Niche Products Become Powerful Weapons in Sales Revival

by

Niche cigarette products have turned out to be powerful weapons for China’s tobacco industry in their efforts to revive cigarette sales and reverse an unprecedented sales slump last year.

TobaccoChina Online

In 2016, cigarette sales in China sustained a sharp decline, entering a “frigid winter”. Yet, in the first half of 2017, sales in the country somewhat turned for the better largely due to niche products. From January to June, the tobacco industry sold 1,237.5 billion cigarettes (24.75 million cases), up 1.6% over the same period in 2016, earning RMB772.69 billion (US$115.3 billion) in sales, up 5.7% year-on-year. In the first six months, it already fulfilled 52.3% of the annual sales target for the entire year.

Speaking at the July 18 national working conference on economic operation of the tobacco industry in the first half of 2017, deputy director-general Duan Tieli of the State Tobacco Monopoly Administration (STMA), the regulator of the tobacco industry, talked about the niche products that have helped the industry to realize revival in production and sales, which mainly include “slim”,  “short”, and “bursting bead” cigarettes.

Specifically, in the first six months of 2017, the sales volume of slim cigarettes reached 57.415 billion cigarettes, up 26.03 billion, or 82.95% year-on-year; short cigarettes were at 5.385 billion, up 3.46 billion, or 180.15% year-on-year; and bursting bead cigarettes were at 6.77 billion, up 5.03 billion, or 444.59% year-on-year, according to Duan.

In the first six months, the accumulated sales volume of slim, short, and bursting bead cigarettes totaled 67.2 billion, with sales value reaching RMB59.77 billion, stabilizing sales in China’s tobacco industry.

Slim cigarettes: sales growth and structural improvement

Slim cigarettes have become a relatively mature niche product and have initially shown a favorable sales trend. In the first quarter of 2017, the sales reached 29.1 billion, up 93.8% year-on-year, with the value reaching RMB25.22 billion, up 97.6% year-on-year. By the middle of the year, sales. had already topped 50 billion.

As for specific brands, in the first quarter of 2017, sales of Nanjing (Xuanhe Gate) reached 7.9 billion, Red Golden Dragon (Hard Blue Loving You) 3.15 billion, and Yellow Crane Tower (Famous Tower Under Heaven) 3.05 billion. At the end of the first six months of the year, there were already 18 slim brands each with a sales volume in excess of 5 billion. In particular, Nanjing exceeded 15 billion, and that of the Red Golden Dragon and the Yellow Crane Tower exceeded 5 billion each.

If such momentum continues, by the end of 2017 the annual slim segment could top 125 billion, with value exceeding RMB100 billion, with market share reaching 5% or higher. The annual sales of the top slim brand, Nanjing, alone is expected to top 37.5 billion.

In the first half of 2017, there was also remarkable success in improving the structure of slim products. Grade one saw increased sales volume, reaching 15.515 billion, up 8.55 billion, or 122.8%, year-on-year. Meanwhile, the sales volume in the high end reached 6.305 billion, up 3.515 billion, or 126% year-on-year; and high-priced 485 million, up 285 million, or 142.5% year-on-year.

Short cigarettes: focusing on long-term development

So far this year, there has been a boom in short cigarette sales in the domestic market. In contrast to its annual sales volume of more than 1 billion in 2016, short brand Golden Leaf (Letu) saw its sales surge to more than 2.5 billion by July 23, 2017, which was closely followed by other brands including Mount Huangshan (Memory) and Yellow Crane Tower (Sankoupin). Due to this favorable trend, the annual sales of shorts is expected to reach nearly 15 billion in 2017.

Similar to the situation of slims, since the appearance of a boom in sales there has also been a big rush in the development of shorts among manufacturers. Therefore, the tobacco industry now requires that all new short products must be grade one.

Bursting beads: serious persistent players

This year, smokers have been talking more about shorts and slims seem to have lost the enthusiasm they showed last year for bursting bead products. However, such a phenomenon does not mean that this segment will disappear. Data released by STMA in the first half of 2017 indicate that the sales of bursting bead cigarettes reached 6.77 billion, up 5.03 billion, or 444.59% year-on-year, which made this segment the biggest niche product after slims. After testing the marketplace, only those that can keep contributing to the general sales volume can really maintain their status as persistent players on the market. It seems that the appearance of such persistent players will be more significant in the face of receding enthusiasm for the segment in the domestic market this year.

In China’s Guizhou Province, the second largest tobacco-producing region in China, China Tobacco Guizhou Industrial Co., Ltd. (CT Guizhou) presented to the market in 2016 a new niche product crossing the boundary between slims and bursting beads known as Guiyan (Kuayue), which literally means “Guizhou Tobacco Trans-Boundary”. This new product is the first product with bursting beads containing medicinal dried orange peel. CT Guizhou creatively adds orange color bursting beads containing substances of medicinal dried orange peel into filter tips. Crushing them with a pinch releases the orange flavor. In 2016, this new niche product saw sales volume rise to 500 million merely several months after it was launched. By July 23, the 2017 sales of Guiyan had reached more than 1.4 billion and the brand’s supply has often fallen short of demand.

Of the existing Chinese cigarette brands, Golden Bridge, manufactured by China Tobacco Fujian Industrial Co., Ltd. (CT Fujian) does not appear to be a big player in terms of the sales, product structure, and market coverage. However, it is just such a seemingly silent brand that has realized a rise in sales so far this year. A powerful weapon assisting the rise in sales of the brand is a bursting bead product – Golden Bridge (Ice Burst) sold at a high retail price of RMB200 per carton. The single-month sales volume in June topped 50 million. In the first six months of 2017, the accumulated sales reached 196.2 million. In comparison, the sales of Marlboro (Ice Blast) – which is in the same category of products as Golden Bridge was just 299.8 million in the first six months of 2017.

Presently, there are quite a few bursting bead products whose market sales have grown considerably. In such a complicated marketing situation, the success of Golden Bridge in maintaining consumers lies in the high quality of its products. CT Fujian has made a great deal of effort to improve the aroma, blending formula, mouth-feel, etc., of its products. Meanwhile, the company has also steadily adopted and applied effective marketing policies. It is on the basis of such efforts that Golden Bridge has ushered in a boom in sales.

Medium-length cigarettes: lead by Shanghai Tobacco Group

In the domestic cigarette market today, medium-length products are supplied by Shanghai Tobacco Group (STG), under the brand name, Chunghwa.

The Chunghwa (Golden Medium-Length) presented to the market in December 2016 has a circumference of 22mm and is fully hand-packed. Later on, STG presented a new medium-length product known as Chunghwa (Dual Medium-Length). Like Chunghwa (Golden Medium-Length), Chunghwa (Dual Medium-Length) has also enjoyed good sales and is of high quality.

Presently, Chunghwa (Dual Medium-Length) still enjoys high sales volume. With great market recognition and fine reviews from consumers, as well as stable prices, Chunghwa (Dual Medium-Length) is considered a successful niche product. It has emerged as one of a very small number of new cigarette products that obviously became profitable within a pretty short period of time.

Niche cigarette products make up only a small proportion of the general sales in China today. However, this does not impede efforts of the industry to actively explore the potential and innovative development of these niche products.  More significantly, under the existing pressure from a lingering slump in cigarette sales in China, the development of niche products has played a positive role in the stabilization of sales.