Sat, July 13

What is left when cigarettes and alcohol lose their social attributes?

As we approach the last two days of 2023, I would like to talk to everyone about smoking and drinking. Cigarettes and liquor are a unique blend of face-saving etiquette for the Chinese people, embodying addictive social consumption and comparison. There is an old saying that goes, “No feast is complete without wine; cigarettes and liquor are inseparable.” Another saying goes, “Guests offer cigarettes to the host, showing respect without accepting alcohol; a half-filled cup of tea embarrasses the guest.” Yet another saying goes, “Cigarettes do not alleviate the bitterness of life; strong liquor does not dispel the worries of the world.” The consumption of cigarettes and alcohol, even though considered a necessary expenditure, also reflects changes in societal values and trends.

In the realm of consumer goods, alongside grains, food, and beverages, cigarettes and alcohol stand as the largest category of commodities, even surpassing clothing and footwear. From January to November, the retail sales of cigarettes and alcohol saw a year-on-year increase of 10.9%, starting at 6.8% in the first quarter and accelerating in the second and third quarters, with a growth rate as high as 16.2% in October. It can be said that in 2023, smoking and drinking rank as the second most prosperous industry, following only behind dining and travel.

The brokerage report summarized a reason, stating that the demand for gifts has rebounded, which is quite aptly put. In other words, the core of tobacco and alcohol consumption can be summed up in four words: giving and receiving. A few days ago, when I was buying cigarettes, I chatted with the shop owner for a few moments. He mentioned that cheap cigarettes are becoming increasingly scarce. In the past ten years, it’s rare to find cigarettes priced below ten yuan everywhere. There are so many options now, from the cheap fifty-cent cigarettes in the fourth and fifth districts, to the four-yuan Shilin Hongmei Baisha, and the seven-yuan Hongtashan. Talking about this always reminds me of my school days. Back then, there were two friends next to me buying cigarettes. One of them bought a pack of cigarettes from the fourth and fifth districts, and his friend disdainfully said, “Can’t you buy a better brand?” I was completely dumbfounded at that time. When the price went above ten yuan, there were brands like Emperor, Market District, Red Profit Group, and if you wanted to go higher, there were brands like Yellow Crane Tower, Xiaosu, Dasu, Furong Wang, and even higher-end ones like Lotus and Ruanzhong. The distinctions between high, medium, and low-end brands were clear back then, and everyone chose according to their preferences. Later, I gradually noticed that cigarettes priced below ten yuan were becoming increasingly rare. They were either sold in non-standard quantities, sporadically available in a few boxes, or simply out of stock. Only in urban-rural fringe areas and rural areas could you find some tobacco shops that still sold them.

The boss told me that they also want to sell low-priced cigarettes. If they can’t find them elsewhere, they can retail them here with a markup. There is profit in selling higher-priced tobacco. Premium cigarettes are displayed prominently, attracting more customers into the store. Some customers even exchange cigarettes for alcohol, aiming to increase popularity. Data from tobacco control agencies and health organizations show that in 2006, the weighted average retail price of cigarettes in China was only 5.08 yuan per pack. By 2015, it had risen to 12.57 yuan per pack, and in 2020, the retail price reached 18.69 yuan. It is well known that half of the price of cigarettes is taxes. According to reports from First Financial, at a price of 18.7 yuan per pack, for every pack of cigarettes smoked, an average of 0.52 yuan goes towards tea consumption, 0.87 yuan towards tobacco industry workers’ wages, and 9.05 yuan towards taxes paid to the country. The tax accounts for 48.4% of the price of a pack of cigarettes. Can raising prices help control smoking? After increasing tobacco consumption taxes in 2015, cigarette consumption immediately decreased in the following year. However, starting from 2019, production and sales volumes have been steadily increasing, reaching 2.65 trillion in 2022. Just this year, we discussed tobacco consumption figures for the first ten months. Initially, it seemed that the first half of the year was not doing well, but surprisingly, smokers persisted, and the growth rate in the second half of the year exceeded double digits.

China’s goal by 2030 is to reduce the smoking rate among individuals aged 15 and above to below 20%. Currently, the adult smoking rate stands at 24%. Therefore, relying solely on price measures to control smoking, such as taxation, is not sufficient. Non-price measures are also crucial in this effort. One good example of this is in major cities, such as Shanghai, where indoor smoking is completely banned and outdoor smoking is only allowed in designated areas indicated by signs. In 2022, Shanghai successfully reduced its adult smoking rate to 19.4%, and the rates of middle school students being persuaded to smoke and using e-cigarettes are the lowest in the country among all provinces.

However, there is still room for more stringent measures. Recently, there was news that the French Ministry of Health plans to increase the price of cigarettes to 12 euros per pack by 2025, reaching 13 euros in 2026, which is equivalent to over 100 RMB per pack. They believe that raising cigarette prices is the most effective smoking cessation measure. In France, all public places such as beaches, parks, and schools are designated as smoke-free areas, making smoke-free environments the norm. Over the past decade, tobacco prices in France have increased by 70%.

Looking at these examples, it seems that smokers in our country may still have a long way to go before feeling the pinch of higher prices and stricter smoking regulations.

Professor Zheng Rong from the University of International Business and Economics stated that in order for China to achieve the goal of reducing the adult smoking rate to 20%, the proportion of taxes on health insurance should reach 78% if social organizations implement non-price tobacco control measures at a moderate level. He mentioned that the ultimate goal of raising taxes is to raise prices. From 2013 to 2020, the retail price of cigarettes increased by 4.43 yuan per pack, indicating that smokers’ sense of pain is not significant. Cigarettes are gradually becoming more expensive, which is a trend seen worldwide.

Professor Zheng also noted the interesting discussions in the comments section. Some smokers expressed dissatisfaction, saying they would quit smoking if prices increased, which could help them quit. On the other hand, non-smokers commented that the higher the price, the better, as they do not smoke and would rather see smokers suffer. The debate between smokers and non-smokers is ongoing.

Putting aside the question of whether cigarettes should be more expensive, Professor Zheng personally strongly supports non-price tobacco control measures, especially in cases where secondhand smoke is disregarded, such as smoking in parks with children present, smoking in public squares by the river, and even smoking in elevators. He questions whether not smoking will cause harm.

Like low-priced cigarettes, the price increase of Baijiu in recent years has also been achieved through quantity control. The only difference is that cigarettes may gradually become more expensive in the future, but after the frenzy of speculation in the Baijiu market, ignoring the pressure of distributor inventory and attempting to increase profits through price hikes, it is no longer possible to replicate. This year, a key word for the Baijiu market is “price inversion.” You can see that recently, distilleries are still stubbornly raising prices. On December 27th, Maotai increased the ex-factory price of Jiangyang Classic by ten yuan to 200 yuan, with a suggested retail price of 218 yuan per bottle. Jinwangzi raised the price by 20 yuan to 178 yuan per bottle on the same day. Also on the same day, Jiannanchun increased the price of its core flagship product, Crystal Sword, by 20 yuan per bottle. On the 28th, Shede Winery also raised the ex-factory price of its flagship product, Taste Shede, by 20 yuan to 438 yuan per bottle. This is how they are playing the game, but what is the real market situation? Now, apart from Maotai, the prices of the vast majority of Baijiu brands are inverted. Whether it’s the high-end Feitian’s Guojiao 1573, the eighth generation of Pu’er’s Dream Blue, or the mid-range Shede Crystal Sword and Qinghuafen, offline prices are lower than the suggested retail price. During major promotions like 618 and Double 11, the final price in self-operated and official flagship stores can even be more than 30% lower.

At this point, strange things began to happen. The liquor industry thought they were following the trend of raising prices to reduce inventory in 2015, while the real estate industry rushed to make a quick profit before the New Year and Spring Festival. Distributors were feeling the pressure with inventory piling up, forcing them to lower prices to move stock. With upstream prices rising and downstream prices falling, the liquor industry is completely different from the tobacco industry. The price transmission system, from production price to wholesale price to retail price, has been disrupted by the continuous pressure of price hikes.

Recently, the China Alcoholic Drinks Association issued a statement saying that the 2023 Hangzhou Bar Expo scheduled for December will be postponed. The main reason cited was that distributors and agents have accumulated too much inventory, making it impossible to make normal purchases. Half of the participating companies requested a postponement of the expo because they couldn’t sell their current stock. Some liquor sellers have even stopped playing the game altogether. As the tide recedes, it becomes clear that not every brand can match Maotai, nor can they replicate Maotai’s financial and social attributes.

In the end, it’s the people who bought liquor in 2023 that are becoming poorer. They are passing on the chill to every liquor seller. Looking at this year’s tobacco and alcohol consumption at the end of the year, behind the prosperity, there are hidden concerns. Can smokers withstand the increasingly strict smoking regulations and the trend of rising prices? If they can’t, then they will quit. Whether it’s you or me, can the alcoholics generously open their wallets for liquor that is quickly rising to hundreds of dollars per bottle in stock? If they don’t foot the bill, then they will have to lower the price to a reasonable level. Therefore, the apparent strength of tobacco and alcohol consumption in 2023 is mostly the result of the recovery of social needs, but under the situation of smoking control and high liquor inventory, it is difficult to become the starting point for a new outbreak. Smoking and drinking are excellent mediums for Chinese social interactions, but relying too much on Chinese social interactions, the health consciousness of a generation of young people, and changes in workplace cultural values are leading to a shift towards using online games, fishing, milk tea, coffee, travel, and art exhibitions as substitutes for tobacco and alcohol.

In the past, smoking and drinking seemed to be a way to fit in, to conform. You had to offer cigarettes to others, keep your voice down, and speak politely. It was all about etiquette. You would check the cigarette butts and the brand of the alcohol bottle before engaging in conversation. Smoking helped ease awkwardness, while drinking heavily showed a sense of boldness. But things seem to have changed over the years. Now, when someone offers me a cigarette, I decline. When someone pours me a drink, I politely refuse. No one says anything. I now understand that what people dislike is not smoking or drinking per se, but the pretentiousness and hidden agendas behind social interactions, the vanity and superficiality. It’s not about connections or social circles; it’s more about one’s own abilities, boundaries, and how one treats others. It’s not about groveling at the table, but about being true to oneself. If you don’t want to smoke, you don’t have to worry about it. If you don’t want to drink, you don’t have to. True friends will remain true friends, and if you can’t connect with someone, no amount of smoking or drinking will change that. True drinking culture is about being with people you feel close to. If you feel like having a drink, go ahead, without worrying about anyone’s opinion. As we welcome 2024, let’s raise a toast to the new year.