China’s Cigar Market in New Round of Robust Growth

By TobaccoChina Online

China’s cigar market has ushered in a new round of robust growth as the four major tobacco industrial companies launched operations to significantly upgrade products and sharpen their competitive edge.

At the end of 2016, Gu Jushui, director of the marketing department of China Cigarette Sales Co., Ltd. said, “The cigar market in China registered a total sales of 1.085 billion in 2016 [making it the] the fifth largest...in the world.”

Overview of China’s cigar market

Gu said, “All cigar products maintain a momentum of rapid growth in the current tide of development, no matter whether they are large- and medium-sized, each weighing 3 grams or heavier, or small and mini cigars.”

However, in embarking upon a fast track in mass development, Chinese-style cigar products came to a halt in terms of growth of value. In 2016, the unit price was RMB0.91 (US$13.50) apiece. In comparison, the unit price of imports reached a high RMB34.13 apiece. Foreign brands have taken the lion’s share of the high-end cigar market in China.

China’s main cigar manufacturers are located in Sichuan, Hubei, Anhui, and Shandong provinces, and their annual output in 2016 accounts for 39.51%, 29.11%, 10.58%, and 19.73%, respectively. Presently, there are 10 domestically produced brands on the market – Great Wall, Yellow Crane Tower, Mount Tai, Wang Guan (Crown), Shipai (Lion), Gongzi, Maoda, General, the Three Gorges, and Schimmelpenninck, with Shipai, Gongzi, and Maoda the top three in annual sales volume. In 2016, these top three brands respectively accounted for 29.58%, 28.81%, and 13.25% of the total sales volume, and 28.39%, 32.23%, and 8.83% of the total sales value in China.

In an effort to change the impression that Chinese cigars are middle or low-end products, the four regional China Tobacco industrial companies have all launched operations to significantly upgrade their products in line with international standards.

New products unveiled

On May 20, the municipal government of Deyang City in Sichuan Province sponsored a promotional event in which the four domestic cigar manufacturers each presented a new product representing the highest level of capacity.

Great Wall is the competitive brand of Shifang Cigarette Factory of China Tobacco Sichuan Industrial Co., Ltd (CT Sichuan). Shifang lies in a subtropical, moist climate region with sufficient sunshine and plenty of rainfall. The tobacco-growing areas here are rich in mineral nutrition, which is highly suitable for tobacco growing. Cigar tobacco grown here is renowned around the world for its golden color, white ash, pure and mild taste, and aromatic smoke. In 2007, the definition of Shifang as China’s “cigar land” was officially approved and the region provides the major source of tobacco for the Great Wall brand.

At the promotional event, Shifang Cigarette Factory presented its high-end product, The Great Wall (GL Eiffel). This new product’s name symbolizes a secret visit to China by Edgar Faure, an envoy of late French President Charles de Gaulle, in 1963. In that visit, late Chinese Premier Zhou Enlai gave him some Great Wall cigars, asking that they be passed on to de Gaulle as a birthday gift.

 The brand implies that China-France friendship would last forever: it would be as long as the Great Wall and as high as the Eiffel Tower. The pyramid-style cigar resembles the height and straightness of the Eiffel Tower. With high quality wrapper and filler, the brand is made of the finest tobacco from Shifang, Dominican Republic, Brazil, and Indonesia, using a formula designed by experts. Fermented with confidential compounds, it absorbs and holds the aroma of wood, beans, and baked desserts. This new product shows that middle-grade products can realize a breakthrough into high-end products.

Another Chinese cigar presented at the event was Wang Guan (Quintessance of Chinese Culture) originating from the centuries-old, historical city of Mengcheng in Anhui Province, which is also the cradle of the Taoist culture in China. As the production base of China Tobacco Anhui Industrial Co., Ltd. (CT Anhui), Mengcheng Cigar Factory can be traced back to 1912. In those years, hand-made cigars produced by local mills in Mengcheng were famous in regions south of the Yangtze River.

For the past century, CT Anhui carried on its tradition of making cigars by hand, developing thousands of well-known technicians. Wang Guan has relatively stable groups of consumers in the domestic market. It successively won honors such as the gold prize awarded at the Panama International Food Expo and the gold prize awarded at the China Food Expo. In 2011, CT Anhui signed a strategic cooperation with Scandinavian Tobacco Group (STG). Wang Guan has been included into the catalogue of China’s key cigar brands. In striving to turn it into a landmark brand of handmade high-end products, CT Anhui invited grade nine technicians from the famous Cuban cigar manufacturer Cohiba to offer technical guidance.

By doing so, the company integrated Cuban technology into its products, carrying on the century-old fine tradition of making cigars by hand. The characteristics of Wang Guan as a product manufactured under the influence of both Eastern and Western cultures were relatively well reflected by the new product unveiled at the May 20 promotional event. The raw materials for making this new product include the finest tobacco imported from South America. It meets the mouth-feel of smoking by Chinese consumers. Wang Guan generates a unique pure and mild aroma and flavor.

The new product presented by China Tobacco Hubei Industrial Co., Ltd. (CT Hubei) was the handmade Yellow Crane Tower (1916). This new product is made of tobacco grown with seeds imported from Cuba, and the manufacturing undergoes a unique process under the guidance of Cuban technicians, which not only maintains the pure mouth-feel of South American cigars, but also generates a delicate aroma, a more comfortable mouth-feel, and a unique flavor preferred by Chinese consumers.

General (God of War No. 1) was the new product presented by China Tobacco Shandong Industrial Co., Ltd. (CT Shandong). The brand is made with choicest wrappers imported from Dominican Republic, which is glossy, shiny, and smooth in surface, and which generates a delicate and fine aroma. The leaf tobacco is naturally fermented for three years, which enables it to have an international classic cigar flavor, and which well meets the demand of Chinese consumers for a moderately strong mouth-feel. A distinctive characteristic of General is the sense of layering of its complicated aroma.

Since 2011, both the output and sales volume of Chinese cigars have grown by 40%. In 2016 when the tobacco industry met extremely serious problems in business development, both the output and sales volume still realized a rapid growth of 12%.

Advantages and disadvantages

In 2015, North America and Europe remained the leading cigar markets in the world, accounting for 90% or higher of the total sales, with the products mainly being machine-made. In 2016, the sales volume in the whole world (including China) was estimated at 22 billion including some 12 billion sold in the US, which accounts for 55% of the global volume, followed by Spain, Germany, France, the Netherlands, and other European states. The countries registering the sharpest growth in sales in 2015 were Cameroon, Romania, Bosnia-Herzegovina, Turkey, and Georgia respectively. In 2016, global sales value (including that of China) was estimated at US$24 billion, including some US$7.75 billion realized in the US, accounting for 32.3% of the total.

Presently, consumption around the world is not expected to undergo serious change and therefore can still maintain of relatively steady development.

Firstly, there is still the unique charm of cigar smoking. With a unique smoking method, smoking environment, and requirement for storage, cigars have a unique culture of consumption, and stable groups of faithful consumers.

Secondly, many people believe that cigars are safer than cigarettes. This is mainly because cigar smokers smoke less that cigarette smokers, and the smoke does not enter the lung.

And thirdly, the capacity of consumers to purchase cigars keeps increasing. As production requires more investment than cigarette production, prices are relatively high. In particular, handmade large-sized cigars are always revered as luxurious items, and are therefore far from the reach of ordinary consumers.

Disadvantages facing the development of production in China are mainly a result of tobacco control policies.

Firstly, there is the smoking ban in public places. Usually, cigars have higher environmental requirements for consumption than cigarette smoking. In particular, consumption takes place at independent and comfortable private spaces. If the scope of definition of public places was arbitrarily expanded, and if the smoking ban were to be imposed on any place that is enclosed, consumption would be seriously impacted as a result.

Secondly, there is the requirement for warning signs on the packaging of tobacco products. In reality, people often regard cigar containers and packaging in almost an artistic light. If the size of warning labels keeps getting larger or warning graphics become uglier, it could weaken the attractiveness of the products.

Experts have predicted that over the next five years, output and sales will go up by 3% or higher. Along with continued increase in income, and particularly along with continued growth of the middle class in emerging economies, the populous Asia-Pacific will become a region of continued growth in cigar consumption. Although China is a big cigarette-consuming country where cigars have not become a mainstream, consumption is gradually going up in line with the strengthening of China’s economy in the past decade. In China, people generally believe that cigar smoking is less harmful, and that it is a symbol of better lifestyle.