Tobacco Sheet Market, Devices, and Distribution Channels: The Future of the Entire HNB Heated Tobacc

In recent years, global tobacco giants have accelerated their transition to smoke-free products, adjusting their business strategies as the shipment volume of traditional cigarettes gradually declines. For instance, Jacek Olczak, CEO of Philip Morris International (PMI), stated in July 2021 that PMI plans to stop selling traditional cigarettes in the UK within ten years, focusing on the development and commercialization of smoke-free products.

Given the vast development space and market potential for new tobacco products, the production and research and development of related consumables also play a crucial role, in addition to the advantages and patented technologies of these products themselves.This report will analyze the future growth of HNB heated tobacco sheets, flavorings, and devices across three aspects.

Low-temperature herbal capsules, plant slices, plant flavor extracts, and related finished products have characteristics of fast-moving consumer goods, with high consumption and usage frequency. The core materials of HNB tobacco sticks are tobacco sheets and flavorings.

Tobacco sheets: Tobacco sheets are products processed from tobacco waste, serving as carriers for nicotine, smoke agents, flavorings, and concentrates in HNB tobacco sticks. HNB relies on sheets to generate aerosols at high temperatures, carrying tobacco concentrates, nicotine, and other components, thus the usage of sheets is substantial, with the amount of tobacco sheets used in HNB being about nine times that of traditional cigarettes.

Tobacco flavorings: The unique manufacturing process of HNB and its non-combustible nature result in fewer aromatic components compared to traditional tobacco. Flavorings are the primary source of its aroma, hence the original spraying method cannot meet the demand; instead, flavorings are integrated into the sheet production process as one of the raw materials. In terms of usage, the flavoring addition in HNB tobacco sheets can reach about 2.5%, which is several times that of traditional cigarettes.

In the Chinese market, HNB products are classified as tobacco products and are managed under the Tobacco Monopoly Law, prohibiting the import of HNB products, with only a small number of HNB products currently in trial sales. Based on previous estimates of the HNB market size, Huazhong Securities believes that the tobacco sheet market is expected to exceed 36 billion yuan by 2025, with HNB accounting for 9.6 billion yuan.

Considering the accelerated transition of global tobacco giants to smoke-free products, there is still growth potential. By calculating the market space for tobacco sheets brought by HNB based on category penetration rates, Huazhong Securities estimates that if the HNB category penetration rate is 24% and the sheet price is 300 yuan/kg, the market space for tobacco sheets brought by HNB (excluding traditional cigarettes) is expected to exceed 44 billion yuan.

 The industry is becoming integrated, and leading brands are willing to deeply bind with manufacturers

The main reasons are: first, the scarcity of core technologies; currently, the market still shows that a few manufacturers hold patented technologies, and whether the technology is up to standard is closely related to the subsequent product experience for users. Therefore, high-quality manufacturers are very valuable to brands. Second, brand owners face fierce competition and a highly homogeneous industry survival state, requiring quality and stable manufacturers to help share uncertainties and assist in market expansion.

Policy implementation has impacted channel development, making resource management keyWith the implementation of a series of regulatory policies in the electronic vaping market, the development of channels will face challenges. In the face of slightly saturated channel expansion in the early stages, how to improve direct stores and distributors, grasp market pain points and channel needs through research and investigation, and then upgrade or improve management models to establish multi-channel advantages is necessary for future stable development.At the same time, maintaining existing customer resources, building a complete system, meeting diverse consumer needs, and reducing churn are currently the top priorities for brands in maintaining channels.