At present, the electronic cigarette industry is very popular. IDG, Source code, Zhen fund and other top venture capital entered this field first, later the founder of Uncle Tongdao Cai Yuedong, Smartisan Technology Luo Yonghao and other celebrities got into this…
Many investment institutions and Internet gurus have been eyeing this big cake. Just on September 29, another electronic cigarette brand NUT, announced that it had raised 10 million yuan in Angel financing round led by venture capital.
Daily Economic News reporter found that over the past year, hundreds of electronic cigarette enterprises have sprung up in the industry. In Shenzhen alone, they have contributed 90% of the global electronic cigarette market. With so many brands coming in, the supply of OEM factories is obviously in short supply. Many brands even have to rack their brains to “please” the OEM factories in order to “compete” for the limited production capacity.
Dominant OEM Factory
Compared with the way mobile phone manufacturers choose to build their own factory lines, electronic cigarettes are more likely to choose OEM factories.
Indeed, the construction of supply chain needs money, talents and strong ability to integrate the whole industry chain. Whether the new brand can not only focus on production and research, but also on brand and sales channel, it is a huge test.
According to Chen Min, CEO of electronic cigarette brand MYSTLABS, if you choose to build your own factory, there is obviously no competitiveness in terms of efficiency and cost. In this way, why can’t you stand on the shoulders of giants?
Because the threshold of electronic cigarette itself is not high, before doing LED in Shenzhen and Dongguan, it is not difficult for factories producing mobile phone parts to alter to electronic cigarette. But for a while, with so many brands pouring in, the situation of more wolves and less meat makes the OEM factory more and more dominant
It is reported that at this stage, electronic cigarette factories will even choose brands and customers, many of them are not well-known brands, and even put forward many requirements to the brand side in the account period. For example, some factories will not start until they receive deposits or even full payment, and the brand can not pick up the goods until it has paid the balance.
“First of all, they should have confidence in your brand and company, the product you want to choose, or the product plan you make. He thinks it is reliable, and for him, not only can it be realized, but also the brand whose ability can be improved. So when choosing a factory, you will find out why these factories only choose these brands, because these brands have the potential to grow, so they are willing to support you and work with you. “Chen Min explains this.
This position in a strong position also allows many generations of factories to make a lot of money. Therefore, many mobile phone supply chain enterprises want to “cross-border” to electronic cigarettes, before Changying Precision reported in mid-2019 that the company has obtained the supply qualification of JUUL electronic cigarettes, which means that Changying Precision has successfully entered the electronic cigarette industry and become a member of the electronic cigarette OEM industry.
From Capital Drive to Technology Drive
Chen Min believes that under the current situation, we can not rely entirely on factories. Brands still have to build their own supply chain repositories and R&D teams. “Whether it is the design of the product, the structural scheme, the material selection of the atomizer, we should take the lead and let us take the lead.”
“Who doesn’t want to own their own supply chain? In this way, production capacity will no longer be constrained by others, product update iteration cycle can also be shortened, but now the OEM factory is so strong, leave along the question on the right time to enter. Otherwise, whether there is financial strength and talent reserve is the most important, if not, they can only be temporarily led by their nose. “Some practitioners lament to reporters like this.
Of course, there are simple ways to do electronic cigarette factory. For example, it can be achieved by selecting a model, changing the color, or changing the surface treatment from the product library of many factories. This is also the fastest way to make electronic cigarettes in OEM factories.
However, with the development of the industry, especially the approaching of the national standard of electronic cigarettes and the legislative supervision of electronic cigarettes, the industry will eventually usher in regulation, which means that the compliance cost will be increased, and the impact of substitute factories on brand reputation will gradually be exposed, such as uncontrollable quality, limited production capacity, long iteration cycle of products, serious oil leakage and other issues. In these key links, if the brand is not strong enough to control. As time passing by, it will refrain the brand.
Liu Bingyun, chairman of Horse Racing Capital, said that because of too much capital, electronic cigarettes will surely enter the bubble stage. At present, the industry still lacks a certain core competitiveness, and can not see a particularly high technical threshold. Except for a few, there is no particularly large-scale brand. Most companies are still staying at the stage of manufacturing and processing. If they want to be a brand, they must have technology.
It is undeniable that with the rapid development of electronic cigarettes, capital-driven has played an important role, but among them, technology-driven has also played an important role. Chen Min cited the American market as an example. Before the birth of nicotine salt technology, 60% of smokers had been exposed to electronic cigarettes, but the conversion rate was only 6%. But after the invention of nicotine salt technology, the overall conversion rate has increased five times, which indicates that there is still a technological driver.
Changing from capital-driven to technology-driven may be the next step for China’s e-cigarettes.
Daily Economic News reporter noted that many well-known electronic cigarettes on the market have begun to play a “technology brand”, such as RELX electronic cigarettes, worked with Smoore to establish the world’s largest electronic cigarette exclusive factory, set up more than 150 people’s quality supply chain team; for example, MYSTLABS electronic cigarettes, set up a laboratory in Silicon Valley, the United States, specializing in e-liquid and the next generation of nicotine technology research and development.
Chen Min was the general manager of TCL Group’s Communications Intelligent Applications Division and the executive of Superman Intelligence, the first robotic listed company in Hong Kong. He believes that the development stage of e-cigarette is similar to that of smartphones.
Indeed, ten years ago, when the smartphone industry was just rising, there were many domestic mobile phone manufacturers: Bird, Xia Xin, Panda… The current situation of the electronic cigarette industry is the same as that of the smartphone industry.
Chen Min said that the current supply chain threshold is relatively low, everyone can get more basic products to sell, but at the end of the day only a few survive, only in products and technology continue to invest, in order to establish brand influence among consumers, it is possible to live to the end.
“We must have our own core patents in order to have real barriers. The products that are eliminated may not only be eliminated because of national supervision and more standardized market, but also because they are not strong enough then get cleared out of the market.” Chen Min said.