYO paper products], our current main competing brands being Gizeh and Smoking [manufactured by Miquel y Costas],” Alfaro said.

RYO Paper in Asia: More Doom than Boom?

Image courtesy of Republic Technologies International

RYO Paper in Asia: More Doom than Boom?

Zig-Zag SLIM filter tips

Market Presence More Crucial Than Sales

Spanish manufacturer Miquel y Costas – officially Miquel y Costas & Miquel S.A. – claimed that of its global annual turnover RYO paper sales across Asia currently accounted for less than 20% by volume and value. This once again demonstrates how underdeveloped the local markets really are in comparison to other regions. Yet the company also reported that it has seen a year-on-year sales increase in Asia of around 7% between 2015 and 2016. In terms of market shares in the region, export area manager Álvaro Rivero estimated his company held at least 10% and up to 30%, depending on the country.

“Our key markets for the last few years have been Israel, Malaysia, and India where our products in general have enjoyed good response from end consumers and where we also adapted some of our products to their requirements,” said Rivero. While the long-standing Smoking brand range is Miquel y Costas’ most popular product in Asia (and worldwide), the company also sells its other brands like SMK, Pure Hemp, Mantra, and Abadie in certain markets, for example, Japan and the Philippines.

“While our volumes in Asia are small compared with other regions, we still need to have a presence in these markets because they have very good potential for future growth, although only time will tell,” Rivero added, echoing pretty much what Gizeh and Republic Technologies had said.

Difficulties in Penetrating Certain Markets

Rivero also highlighted the difficulty in penetrating some regional markets, where certain protectionist policies, as well as overly complicated licensing laws, persist.

“For instance, we have not been able to enter markets like China or Vietnam due to the monopolistic legal framework prevailing in these countries,” he explained. Particularly China seems to keep its doors tightly closed to foreign RYO paper brands - and so far both Gizeh and Republic Technologies were unsuccessful in establishing a market foothold there either.

RYO Paper in Asia: More Doom than Boom?

image courtesy of Miquel y Costas & Miquel S.A.

RYO Paper in Asia: More Doom than Boom?

Smoking Deluxe KS rolling papers with filter tips

The Mysterious Orient

Just like its competitors, Miquel y Costas has observed that RYO is a pretty recent and very subdued phenomenon in Asia that is only being adopted at a slightly larger scale in countries where manufactured cigarettes are becoming exorbitantly expensive. “We may name Japan, Korea, Taiwan, or Malaysia as such countries where RYO is a little more prevalent among end consumers because the price of factory-made cigarettes is getting higher year by year,” Rivero said. He also noted that the “being-cool-and fashionable factor” among younger people influenced by western trends might help push RYO sales in the long term. “Yet the attainable potential is uncertain… but as I said before, we need to be well positioned in each market and wait out the growth. It strongly depends on the development of consumer prices for cigarettes driven by government taxation,” he concluded. Until then, and as far as RYO paper sales are concerned, Asia is probably going to remain what it’s always been: the mysterious Orient. 

Knock-Offs from China

There hardly seems to be any brand product nowadays that isn’t pirated in Asia to some extent, with China and a handful of Southeast Asian countries being the main culprits. Even knock-offs of branded rolling papers are happily manufactured and distributed – and often enough with quasi-impunity from the law.

“Our OCB and Zig Zag booklets are prey to counterfeiters, mainly from China,” confirmed Republic Technologies’ Gabriel Alfaro. But there is only so much the company can do to stem the tide. “All suspected fake booklets found in a market are seized, and our export department works closely with our local distributors in taking legal action such as [sending] cease and desist letters to [local] shops where fake products have been discovered,” he said.

Gizeh likewise identified China as a predominant source of counterfeits that damage the company’s business and image, with fake Gizeh and Mascotte branded papers being distributed not only in Asia but indeed around the world.

“We constantly fight against counterfeiters and are pursuing all cases that have been uncovered by our experienced team of trademark lawyers. In some cases, we have successfully traced the source and could enforce the destruction of the counterfeits and effect reimbursement. We surely will not stop to take concerted action,” said Gizeh’s Lisa Esser.

Meanwhile, Miquel y Costas has “noticed a strong increase in counterfeiting,” according to Álvaro Rivero. He described this as “a very worrying phenomenon [that is] being detected in all regions of the world, from America all the way through Africa, Europe, and Asia itself,” with pirated products mostly coming from China. “We do try to take legal action locally, but the truth is that impunity and long legal procedures do not help us much in solving these issues legally. We do what we can, but will need to find alternative ways to fight the problem.”