Tobacco Asia

Volume 20, Number 2

Issue link:

Contents of this Issue


Page 49 of 67

50 tobaccoasia / Issue 2, 2016 May / June) In particular, the sales volume of the Top 15 cigarette brands (Grade One to Grade Three) reached 312.3 billion cigarettes (6.246 million cases) in the first two months of the year, down 12.04% year-on-year, and accounted for 65.89% of the total cigarette sales of the tobacco industry in China. The commercial sales revenue of the Top 15 brands amounted to RMB260.958 billion (US$40.14 billion) in the two-month period, down 6.79% year-on-year, which accounted for 82.89% of the industry's total cigarette sales. Excessive Inventories As cigarette sales declined, cigarette inventories held by the to- bacco industry remained excessively high. By the end of Febru- ary 2016, the cigarette inventories held reached 303.63 billion cigarettes (6.0726 million cases), up 82.27 billion cigarettes (1.6454 million cases), or 27% year-on-year. Specifically, the cigarette inventories held by the manufacturing sector of the to- bacco industry reached 139.245 billion cigarettes (2.7849 million cases), and the cigarette inventories held by the commercial sec- tor amounted to 164.385 billion cigarettes (3.2877 million cas- es). By the end of February 2016, the inventories of the tobacco manufacturing enterprises and commercial enterprises increased by 50% and 20% respectively year-on-year, and these figures don't even take into account the inventories held by retailers. Low Taxes, Low Profits In early 2016, both taxes and profits generated by the tobacco industry were on the decline. In January and February 2016, the amount of taxes and profits reached RMB259.841 billion yuan (US$39.97 billion), down 8.27% year-on-year. Specifically, the manufacturing sector of industry amounted to RMB159.187 bil- lion (US$24.49 billion), down 14.51% year-on-year, and the the commercial sector generated RMB100.613 billion (US$15.47 billion) in taxes and profits, up only 3.67% year-on-year. Hasty Adoption of Regulatory Measures In light of the existing problems, the tobacco industry has tried to actively adopt regulatory measures, including control over output, stabilization of sales, reduction of inventories, compli- ance with the red line, and increase of tax payment and profits, to ensure smooth economic operation. Stabilization of sales and growth: In light of the real demand in the market, the tobacco industry has tried to increase effec- tive and stable supply of best selling cigarette brands. Effective reduction of inventories: To accommodate the re- alities of the cigarette markets, the tobacco industry has started closely monitoring changes in inventories held by both the man- ufacturing and commercial sectors in the regions, has strength- ened control over the stock-to-sales ratio, and has managed to assist retailers in getting rid of inventories held by them in order to ensure that cigarette inventories held by retailers will be re- duced to a rational level. Close monitoring of key cigarette brand pricing: In light of the fluctuations of some key cigarette brand pricing, as desig- nated by STMA, the tobacco industry has urged commercial enterprises to implement the requirement of clearly marking the prices in operating cigarette sales, in order to ensure stability of pricing in cigarette retail, enable retailers to increase profits, and improve retailer confidence. Active cost reduction and efficiency increase: Facing the harsh realities of decline in both tax payment and profits as well as an increase of production costs, the tobacco industry has urged enterprises to further optimize their management, cut costs, and implement "lean management" practices. On March 12, 2016, the National Bureau of Statistics (NBS) of China released data on industrial production, indicating that the added value of industries above a designated scale increased by 5.4% year on year in the first two months of 2016, a retreat from the 6.8% increase in the January-February period of 2015 and the 5.9% in December of 2015. The NBS attributed the decline to weak overseas market demand and further decline in exports, as well as a slowdown in production growth by some high energy consuming industries and traditional industries. In particular, the tobacco industry also experienced a sharp pro- duction decline in the first two months of 2016, with its added value falling 15.6% year-on-year (compared to a year-on-year increase of 16.9% in December 2015), which led to a decline of 0.7% in the overall industrial growth rate of China for January and February. Data released by the Chinese Ministry of Finance indicated that in January and February 2016, China's state-run enterprises earned a total of RMB6,241.55 billion yuan (US$960 billion) in gross revenue from business operations, down 5.8% year-on- year, with the amount of profits and taxes reaching RMB222.61 billion (US$34 billion), down 14.2% year-on-year. An important cause for the decline was also a relatively sharp drop in tobacco industry profits as well as other industries. The aforementioned data on China's macroeconomic devel- opment show that the tobacco industry was facing a harsh busi- ness climate in general in the first quarter of 2016. With the many difficulties and challenges facing the tobacco industry, it is now under heavy pressure. Although some of the decline may be attributed to the overall external economic situ- ation, the fundamental cause of the current harsh situation is, to a great extent, the tobacco industry itself. Whether the tobacco industry has truly paid attention to consumer demand, whether it has made painstaking efforts to develop competitive cigarette brands, and whether it will truly respect the choice of retailers are all questions that the tobacco industry needs to further con- sider and answer in the process of future reforms. The aforesaid data on the macro economic development of China reflect from a different perspective that the tobacco industry was facing a harsh situation in business develop- ment in the first quarter of 2016.

Articles in this issue

Archives of this issue

view archives of Tobacco Asia - Volume 20, Number 2