China Touts Its Cigar Market

Source from:  TJI 12/31/2013

More than 150 international cigar lovers travelled to China this November for an educational journey into that country's growing cigar market. Cigar Ambassador Group hosted the visitors, and a sizeable contingent from the domestic industry.

This year marked the second time around for the event billed as a cigar festival. Last year was something of a sensation because many people were surprised to discover China is working so hard on developing its quality-cigar segment. Organiser Cigar Ambassador is the first company in China solely devoted to the promotion of cigar and its culture.

Among the guests this year were more than 40 foreign experts from the tobacco industry, representing more than 18 countries. There were about 150 guests from the domestic side of China's tobacco house, including officials from state and provincial tobacco monopolies, the State Administration of Quality Supervision, Inspection and Quarantine, cigar manufacturers and distributors.

Chinese cigar consumption

Import of cigars is restricted by the government and its State Tobacco Monopoly Administration (STMA). According to the consulting firm Euromonitor International, foreign cigar brands account for only 1 per cent of the market. Those products are at the top of the premium segment. Chinese cigar smokers predominantly buy domestic products. Those domestic products too, rank in the premium segment.

In recent years, domestic cigar brands have been improved with regard to tobaccos, overall cigar quality, brand spread and mode of sales. An improved domestic product has established itself against imports.

There are four domestic cigar companies in China, the largest of which is Chuanyu Tobacco. Anhui Tobacco is number two, in terms of volume, followed by Hubei and Shandong. According to Cigar Ambassador, Chuanyu operates the biggest cigar factory in Asia.

Chuanyu accounts for 50.5 per cent of domestic cigar volume and 60.6 per cent of sales, followed by Anhui at 33.4 per cent of volume sold and 24.5 per cent of sales revenue. Hubei owns 15.6 of the market with 13.9 per cent revenue of sales and Shandong is a bit player with 0.5 per cent of total volume and 1 per cent revenue. Shandong is the second fastest growing cigar company in China, having expanded nearly 73 per cent in 2012 from the year before, according to Cigar Ambassador.

Market size

Cigars represent a tiny corner of the market for tobacco products, which is dominated by cigarettes. In terms of US dollar sales and not adjusted for currency fluctuations, the tobacco market accounted for USD 186 billion (EUR 137 billion) in 2012. Cigar sales represented a bit less than USD 4 billion of that market. However the cigar market tripled in size in the five years from 2007 to 2012, going from USD 1.4 billion in sales to USD 3.9 billion. The data are supplied by Euromonitor.

Market characteristics

China's cigar market is centred in major metropolitan areas like Shanghai, Beijing and Guangzhou. Chinese cigar smokers are people with medium-to- high income. Most cigars, 96 per cent, according to Euromonitor, are distributed to and sold through tobacco specialists. This is the traditional retail format.

Although nearly all cigars are sold in smoke shops, most tobacconists don't have a cigar section, which indicates a lot of room for improvement. According to a survey of Cigar Ambassador, nearly 80 per cent of tobacco retail shops have no established cigar sales section.

Most of the retail market and retailers themselves do not know much about cigars, according to Cigar Ambassador. There is a lot awareness training to do, say group representatives.

The event

There were three stops on the China cigar trail this year: in the growing district Hainan, the capital city Beijing and the bustling port of Shanghai.

Not surprisingly, tobacco processing was the theme of a forum in Hainan. Beijing brought together brand promoters for a gala dinner and Shanghai was the site of a networking party for international guests and local cigar smokers.

A year ago, the cigar tour included a stop for groundbreaking ceremonies at for Danzhou Cigar Town on Hainan Island. This year visitors to the construction site had an opportunity to gauge progress on a project spread over 15 hectares of land. Future visitors will be able to visit tobacco fields for demonstrations of grower techniques, processing rooms, cigar factories and retail outlets. Investment in the project is CNY 200 million (EUR 24 million).

The complex combines business and pleasure with accommodations for both clientele. A billboard at the site promises dream weddings surrounded by cigars and tobacco plants. The goal for completion is 2014.

Cigar tour participants visited a tobacco plantation on the second day of the event, followed by a conference with local and foreign tobacco growers who compared methods and experiences.

Arriving in Beijing from Hainan, guests were treated to a gala dinner to promote flagship brand Huanghelou 1916 (the name means Yellow Crane Tower in Chinese) and release of a cigar made by China Tobacco Hubei. According to Cigar Ambassador, Hubei is the fastest growing among the cigar companies. Annual sales grew 159 per cent in 2012. Opting for a Latin band instead of traditional Chinese music, hosts offered their dinner guests a chance to sample Huanghelous while sipping on a mojito. More premium cigars were on offer the next morning during a quick tour to the Great Wall.

Shanghai, one of the world's most populous cities, was the final tour stop, where visitors were loaded onto a cruise boat for a floating party along the Huangpu River. The riverboat festivities are a regular feature in Shanghai. This year marked the eighth time that Cigar Ambassador organised the event. Local cigar brands on offer at an event that included more than 230 local guests were the General from Shandong and the Crown, marketed by Anhui.

Whether the fledgling cigar tour will become a regular event is an open question. "No party lasts forever", commented Cigar Ambassador's Edward Jin.