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In the first half of 2025, the Chinese cigarette market still achieved the sales goal of “half-time, half-target”.
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The new generation of consumers and the backbone of the tobacco industry are becoming increasingly rational and cautious about tobacco consumption.
In the first half of 2025, China’s cigarette market achieved its “half-time, half-target” sales goal. Although the year began with relatively flat performance – the seasonal sales increase during the January-February New Year period even caused some concern – the market generally stabilized from March to June, with commercial sales volume slightly exceeding the same period last year. This moderate growth, while significantly lower than the early stages of the 14th Five-Year Plan period, represents a more reliable year-on-year increase. Such growth establishes a crucial foundation for maintaining stable operations and steady growth throughout the second half and the entire year.
Against the backdrop of a generally challenging consumption environment, achieving the “dual half” (half-time, half-target) goal was particularly hard-won and commendable.
This “dual half” outcome serves both as the result of stable operations in the first half and as a powerful shaper of the second-half rhythm. With this foundation established, there now exists both the flexibility and conditions to adjust market conditions, optimize tiering, and maintain stable operations – making second-half targets more reliably achievable.
While the achievement has injected a stabilizing dose into the economic operations for the latter half of the year, the market still faces some persistent challenges and risks.
Firstly, the slowdown in growth and narrowing of market space represents a structural trend. Since 2018, China’s tobacco industry has seen 7 consecutive years of cigarette production growth, achieving a 0.9% compound annual growth rate. The recent reduction in incremental growth reflects both weak consumption and tepid demand, as well as an inevitable deceleration following previous high-growth periods. As sales volumes continue reaching new highs – compounded by profound changes in external demand and market conditions – the industry now operates at peak levels in terms of both total volume and tiering, making the coming deep adjustment inevitably prolonged and challenging.
Secondly, the sluggish high-end market and widespread price inversion have become particularly pronounced challenges. Premium cigarette brands are moving slowly, gathering dust in retail shop windows as inventory turnover periods lengthen day by day, leaving substantial capital frozen in stagnant inventory.
Faced with this high-end market chill, tobacco companies burdened with sales targets continue pushing inventory onto small retailers, who in turn resort to discounted sales to recoup capital. The industry once followed an unwritten “7-carton rule”—retailers would stop stocking beyond 7 cartons of any product. But with premium cigarettes, this threshold has now shrunk to 6, 5, or even fewer cartons. This has created an inter-locking cycle of low prices, slow sales, and high inventory. Against the backdrop of persistently weak demand, these challenges pose multiple risks: eroding brand value, compromising retailer profits, and threatening supply chain stability—all of which have left market confidence and growth prospects fragile.
Thirdly, the awakening of societal health consciousness – the tightening of smoking bans, the decline of traditional smoking occasions, and the increasingly rational approach of younger consumers and key demographic groups toward tobacco consumption – have collectively intensified market pressures. Notably, smoking populations in traditional dining scenarios have shrunk, and consumption frequency has decreased—direct results of stricter public space controls and shifting consumer habits—creating an increasingly challenging operating environment for tobacco products.
The market’s current challenges and their root causes are now abundantly clear. Recently, several brands have begun implementing production controls and supply restrictions. While these adjustments remain limited in scope and duration, their significance is profound:
- Correcting market imbalances: The wide-spread and prolonged price inversions affecting certain brands had reached critical levels, necessitating intervention;
- Signaling commitment to stability: These measures demonstrate the industry’s resolve to withstand external pressures, mitigate adverse impacts, and actively restore market health;
- Revitalizing retail networks: Through concrete actions, the initiatives aim to improve retailer profitability, rebuild business confidence, and address systemic pain points at the retailer level.
In summary, China’s cigarette market in the first half of this year continued the trends observed over the past 2 years. The primary challenges include slowing volume growth coupled with narrowing opportunities for tiering upgrades, as well as intertwined issues of low prices, sluggish sales velocity, and high inventory levels.
An even greater challenge lies in the gradual formation of new consumption habits and value standards. Even if demand recovers and restorative consumption upgrades occur, the market is unlikely to return to its previous peak conditions due to shifting consumer preferences and market fragmentation.
Leading brands such as Chunghwa, Yuxi, Furongwang, and Yunyan hold significant advantages in market foundation, consumer reputation, customer trust, and brand stability. Their fast sales velocity and high market acceptance make them pillars of stability and key drivers in addressing market challenges. However, while these major brands are adapting to profound changes in demand, they also bear the dual pressure of maintaining industry growth, stability, and contributions.
To reduce over-reliance on these established brands, the industry must develop new, market-responsive products that can share the burden and sustain growth momentum.
In contrast, the launch of new products has begun to show signs of disorderly development. Since last year, r&d trends have shifted erratically—from a frenzy around “window-filters” to a rush for “low-tar" and "ultra-low-tar” products, from touting “innovative flavors” to cutthroat competition in “ultra-high cost-performance.” While the barriers to new product releases have been repeatedly raised, pricing has continued to decline, reflecting a paradoxical trend of “quality improvement yet grade reduction” amid chaotic competition.
Market downturns often present opportunities for industries to return to rationality. When price wars and reckless expansion become unsustainable, the true solution lies in reconstructing a dynamic supply-demand balance—not by fighting over existing market share, but by stimulating new demand; not by exhausting the market, but by re-shaping its value proposition.
To break through the challenges in the latter half year, the industry must ultimately refocus on respecting and responding to the essence of consumption. It should consistently adhere to “actual demand-driven development”. Key strategies include developing market-responsive products as the core focus; implementing precise regulation as the operational lever; balancing sales volume while reducing inventory to stabilize market conditions; and strengthening retailer relationships to create a sustainable ecosystem—one that ensures reliable supply, healthy sales velocity, effective execution, and tangible profitability for retail partners.