The cigar market in China

The cigar market is booming, yet most Chinese appear to be far less interested in cigars for their taste than in using them to puff upchinese smoking cigar their image.

“I always have cigars handy in my office,” said Wang Mao, who owns a construction materials firm in Beijing. “So whenever a potential business partner offers me a cigarette as a good gesture I can reject politely and light a cigar.”

“They’re always very impressed,” he added with a big smile.

Like many others, Wang’s first encounter with cigars was seeing them as a boy in movies, usually in the hands of rich and powerful characters, including Chairman Mao Zedong.

Picking up a box of four Davidoff Tubos No 2s, which retails at more than 300 yuan ($40), the 47-year-old businessman admitted he hates the taste of cigars and prefers cigarettes.

“I only smoke (cigars) when my business partners are around. They’re made in Cuba, you know?” said Wang, pointing at the box in his hand. (Davidoff cigars are actually produced in the Dominican Republic.)

However, there are obvious limits to how far some will go to impress.

“Some cigars sell for 1,000 yuan each in stores. I’d rather roll 1,000 yuan in cash and smoke that than pay such a price for one cigar,” said Wang, clearly outraged.

Chinese consumers spend an average of 2.2 billion yuan a year on cigars, with annual sales topping 370 million, shows the latest analysis by Market Avenue, an independent market research company based in Beijing.

Top-quality brands account for about 25 percent of the country’s market share, with the mid-priced range taking 30 percent and low-end products taking 45 percent. In comparison, sales in the United States and Europe are split almost entirely between high- and medium-priced cigars.

According to Market Avenue’s research, foreign-made products smuggled into China dominate about 50 percent of the market nationwide, rising to 90 percent in Shenzhen, Guangzhou and Zhuhai, all cities in Guangdong province.

Despite China dropping its tariff on imported cigars from 49 percent to 25 percent after joining the World Trade Organization in 2001 and lowering the excise duty to 36 percent last year, smuggled cigars still cost half the price of legal ones, such as those offered by distributors for China National Tobacco Corporation (CNTC).

Most illegal cigars are usually sold in nightclubs and hotels.

“We have homegrown cigar-makers but the taste (of their products) is not considered favorable because Chinese tobacco leaves are not suitable for making high-end cigars,” said a senior official with CNTC who did not want to be identified.

“Smuggled cigars are much cheaper and taste great, that’s why they dominate our (domestic) market, which has lots of potential.”

The cigar industry is expanding by more than 30 percent a year, according to a report by Tobacco Asia magazine, three times the average growth for the country’s entire tobacco sector.

However, the most popular domestic brands - Great Wall, Lion, Maoda and Three Gorges - all target low-end smokers, with some brands costing as little as 1 yuan each.

Great Wall cigars, which made up 55 percent of all homegrown cigars sold in 2009, are produced by Sichuan-Chongqing Regional China Tobacco Industry Corporation at its factory in Shifang, Sichuan province, an area known for its favorable conditions for growing cigar tobacco.

To convert some of China’s 301 million adult cigarette smokers into potential customers, the company has developed several products that look like cigarettes but taste like cigars.

Omar Leon Sanchez, chief representative in China for Habanos S.A., Cuba’s top cigar exporter, said he is not optimistic many will make the switch. “Smoking cigarettes is a continuous habit. You don’t smoke cigars that way,” he told China Daily in a recent interview. Cigarettes are fast food, while cigars are a gourmet meal, he said, “so it’s often easier to become a cigar smoker if you haven’t smoked cigarettes”.

Despite the challenges, large manufacturers like Davidoff and Gurkha say they have seen potential in China’s premium market over the past few years, particularly in Beijing, Shanghai and Hong Kong.

To prove the point, several have even opened smoking lounges, many of which are in four- and five-star hotels.

Although still largely the preserve of high-earning Chinese 30-somethings and expatriates, some believe the growing market from cigars, as well as other luxury goods, is ripe for profit.

Edward Jin, deputy general manager of the Cigar Ambassador, a lounge in Shanghai that expanded its operations to Beijing two years ago, said the cigar scene has exploded in China since 2005.

“When we got into this business eight years ago, there was only a small group of cigar lovers. Now we have more than 20,000 members,” said.

“It’s all part of the new luxury lifestyle,” explained David Wilson, general manager of Ritz-Carlton Beijing and its Davidoff Lounge, one of the opulent venues catering to the capital’s elite ranks. “Nice cars, nice wines and, of course, nice cigars have become a big thing,” he added.

La Casa Del Habano in the Westin Bund Center is the only licensed distributor of Habanos S.A. in Shanghai (it also has outlets in Beijing and Guangzhou) and offers imported brands from authorized CNTC retailers.

“The prices of our cigars range from 51 yuan to 400 yuan and the best-sellers are premium brands like Cohiba,” said manager Dong Yan. “We’ve been here five years now and our sales have increased every year.”

She admitted, however, that the majority of customers actually smokes cigarettes and only buys cigars as gifts for their business partners. “Some even send their drivers to pick up cigars for them,” added Dong.

Although business is booming for smoking lounges, the general feeling among those running them is that if the powerful, trendy image of cigars disappears, so too will their customers.

Businesses are also still waiting for “cigar fever” to spread in some cities, such as Guangzhou, where lounges remain the domain of foreign aficionados.

“Most of our guests are company executives from overseas. We don’t see many locals,” said Yang Jipei, who owns La Club Havana in the city’s Westin hotel. “Guangzhou is less international than Beijing and Shanghai, so foreign-made products like cigars take time to be truly understood and accepted.”

She said people should not expect to earn huge profits selling cigars in China, which requires a major investment.

“Normally we sell a dozen or so of the top brands daily,” said Cora Ou, a saleswoman at La Club Havana, where the cheapest cigar on the shelves costs 100 yuan.

Perception, misconception

For Hu Wei, there is only one place to enjoy a fine cigar - in the comfort of his own home.

“Smoking a cigar is like talking to an old friend and I don’t want to be disturbed,” explained the 52-year-old, who owns an international trading company in Beijing.

“My first Cuban cigar was a gift from my Japanese business partners more than 10 years ago. I didn’t even know you have to cut it,” said Hu, who now have a collection of more than 550 premium Cuban cigars at his luxury home in the capital’s Shunyi district.

“Smoking cigars is more like a habit, a lifestyle choice rather than an addiction,” he said. “Being surrounded by smoke helps me think. I’ve made many milestone decisions with a cigar in my hand.”

The businessman, who never smokes cigarettes, said he believes Chinese people need to learn how to “appreciate the finer things in life”, such as premier wine and tobacco, rather than using them to show off.

“At the end of the day, people will only look down on you,” he warned.

Hu admitted tobacco in whatever form is a health risk and has reduced the frequency he smokes cigars from three times a week to twice.

“Even smelling the cigar leaf makes me happy,” he added.

Unlike Hu, many Chinese also have some worrying misconceptions about smoking cigars, say health experts.

“I think cigars aren’t that bad for you because, unlike cigarettes, you don’t even inhale,” said Xu Xiaopeng, a 32-year-old IT consultant, also in Beijing. “Many friends whom I smoke with all believe that.”

The bad news for Xu is that large cigars typically contain between 5 and 17 grams of tobacco - the leaves are also fermented, giving them higher levels of nitrogen compounds - and some premium products contain the equivalent of an entire pack of cigarettes, according to research by the American Cancer Society.

Although smokers do not inhale, doctors warn that they are still in danger from secondhand smoke, especially as a cigar can last one or two hours.

China is the world’s biggest consumer of tobacco, with 350 million smokers, and experts estimated that means about 540 million non-smokers are being exposed to the hazards of secondhand smoke. There are roughly 1 million smoking-related deaths occurring in China every year, as well as 100,000 deaths caused by passive smoking.

Despite attempts by the Chinese government to build a smoke-free society, as the tobacco companies are all State owned, some provincial authorities rely heavily on the industry as a major source of tax revenue.

Campaigners argue that this has made smoking more difficult to control.

By Cui Jia
China Daily

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