Highly-Competitive Times for Medium-Sized Cigarettes

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By TobaccoChina Online

Since early 2017, the Chinese cigarette brand Chunghwa has achieved great success with the launch of Chunghwa premium and Chunghwa double medium-sized cigarettes. This segment caught on rapidly with consumers and continues making a splash. If the segment was still in continuous development in 2017 and 2018, which had little influence over the whole Chinese tobacco market, it has shown explosive growth in 2019.

In 2019, the commercial sales volume of medium-sized cigarettes reached nearly one million boxes, commercial sales revenue exceeded RMB40 billion, and the average wholesale price of a box rose to RMB40,000 from RMB30,000. It is particularly encouraging that premium medium-sized cigarettes account for the vast majority of the increase. The development of this segment in China has come onto a track featuring high-end and high-quality products.

Meanwhile, the competition grows fierce. If the development of the medium-sized segment in the first two years was mostly to solve the issue of whether a brand was to launch this type of product, the gap among different brands and specifications has grown, and top products also appeared. However, the market is still in development with new products emerging, and popular products quickly standing out. This market enters a highly competitive era.

Differentiation creates gaps

Although the overall growth of medium-sized cigarettes in 2018 was considerable, it is only a high growth rate on a low base. The enthusiasm and focus of the brands is more focused on the long-term arrangement and reasonable positioning. In fact, if the top brands and the market of mature products are removed, the sales scale, market coverage, consumption impact, and brand contribution for a considerable part of medium-sized cigarettes are extremely limited.

In 2019 the segment highlighted differentiation in technology, style, brand, and market besides differentiation in form.

In this process, big brands play an absolute leading role. Major brands attach great importance to this segment, and take more actions from product development at the technical end to brand cultivation at the market end, stepping up efforts to guide consumption and build up market momentum beyond product differentiation.

High structure becomes an important benchmark

At present, there are more than 80 specifications of tier 1 medium-sized cigarettes in China, accounting for about 80% of the total category, and the concentration of the top 10 brands is over 84%. Now, the “3 + 4” distinct pattern in tier 1 has formed; that is, the commercial sales volume of three brands - Chunghwa, Huanghelou, and Yunyan – respectively broke through 50,000 boxes, and the four brands of Jiaozi, Tianzi, Liqun, and Yuxi respectively exceeded 20,000 boxes.

Chunghwa, as the founder of the concept, criteria, and form of medium-sized cigarettes in China’s tobacco industry, is a well-deserved top brand, among which Chunghwa has doubled sales volume of more than 50,000 boxes.

Huanghelou, also one of the top brands in this segment, has achieved sales volume of more than 53,000 boxes in 2019, second only to Chunghwa.

Yunyan put forward the “First-Year Strategy Of Medium-Sized Cigarettes”. Yunyan (Panda Home) has achieved the largest sales volume among tier 1 medium-sized cigarettes, greatly improving the vitality of Yunyan brand in the premium market.

Jiaozi, RMB400 or RMB500 for each carton, has ranked in the high-end. Tianzi has made full efforts in resource allocation, market investment, marketing action, etc., breaking through with 30,000 boxes only one year after coming into the market. With featured products, Liqun has achieved effective results. It plays an important role in the price of RMB500/carton. Yuxi is priced respectively at RMB400 and RMB300 in this segment.

Consumption upgrades and market expansion

From the current point of view, tier 1 medium-sized cigarettes have played a great role in promoting market popularization and strengthening the brand base, in which differentiation and cost performance constitute the largest competitive advantage. Consumption upgrades leads to the continuous expansion of the market and provides a relatively strong consumption demand. Due to the personalized, young, and diversified demand changes, medium-sized cigarettes show more differences in brand, form, and style.

Medium-sized cigarettes priced at RMB300/carton, RMB400/carton, and RMB500/carton account for more than 40% of tier 1 medium-sized cigarettes, which reflects sufficient market confidence and brand enthusiasm. Accordingly, they have also become the most competitive prices.

In addition, the absolute sales volume of medium-sized cigarettes in a single specific market is still low, except for Chunghwa, which has relatively powerful channel mobilization and premium capacity. The development of medium-sized cigarettes still faces challenging variables due to the continuous tightening of the number of commercial channels and the insufficient special sorting capacity, which to some extent intensifies the competition.