The Segmentation of China’s Tobacco Market

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TobaccoChina Online

China National Tobacco Corporation (CNTC) witnessed an increase of 1.76 million boxes of cigarettes over the first 11 months of 2018, among which flavored capsule cigarettes, short-sized cigarettes, slim cigarettes, and medium-sized cigarettes accounted for about 83% of the increase in the first and second categories of premium categories.

In fact, the development of new styles of cigarette products and their growth in China in recent years have mainly focused on flavored capsule cigarettes, short-sized cigarettes, slim cigarettes, and medium-sized cigarettes. Over the past two years, these segments not only accounted for 80% of the number of new product developments, but also more than 80% of sales volumes. Resources and investment are inclined to these new products, intensifying market competition.

As the new products have played an increasingly important role in the sales volume of Chinese cigarettes, what will be their performances this year?

Feature-rich, short-sized cigarettes are more competitive

Compared with traditional cigarettes, short-sized cigarettes – just as the name suggests – come in shorter sticks, creating an impression of them being small, stylish, elegant, portable, and easy to carry. Smokers may quickly finish a short-sized cigarette, making them unconsciously smokeless, which is also in line with the fast-paced life and health concept of contemporary society. This is the unique advantage of this kind of product. The industrial enterprises under CNTC also price it very high.

Great efforts that have been made on short-sized cigarettes make it more competitive. Take Guiyan (Xingzhe) from China Tobacco Guizhou Industrial Co., Ltd. as an example. The 75mm version has grown to be an important IP in the minds of many consumers. In addition, when many products are aimed at the sub-segment of “short-size + flavored capsule”, flavor also comes to be a significant criteria to distinguish products. The most prominent one is Golden Leaf (Yuxiang) from China Tobacco Yunnan Industrial Co., Ltd., which keeps the strong fragrance of Golden Leaf.

Slim cigarettes: no longer just a niche product

The public’s initial impression was that slim cigarettes were designed for women. With the industry’s increasing emphasis on the slim cigarette market, especially driven by Nanjing (Xinghemen) and Baisha (Day Day Up), slim cigarettes have gradually become labeled as a younger generation product, leading to new versions with various flavors being created. Twelve years have gone by since the birth of the first domestically produced slim cigarette brand Mengdu in 2006. In 2011, there were only eight styles of slim cigarettes, with an annual sales volume of 24,000 boxes. The figures in 2017 grew to 130 styles and 2.385 million boxes. In 2018, the sales volume of slim cigarettes was expected to exceed 3 million boxes.

It can be said that in the development process, slim cigarettes are constantly adapting to the market and consumers. However, the biggest obstacle lies in homogenization competition. Although many industrial enterprises have introduced new slim cigarettes products, they are generally promoted in the form of “regular + sub-categories”, a move that diverts the consumption groups of conventional cigarettes, further causing a situation of weak competition though with many styles of slim cigarettes.

Medium-sized cigarettes switch from unpopular to popular

Medium-sized cigarettes is a sub-category featuring more Chinese cigarette styles. Compared with slim cigarettes, which meet certain technical difficulties in keeping aroma, comfort, and satisfaction since they not only change the sizes but also the overall combustion state, medium-sized cigarettes can solve the issues very well, developing their unique competitive advantages.

The representative brand in the medium-sized cigarettes category is Chungwa from Shanghai Tobacco Group. Chungwa has been well received all over the country since it first opened the medium-sized cigarettes market in 2017. Since then, this market segment has become increasingly hot and major companies and brands in the industry are also competing to introduce new products. In addition to Chungwa, China Tobacco Yunnan, which in the beginning of 2018 positioned the segment as its strategic category, successively listed eight new products, creating a powerful impact on the competition in the medium-sized market since it accelerated the popularity of this segment. Now, it has formed a scale effect, becoming the leading force in the future development of the cigarette market.

Flavored capsule cigarettes: smoking well comes first

Flavored capsule cigarettes are popular with consumers because of its varied taste and delights. This category of cigarettes has fallen from being high-priced to being available to ordinary people in just a few years since 2012. At present, the industry sees as many as 80 types of flavored capsule cigarettes.

Whether a type of flavored capsule cigarette can go further is mainly up to if it can be perfectly integrated with the smoke flavor. The flavor of the capsule cannot conflict with that of the smoke, otherwise, the development will not be sustainable. Among the top three brands in the sales of flavored capsule cigarettes, Guiyan comes first with dried tangerine capsules and national wine flavor capsules. Yellow Crane Tower features capsules of perfume and moisture, while Furongwang keeps the original flavor. For consumers, however innovative the cigarettes are, smoking well comes first. Only by constantly improving the consumer experience, whether it is from taste, flavor, or capsule addition technology, can consumers fully enjoy the charm of flavored capsules.

In addition to the differences in the form of flavored capsule cigarettes, short-sized cigarettes, slim cigarettes, and medium-sized cigarettes, what consumers need are those that are more special, fresher, less harmful, and more capable of satisfying individual needs. Ultimately, smoking well comes first.