After Tobacco Control: Where Is the Tobacco Industry Headed?

Core tip: After the turning point of tobacco control comes, cigarette sales will surely decline. However, rigid demand in China's tobacco market is still strong, and next is a new round of competition and adjustment.

Shen Zhipeng (Editor-in-Chief of Tobacco Online)

At the end of November 2014, the Legislative Affairs Office of the State Council announced the "Regulations on Smoking Control in Public Places (Draft for Review)"(hereinafter referred to as the "Regulations") drafted by the National Health and Family Planning Commission. The "Regulations" clearly define the scope of smoking bans in public places and propose a comprehensive ban on tobacco advertising.

The "Regulations" promulgated this time are considered to be a strengthened version of the smoking ban. A month later, the World Health Organization's attention to the news triggered a global heated debate on smoking bans in China.

Some experts pointed out that affected by changes in my country's economic situation, consumption concepts and habits, the growth rate of my country's cigarette production and sales has shown a continuous downward trend in recent years. In particular, cigarette production grew slowly, with a growth rate of only 1.8% in 2013, a decrease of 2.06 percentage points from the average level of the previous 10 years. If we encounter such a strict tobacco control order again, and with the rising calls for increasing tobacco taxes, the external environment of the tobacco industry will become increasingly unfavorable and will be in a difficult situation that is difficult to escape.

The author believes that there will be some twists and turns in market demand for some time in the future. However, China is the world's largest tobacco consumer, with more than 300 million smokers, and the market potential is huge. At present, the tobacco industry has prepared for rainy days to cultivate new growth points and has strong anti-risk capabilities. The tobacco market will remain stable in the future. This has been confirmed by the development practice of foreign tobacco giants. So, where will the tobacco industry go after tobacco control? Where are the new growth points?

The industry will be reshuffled”

On August 4 last year, the cumulative annual sales revenue of Zhonghua Cigarettes exceeded 100 billion yuan, achieving the goal of sales revenue exceeding 100 billion yuan one month earlier than in 2013. ldquo; The Chinese brand is world-renowned, allowing the world to see the power and charm of the number one brand in China's tobacco overseas markets.

It can be seen that in a complex and ever-changing market environment, having a strong brand is crucial to the success of a tobacco company. High-end cigarettes represented by Zhonghua, Furongwang, Yunyan, Huanghelou, Liqun, Yuxi, etc. are the first echelon among key brands. They have both scale and efficiency, a solid market foundation, and good adaptability to unfavorable external environments. ability. These large tax collectors bucked the trend and undoubtedly issued the largest insurance policy to achieve industry tax revenue growth.

After tobacco control, the anti-risk ability of strong brands is still strong, and the competitive trend of cigarette brands is changing from the strong becoming stronger and the weak becoming stronger to the strong still being strong and the weak find it difficult to self-reliance. This shows that although non-market factors exist, their role is relatively weak, the decisive role of the market is more prominent, and only a good brand can withstand the test.

From January to September 2014, the sales volume of 28 key cigarette brands nationwide exceeded 33 million boxes, accounting for approximately 83% of the country's cigarette sales; the sales revenue exceeded 1.007 billion yuan, accounting for approximately 94% of the national cigarette sales revenue. In the future, the market share of key brands will continue to grow strongly.

Looking at foreign tobacco giants, when encountering adverse factors such as tobacco control orders, they without exception regard improving brand competitiveness as the most important strategic measure. Since the World Health Organization's Framework Convention on Tobacco Control officially came into effect in 2005, government control measures in various countries have been continuously strengthened, and the tightening spell of tobacco companies has been tightened. Tobacco giants began to cultivate key cigarette brands, continuously strengthened brand building and product innovation, and consolidated and expanded market share.

The concentration of key brands in the global tobacco market (excluding China) has shifted to four tobacco giants: Philip Morris International, British American Tobacco, Japan Tobacco, and Imperial Tobacco. According to authoritative data, the total cigarette sales of these four multinational tobacco companies reached 47.1 million cases in 2013, accounting for 69.7% of the world cigarette market share outside China.

In this sense, in the future, tobacco control orders will accelerate the metabolic process of the cigarette market, enhance the physique of strong brands, make the structure of the tobacco industry more excellent, and then stably support the operation of the industry, and the fundamentals will stabilize and recover.

Fine cigarettes are favored

As the turning point of tobacco control comes, the fine cigarette market may be a new growth point.# p#pagination title #e#

The so-called thin cigarettes usually refer to cigarettes with a smaller diameter than ordinary cigarettes and novel, fashionable and personalized packaging. Because the tar content is generally lower than ordinary cigarettes, the smoking flavor is also lighter, it is more in line with the needs of specific consumers. This new force has a strong driving force and has unlimited possibilities to connect with more consumer groups. It will become a new highlight to drive sales growth and structural improvement.

At present, the national fine cigarette market has changed from its lukewarm situation in the past and is showing a rapid warming trend. Since 2010, the domestic fine cigarette market has maintained an average annual growth rate of 40%. In 2012, the annual sales volume of fine cigarettes reached 50,000 boxes, much higher than the average growth rate of ordinary cigarettes nationwide during the same period. In 2013, a number of cigarette companies formed a centralized listing of fine cigarette products. In the first half of 2014, sales of cigarettes below the national standard circumference were 192,000 boxes, a year-on-year increase of 53.39%. It is expected that sales of fine cigarettes in 2014 will be close to 300,000 boxes, a year-on-year increase of 85%.

Various tobacco companies have made great efforts in product design and marketing concept innovation, and have launched fine-cigarette brands one after another to compete for development opportunities for fine-cigarette cigarettes. ldquo; Long, short, slightly thick, extremely thin, innovative, and distinctive new products of various types, structures, and styles of fine cigarettes emerge one after another. rdquo;

Korea Tobacco, which has positioned itself as the world's sixth largest tobacco company, also regards the development of fine cigarettes as one of the most important strategic measures when it is facing the turning point of tobacco control. Through taste adjustments and technological innovation, it strives to make its products more suitable for the smoking habits of local consumers. Today, Aixi has become the world's No. 1 selling brand of Super Slim and is a representative of low-stimulus soft cigarettes.

After 2008, Korean Tobacco has established four overseas factories in Turkey, Iran, Russia, and Indonesia. At present, branches with legal personality have been established in nine countries including China, the United States, Russia, Kazakhstan, Turkey, Iran, Indonesia, the Philippines, and Lebanon. South Korean tobacco exports more than 80 specifications of products to 64 countries and regions including the Middle East, Central Asia, Russia, and the United States. Among them, its main brand Aixi has been exported to more than 70 countries around the world, and its sales in Russia have reached 100,000 boxes per year. above.

Today's small market is tomorrow's big world. Although fine cigarettes still account for a very small share of the country's total cigarette sales today, their development cannot be underestimated at the turning point of the tobacco control order. This has been confirmed by the development practice of Korean tobacco. This is an emerging market, a blue ocean, and a new potential growth point for the tobacco industry. The market space and capacity need to be explored urgently.

Looking for cigarette alternatives

It can be expected that cigarette sales will decline in the future. The tobacco industry is looking for cigarette alternatives, increasing the research and development and marketing of non-cigarette tobacco products, and seizing more and more consumers to expand the diversification of corporate profit lines.

As early as the third year after the Framework Convention on Tobacco Control officially came into effect (2008), relevant departments allocated 4.5 million yuan to hand over a three-year research and development project of smoke-free tobacco products to the Zhengzhou Tobacco Research Institute.“” At present, the R & D work has achieved expected results: product production has entered the pilot stage, and technologies in various aspects such as tobacco formulation, production technology, basic theoretical research, and standard formulation have been basically mature and can adapt to the needs of industrial-scale production.

Shanghai Tobacco Group has formed relatively mature laboratory trial products in the research and development of oral cigarettes. In 2014, the group registered its own brand trademark elements in batches in the field of trademark design of new tobacco products, protecting the company's intellectual property rights on a larger scale.

Sichuan and Chongqing China Tobacco has successfully developed a new type of oral tobacco. This new type of mouth cigarette, which looks like sugar and has zero tar content, not only brings physiological satisfaction to consumers, but also has improved safety and extended shelf life compared with traditional mouth cigarettes. This technology has applied for 9 national invention patents.

At present, tobacco companies are frequently electrocuted and constantly launching e-cigarettes. Shandong China Tobacco launched a nicotine-free e-cigarette product for the first time. Shanghai Tobacco Group strives to develop cigarette liquids that meet the tastes of Chinese consumers. Compared with some e-cigarettes with strong flavor on the market, it is closer to the smoking taste of traditional cigarettes, and the taste of the cigarette liquids is better coordinated. The products produced by China's e-cigarette companies are the only ones, accounting for more than 90% of the global e-cigarette market, including e-cigarettes, e-cigars, e-hookah, etc. The differences in product quality among each company have become smaller and smaller.# p#pagination title #e#

After the introduction of the tobacco control order, foreign tobacco giants have regarded new tobacco products as an emerging strategic product. In 2013, Philip Morris International's Other Tobacco Products (OTP) grew by 4.9%. In 2013, global e-cigarette sales reached US$2.5 billion. Although it is a piece of cake compared with the US$600 billion tobacco market, its development cannot be underestimated.

my country's new tobacco products have initially achieved product, market and innovation, and their development is about to enter the first peak period. This improvement is a replacement for cross-category consumption within the industry. It is an upgrade process of overall value for the industry and an upgrade of consumption trends.

Layout diversified investment

As the tobacco market capacity and growth space become increasingly shrinking, in 2014, in order to quickly obtain market, technology and other resources, the tobacco industry focused on financial markets, emerging markets, and potential markets by effectively leveraging its capital stock advantages and innovating internal capital financing channels and operating mechanisms., diversified investment actions are frequent.

In January, the 51% equity of Kunming Tuodong Real Estate Development Co., Ltd. held by Yunnan Tobacco Machinery Factory was listed for transfer, with a listing price of 283.646 million yuan. Previously, in 2010, Yunnan Tobacco Machinery Factory transferred 49% of the equity of the target company, and Yunnan Zhongju Land Group Co., Ltd. took over and became the second largest shareholder.

In April, Shanghai Tobacco listed its 20% stake in Shanghai Watsons for RMB 74.87 million. Data shows that Shanghai Watsons was originally 40% owned by Shanghai Tobacco and 60% owned by JCDecaux. In 2008, Shanghai Tobacco was listed for sale of a 20% stake for 36 million yuan. The sale price is more than double the price four years ago.

In December, Agricultural Bank of China (601288, stock bar) issued the first batch of 32 billion yuan of preferred shares. According to statistics from reporters from Securities Daily, tobacco companies such as China Tobacco Corporation (including branches, affiliated investment companies and real estate companies), Shanghai Tobacco Group Co., Ltd. and investment companies have subscribed for a total of 16 billion yuan.

In addition, diversified investment in the tobacco industry has run through the entire value chain such as tobacco planting, acquisition, product manufacturing, marketing, and logistics and distribution.

In Africa, Zimbabwe is one of the best tobacco producers in the world today. Tianze Company has set up camp here. In 2013, the contract planting area reached 5923 hectares, and the purchase volume of raw tobacco achieved a historic breakthrough of 14,100 tons.

Brazil is the world's second largest tobacco producer and largest tobacco exporter. China Tobacco International Brazil Co., Ltd. is here to test the Brazilian model and comprehensively promote substantive operations. 2012-2013 In 2001, planting contracts were signed with more than 8000 tobacco growers, with a planting area of 14648 hectares, a year-on-year increase of 30.51%.

Guangdong China Tobacco jointly established Jinye Cigarette Factory (Macau) Co., Ltd. and Cambodia Vineton (Group) Company. The latter Veneton Company has developed into one of the most successful Chinese-funded companies in Cambodia, with a market share stable at around 40%. The brand Angkor (Golden)it produces firmly ranks as the national tobacco in Cambodia.

After smoking control, foreign tobacco giants have implemented diversified strategic investment, achieving mergers and acquisitions integration through cross-border mergers and acquisitions, off-site investment, export trade and other methods, and opening up more markets. In 2013, Philip Morris International invested US$703 million to purchase a 20% stake in its Mexican subsidiary and achieved 100% control, US$625 million to purchase a 49% stake in United Arab Emirates AITA, and US$174 million to expand two cigarette factories in Indonesia. In 2013, British American Tobacco reached an agreement with Myanmar IMU Company to invest US$50 million in a joint venture to establish a cigarette factory; and invest 23 million euros to complete the expansion of the Romania cigarette factory.

It is true that after the turning point of tobacco control comes, the development of the tobacco industry will face many foreseeable and unpredictable risks and challenges. However, in terms of market laws, the rigid demand in China's tobacco market will remain strong in the future, and next will be a new round of competition and adjustments, which will ultimately leave behind the most powerful and valuable enterprises. (Pivot Magazine, February 2015)