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Better economic levels led to more consumers choosing the top two tiers of cigarettes.
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Nearly two-thirds of cigarette brands in China achieved growth in sales volume, sales revenue, and average wholesale price per box.
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Nearly two-thirds of cigarette brands in China achieved growth in sales volume, sales revenue, and average wholesale price per box.
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Short-sized, medium-sized, slim, and capsuled cigarettes are still popular among consumers.
In the first half of this year, China’s cigarette market showed the following characteristics: key brands maintained a faster development, with nearly two-thirds of the brands achieving growth in sales volume, sales revenue, and average whole-sale price per box; tier-1 cigarettes (basic styles, RMB190-300/carton retail price) are increasingly the mainstay for brands; tier-4 and tier-5 cigarettes (lower than RMB60/carton retail price) faded out of the market; tier-3 cigarettes (RMB60-130/carton retail price) slowed down year-on-year; and tier-2 cigarettes (RMB130-190/carton retail price) still maintained high-quality and development potential. (In the Chinese tobacco industry, there is a five-tier pricing structure for cigarettes based on quality and materials. Tier-1 is a large category as it includes basic and high-end styles. All domestic cigarettes sold in China have to fall into one of these five tiers.)
Tier-1 cigarettes (basic styles) maintain a strong momentum
In the past two years, with the rapid increase in income and consumption levels of Chinese residents as well as the influence of rational consumption, tier-1 cigarettes (basic styles), connecting high-end cigarettes and tier-2 cigarettes, maintained a strong momentum and played a leading role in pulling up the consumption structure.
In the first five months of 2022, tier-1 cigarettes (basic styles) accounted for a quarter of the market share and grew steadily at a double-digit rate. There are three reasons for this rapid development.
First is the trend of consumption upgrading. In the past decade, the continuous improvement of living standards and abundant material supply made consumers willing to choose products with better quality.
Second, health-conscious people hope that the tier-1 cigarettes can minimize the impact on health while meeting the needs of smoking addiction.
Third is the prevalence of medium-sized cigarettes in recent years. This category of cigarettes currently occupies over 8% of the market share of tier-1 cigarettes (basic styles), providing an incremental output of nearly 30%.
At present, the market for tier-1 cigarettes (basic styles) is booming with the most complete brand coverage, the most diverse category forms, the most intensive price range, and the most diverse marketing methods. In this price range, established products keep pace with emerging products, and classic, refreshed products and new-form seed players soar together. Brands have their own strengths in quality and marketing. It is the most competitive market segment.
Tier-2 cigarettes hold worthy opportunity and potential
The market for tier-2 cigarettes did not decline even as tier-1 cigarettes (basic styles) made significant progress. Rather, its sales will continue to maintain a period of growth in the coming years.
The Chinese tobacco industry is acutely aware of the value of affordable cigarettes to cigarette brands. Affordable tier-2 cigarettes are regarded as a transitional product to draw customers from tier-3 to tier-1 cigarettes. Therefore, even though the price range of tier-2 cigarettes is very narrow, it has a variety of cost-effective products with excellent value.
The huge segment of “small-town young people” became an emerging and popular consumer group in the Chinese market in the era of good consumption. With the improvement of economic levels, their pursuit of cigarette consumption already upgraded from low-priced products to cost-effective products, which continues to influence more consumer decisions. For the tier-2 cigarette market, this means a huge development opportunity. For instance, Nanjing (Xuanhemen), one of the leading brands in this segment, established its position in the slim cigarette market of the same price with its extremely high-cost performance, and became a popular product for most consumers.
Popular domestic cigarettes in recent years such as Zhenlong (Xiangyun), Great Hall of the People, and Haomao all feature good taste, delicate packaging, positive association, and high-cost performance. Thus, they can quickly rise in the market and form a consumption trend.
Given the current cigarette market situation, short-sized, medium-sized, slim, and capsuled cigarettes are still popular among consumers. Whether it is short-sized cigarettes or slim cigarettes, the tier-2 cigarette market showed a high growth trend far exceeding that of regular cigarettes. Relevant data show that tier-2 cigarettes are the only key price category that maintained positive growth and stable momentum in the past decade. Some classic tier-2 cigarettes often boast a huge loyal consumer group, and the renewal and upgrading perfected these classic products. Manufacturers often try brand upgrading on tier-2 cigarettes. As a result, this category became more and more satisfactory to consumers, which not only improved the over-all image of the brand, but also its huge consumer group became a potential group for the brand’s high-end products.
The mentioned high-quality development by the Chinese tobacco industry is not only the rapid development of high-end and high-priced cigarettes, but also the structural improvement of affordable cigarettes, both of which are in the same important position. In the post-epidemic era, quality consumption is on the rise, and cigarettes priced at RMB300/carton grew to be dominant products with many consumers and huge development potential, bridging tier-1 and tier-3 categories.