China: Competition Promotes Upgrading of Cigarette Products

Source from:  TobaccoChina Online  02/19/2013

As the tobacco industry of China is in an intense drive to develop big competitive cigarette brands to significantly sharpen its competitive edge, competition among power tobacco manufacturing enterprises in China is contributing to promoting the upgrading of cigarette products in the country.

In the first half of 2012, the tobacco industry produced 130 billion cigarettes (26 million cases). In particular, the six-month sales volume of the 27 key cigarette brands designated by the State Tobacco Monopoly Administration (STMA) topped 96.5 billion cigarettes (19.3 million cases), with the proportion of the 27 in the total cigarette sales volume nationwide rising to a high of 75 percent. In the six-month period, the sales volume of the Red Double Happiness of the Double Happiness brand family topped 10 billion cigarettes (2 million cases) while the sales volume of such heavyweights as Hongtashan, Baisha and Yunyan each topped 7.5 billion cigarettes (1.5 million cases). From January to June, the cigarette wholesale income realized by the tobacco industry reached more than 553 billion yuan (88 billion U.S. dollars), with the proportion of the 27 in the total cigarette wholesale income nationwide rising to a high of 90 percent. Specifically, the wholesale income of Chunghwa topped 60 billion yuan (9.53 billion U.S. dollars), the Red Double Happiness of the Double Happiness brand family and Furongwang each 40 billion yuan (6.34 billion U.S. dollars), and five other heavyweight brands each 20 billion yuan (3.17 billion U.S. dollars).

So far, the intense drive to develop big competitive cigarette brands launched by the tobacco industry has generated initial success. The aforesaid data prove the increasingly obvious Matthew Effect of the development of cigarette brands in China, with competitive brands turning more competitive and weak brands becoming even weaker. Besides, the data also mean that such a form of further concentration of market shares and brands is a sustained dynamic process, which keeps becoming more and more serious. Such a form of further concentration or promotion has actually generated a "two-wheel drive effect" characterized with robust growth of "Grade One cigarette brands" and hot pursuit by "Grade Two cigarette brands", which will show a trend of further acceleration and expansion. This means that firstly, the development of key cigarette brands in China will soon enter a brand new stage, with full-scale exacerbation of competition; and that, secondly, dialogue among powerful cigarette brands contributes to promoting the development of cigarette brands in China to higher levels and higher standards.

In face of increasingly intense competition among powerful enterprises, the manufacturers of key cigarette brands have one after another presented to the market high-end cigarette products representing the highest level and the most distinctive characteristics of their brands, to improve the image of their brands and to create a deep impression of their brands in the mind of consumers.

In mid-April 2012, Shanghai Tobacco Group presented to the market a high-end product of the Chunghwa brand family, known as Great Chunghwa, with a retail price of up to 1,000 yuan (159 U.S. dollars) per carton (200 cigarettes). This Great Chunghwa has a tar level of 8mg/per cigarette. It is a brand new representative of high-end low-tar cigarette products of the Chunghwa brand family. A selective harm-reducing technology is applied in the production of Great Chunghwa, to reduce the content of tar and other harmful substances in it. Great Chunghwa cigarettes are of a 30-mm three-stage "new-type ternary composite filter rod", which is capable of selectively reducing the content of harmful substances in cigarettes while effectively retaining tar in smoke. Besides, Great Chunghwa also applies a new type of cigarette paper capable of reducing the discharge of tar and carbon monoxide. Through rational application of multiple technologies, it enables Great Chunghwa cigarettes to have a significantly lower content of harmful substances under the condition of having a same quantity of tar.

In the capacity of China's Number One cigarette brand, Chunghwa has always been reputed as the "national cigarette product" of China, with a profound brand culture, with a high reputation, and with great credibility. In particular, the respected high-end image of Chunghwa has deeply taken roots in the heart of consumers. The spectacular presentation of Great Chunghwa to the market this time was just in satisfaction of the market demand for the supply of low-tar cigarettes. Although there have been many other tar-level cigarette products in markets across China, they are no match to Great Chunghwa in terms of recognition and acceptance of brands by consumers. Therefore, although Shanghai Tobacco Group does not have to spend much energy promoting the sales of Great Chunghwa, this new member of the Chunghwa brand family is doomed to succeed, given the great reputation and stable basis of consumption of Chunghwa. Presently, the supply of Great Chunghwa at the marketplace of high-end cigarettes largely falls short of demand.

On August 31, 2012, China Tobacco Anhui Industrial Co., Ltd.(CTAIC)in east China's Anhui Province presented to the market a new member of its Mount Huangshan cigarette brand family – Mount Huangshan (Heavenly Capital). CTAIC independently created the "caramel sweet aromatic" type of cigarettes of the Mount Huangshan brand family, and Huangshan (Heavenly Capital) is a typical representative of this type. Huangshan (Heavenly Capital) is made mainly from ecological leaf tobacco grown in the small ecological tobacco producing zone in south Anhui, which has earned the reputation as the "Oriental Zimbabwe". Its cigarettes are made with a gentle rolling and three-stage curing technology, and also with a traditional leaf tobacco picking and selection technology. Huangshan (Heavenly Capital) cigarettes are packaged with a type of jade-plate Chinese art paper exclusively made in Anhui, with pictures and poems of five famous artists and poets printed on the packaging. This product was named after the Heavenly Capital – one of the three leading peaks of Mount Huangshan in Anhui. Therefore, Huangshan (Heavenly Capital) integrates the name of a famous mountain peak, great pictures and poems of famous artists and poets and a famous type of Chinese art paper, enabling itself to become a highest-level product of the Mount Huangshan cigarette brand family, and also a typical representative of the "caramel sweet aromatic" type of cigarettes.

On September 20, 2012, China Tobacco Guizhou Industrial Co., Ltd. (CTGIC) in southwest China's Guizhou Province presented to the market a new member of its Guiyan cigarette brand family – Guiyan (National Liquor Aroma). Guizhou a region of beautiful landscape of mountains and rivers, with rich natural resources. The mysterious zone on 27 degrees north latitude not only makes itself a fine tobacco-producing belt, but is also home to China's national liquor – Maotai Liquor. Guiyan (National Liquor Aroma) is in realization of a theoretical breakthrough by making a perfect combination between tobacco and liquor that are in reality closely related to each other. The leaf tobacco for making Guiyan (National Liquor Aroma) is grown in the exclusive original tobacco-producing area that is unique in Guizhou, where tobacco for making Guiyan (National Liquor Aroma) and sorghum for making Maotai liquor are grown on a rotational basis, with both crops drawing on the same precious nutrients. In particular, leaf tobacco for making Guiyan (National Liquor Aroma) is stored and blended in cellars for making Maotai liquor, which makes the taste of Guiyan (National Liquor Aroma) cigarettes even milder. CTGIC has uniquely developed a special technology for making Guiyan (National Liquor Aroma) cigarettes, which provides for the use of expensive Maotai liquor to fumigate leaf tobacco for making Guiyan (National Liquor Aroma) cigarettes. Besides, the company has also developed the barrel-in-barrel leaf tobacco storage technology and the national liquor aroma encapsulation technology for making Guiyan (National Liquor Aroma) cigarettes, enabling perfect integration of tobacco aroma with liquor aroma. As a result, Guiyan (National Liquor Aroma) – as a most perceptive new-type Chinese-style cigarette product so far – was born.

Before 2012, high-end cigarette products priced at 100 yuan (15.9 U.S. dollars) per packet (20 cigarettes) mainly included the Yellow Crane Tower (1916) of China Tobacco Hubei Industrial Co., Baisha (Peacefulness Under the Heaven) of China Tobacco Hunan Industrial Co., Ltd., Nanjing (Nine-Five) of China Tobacco Jiangsu Industrial Co., Ltd., Yuxi (Manor) of Hongta Group and Yunyan (Dachongjiu) of HongyunHonghe Tobacco Group. These high-end cigarette products show multiple characteristics of luxuriousness, scarcity, uniqueness, etc. For example, an old formula dating back to 1916, known as Nanyang Tobacco Magnate No. 1, is adopted to produce cigarettes the Yellow Crane Tower (1916). This formula was developed by a chief tobacco formula master from Bolivia invited by Nanyang Brothers Tobacco Co., Ltd. The adoption of this formula enables cigarettes of the Yellow Crane Tower (1916) to have multiple characteristics of luxuriousness, scarcity, uniqueness, etc. Also for example, Hongta Group has developed a first ever organic cigarette product known as Yuxi (Manor). It calls Yuxi (Manor) "the first packet of organic cigarettes in China". To develop organic cigarette products, Hongta Group managed to establish an organic tobacco Manor at Fengwo Village in Ershan County of Yuxi City in Yunnan, which is inhabited by ethnic Yi people. With a favorable ecological environment, this Manor proves to be the first organic tobacco Manor in China. This Manor only applies farmyard manure to tobacco crops, and only uses aphidius gifuensis ashmead to prevent and control the spread of pests. After growing up, leaf tobacco produced in this Manor will have to undergo more than 300 processing workflows before becoming organic leaf tobacco for making cigarettes.

Judged from the perspective of market supply and satisfaction of demand, and in face of the large number of 300 million cigarette smokers and the 50-million-case (250-billion-cigrette) large capacity of the tobacco market in China, tobacco manufacturers in China have to provide more and diversified cigarette products for choice by consumers to ensure sufficient supply at the marketplace. Presently, behind the superficial prosperity of booming development of high-end cigarette products is actually smokeless intense competition among powerful manufacturers. For the big competitive cigarette brands of these powerful manufacturers, the value created through the development of high-end and characteristic cigarette products far exceeds the significance of the actual sales volume. The chief targets of these powerful manufacturers are to enable their brands to become more remarkable, to bear more distinctive characteristics and to have greater competitiveness, and to realize breakthrough in the designing of brand-name cigarette products, in order that they will have greater innovation, have more contents of advanced technologies, have more cultural significance, and have more styles and characteristics, and in order to lead improvement of the image of their brands. Judged by the sales performance of the big competitive cigarette brands of these powerful manufacturers from 2011 to 2012, the approaches adopted by them will undoubtedly win recognition from the marketplace. Enditem