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Over the last few days it has emerged that the Chinese government is looking to introduce a ban on tobacco cigarettes in public places. When you bear in mind that China is the largest tobacco cigarette market left in the world, with over 300 million tobacco cigarette smokers, this could have a major impact upon not only tobacco cigarette companies but also the electronic cigarette industry.
This could turn out to be a game changer for both industries and increase the speed of consolidation across the electronic cigarette sector.
So why is the Chinese government looking to introduce a nationwide smoking ban and what are the consequences for tobacco cigarette companies and their electronic cigarette counterparts?
Official statistics show that there are in excess of 300 million tobacco cigarette smokers in China and more than 1 million people die each year as a consequence of smoking-related illnesses. Indeed there are also in excess of 100,000 deaths which are directly attributable to secondary smoking which is obviously an alarming statistic. So far the tobacco cigarette companies have benefited enormously from the lack of a nationwide smoking ban but the situation looks set to change with indications from government spokespeople that 2014 will be the year.
At this moment in time there are localised smoking bans across some of China’s larger cities but in many instances the regulations are not enforced with any real vigour. The fact that there are in excess of 300 million tobacco cigarette smokers across China means that this is a very strong movement and politically sensitive. However, it seems that the Chinese government is now about to call time on smoking tobacco cigarettes in public places.
What does this mean for the tobacco cigarette companies?
When you take into account the public smoking ban across Europe and in the US, China has been the major growth engine of the tobacco cigarette industry for some time now. There will obviously be an impact if, as expected, a smoking ban is introduced for tobacco cigarettes and this is likely to see tobacco cigarette companies look elsewhere for their future growth.
Despite the fact that the worldwide tobacco industry is worth in excess of $750 billion it has been a diminishing market for some time with smoking bans across Europe and America. It is common knowledge that the major tobacco cigarette companies have been monitoring the electronic cigarette industry from afar amid suggestions they will use their financial firepower to take over leading brand names in due course. This may well be the case, tobacco cigarette companies may look to increase their future influence by acquiring brand names, but due to advertise restrictions they will not be able to use the full might of their marketing machines and their financial firepower.
Is consolidation of the electronic cigarette industry inevitable?
While the tobacco cigarette companies have shown a growing interest in the electronic cigarette market, despite allegations that they have been trying to slow growth in the short to medium term, this is a very different playing field to the tobacco cigarette market. We will see an array of regulations in due course, there are strict advertising conditions and while tobacco cigarette companies will play a part in the electronic cigarette market in the future, they will not have it all their own way.
The various advertising and marketing restrictions have enabled an array of relatively small, medium and large sized electronic cigarette companies to operate on a level playing field to their tobacco cigarette counterparts. However, as with any new and emerging industry there will be a period of consolidation, some of the smaller players will fall by the wayside and the larger ones will come under the spotlight. Even though many people expect the tobacco cigarette companies to take out the major electronic cigarette brand names, this is not guaranteed with an array of new savvy investors having already spotted the potential of this industry going forward.
The likelihood of a tobacco cigarette smoking ban in public places across China will inevitably push some of the 300 million tobacco smokers towards electronic cigarettes. At this moment in time the Chinese government has not indicated any restrictions on electronic cigarettes and when you bear in mind that many see China as the “home” of electronic cigarettes, perhaps the industry can expect some support in the short to medium term?
While there is still some confusion as to the direction of regulations within Europe it looks as though the electronic cigarette industry is set to go truly global during 2014. However, do not expect the tobacco cigarette companies to sit back and accept these regulatory changes gracefully because they will want a slice of the electric cigarette industry pie and they will do whatever it takes to ensure they have a stake in the industry going forward.