China

E-cigarette industry is making a comeback in China

Who are bundled together?

Recently, a patent of China Tobacco Yunnan Industry Co., Ltd. “a smart heat-not-burn electronic cigarette” was reported by the media. Many industry professionals expressed their points of view. This may indicate that traditional tobacco companies will enter the field of electronic cigarettes, thereby accelerating the industry’s growth and reshuffle.

Then, in the face of the news that traditional cigarette companies are about to enter the game, do e-cigarette brands, factories, and offline distributors deal with it calmly, or are they worried?

Is the “most worrying thing” for small and medium brands coming?

As early as November 2019, after the relevant authorities issued the “Notice on Prohibition of Selling Electronic Products to Minors”, the e-cigarette industry officially announced that it was “disconnected”, and the sales channel was also changed from online e-commerce to offline channels.

From this point on, the leading e-cigarette brands have opened up offline counters and chain stores on a large scale, and small and medium-sized brands are also working hard at vape shops, convenience stores, and cigarette stores to make up and digest the original 45% of online sales.

“E-cigarette profits are relatively large, but our brand has basically not made any money in the past year.” Chen Zehao (pseudonym) is the person in charge of an e-cigarette brand in Shenzhen. He told reporter: In 2020, the brand’s e-cigarettes The shipment volume of devices is 30,000 sets, and the volume of pods is about 280,000. Compared with 2019, its sales have fallen by nearly 56%.

According to the calculation that the profit of electronic cigarette sticks is about 50% and the profit of cartridges is about 25%, the sales profit is still nearly 4 million. To say that this income is still considerable, why not make money?

“In the first half of 2020 alone, we have invested nearly 10 million yuan in expanding offline channels.” Chen Zehao said that the company currently has 380 offline sales counters in southern China, and more than 1,000 convenience stores and vape shops that sell its products. In order to boost the enthusiasm of counters and agencies to promote its e-cigarette products, the company rewards the sales network with a reward of about 15%, and some of the main counters even have a rebate of more than 20%.

At the same time, the advertising materials of offline counters, agency stores, and the salary expenditures of regional local promoters also accounted for more than 60% of the company’s total operating costs. All of this is to avoid being eliminated in the fierce competition in the industry.

According to the data disclosed by Tianyancha, as of November 4, 2020, there are more than 21,000 China e-cigarette related companies whose names or business scopes include “e-cigarettes, electronic atomizers” and their status is active, existing, moving in, or moving.

But at the same time, more than 2,200 e-cigarette-related companies have been cancelled or revoked, and officially “disappeared.” Among them, 600 companies will be cancelled or revoked in 2020 alone, accounting for about 27% of the total number of disappeared companies.

“So, as soon as the news of China Tobacco Yunnan’s disclosure of e-cigarette patents came out in the past few days, I was even more worried. I finally burned so much money and survived the cracks of industry competition. Now I have to face new challenges. ”

Chen Zehao noticed that the e-cigarette patent published by China Tobacco Yunnan is shown as “smart heat-not-burn e-cigarette”. He guessed that the implementation form should be similar to iQos low-temperature heating cigarettes containing real tobacco ingredients, but currently subject to relevant policies, mainstream China products all are vapes.

Compared with vapes, low-temperature heating electronic cigarettes have the characteristics of a taste closer to real cigarettes, and can better cater to the preferences of old smokers. Once officially launched on the market, it may take away a large number of users who pursue cigarette taste from the vape field .

“This will definitely have a certain impact on the China sales of top brands, but it may be a fatal blow to small and medium-sized brands. I’m afraid that they will survive the ‘internet disconnection’ but not the entry of traditional tobacco companies.” Chen Zehaolue complained helplessly.

Obviously, the involvement of traditional tobacco companies in the e-cigarette industry may cause small and medium e-cigarette brands to suffer a new round of sales blows. Even those small and medium-sized brands that have just gained a foothold in the fierce industry competition will face a wave of elimination and reshuffle.

The “big stage” of the OEM factory is the international market

The e-cigarette industry, which seems to be cruelly competitive, is an emerging industry that emphasizes supply chain and light brand. Although many start-up brands are desperate in order to quickly compete for market share, it is the large-scale OEM factories and the upstream leaders in the supply chain that really master the raw materials and technology patents.

Therefore, this is the reason why the brand is the underdog and the factory is really the boss. So, will the news that traditional cigarette companies disclose e-cigarette patents will cause a wave of trouble at the factory and supply chain levels?

“In the past few days (news) there has been madness among upstream and downstream companies such as factories and materials.” In 2016, Liao Ge invested nearly 4 million yuan to establish an electronic cigarette factory in Baoan, Shenzhen, which mainly produces electronic cigarettes. They currently has more than 60 employees.

Compared with other e-cigarette factories in the surrounding area, the scale of his factory is not too large, but it can also achieve an annual production capacity of 3 million cartridges. Although the news of traditional cigarette giants entering the electronic ciagarete field has been circulated recently, Liao Ge believes that it should not have much negative impact on vape manufacturers. “After all, the current products of many factories are mainly sold overseas.”

“Our factory’s OEM brands are focused on overseas markets such as Europe and the United States, and have always been taking the high-end route.” He told reporter. As early as the beginning of his business, the factory had also cooperated with China small and medium e-cigarette brands and start-up teams. , producing some electronic cigarette products. For a period of time, they also processed and produced some vape sticks and cartridges that were highly imitation of well-known e-cigarette brands according to customer needs, and then they were shipped by customers through WeChat business channels.

However, the industry market has been fiercely competitive in the recent period, too many small and medium-sized brands have iterated and died, and the volume of OEM products has become less and less. The factory feels that the risks are high and the profits are low. Therefore, six months ago, Brother Liao began to ponder the transformation.

“Upgraded new technologies and production lines, and further increased the intensity of cooperation with foreign brands.” At present, nearly 90% of the OEM products of the e-cigarette factories he manages are sold to overseas markets, even if traditional tobacco companies enter the market. As a result, the domestic electronic atomizer market is facing new competitive pressures. He believes that only the remaining 10% of domestic orders in the factory can be dealt with.

In fact, affected by fierce market competition and changes in industry policies, some e-cigarette brands and factories are actively expanding their factory’s business in the European and American markets. According to Liao Ge, many factories in Shenzhen currently control orders at 50% or even less in order to cope with sudden market risks in China.

According to the prospectus issued before the listing of Smoore, in the four years from 2016 to 2019, Smoore’s direct and indirect sales of products to the United States accounted for 55.4%, 49.9%, 52.4% and 46.5%. It is reported that 80% of Smoore’s products are sold to Europe, America and Japan.

According to some publicly available third-party data, as of 2019, the U.S. accounted for 66% of the global e-cigarette market, the EU and the U.K. accounted for 33%, far exceeding China’s 7%.

Obviously, for most China e-cigarette factories, its larger “stage” is overseas. Even if the China e-cigarette market is facing a new round of reshuffle, the impact on the factories in China is very limited.

Offline “One Meter Counter” is more at ease

As e-cigarettes “internet disconnected” in China, brands have opened up offline channels. In the past year or so, a large number of e-cigarette stores have opened one after another, becoming the main force for major brands to compete for market share. Those small one-meter counters also carry all the hope of China sales of electronic cigarette brands.

Then, as the news of traditional cigarette companies or their involvement in the e-cigarette industry continues to ferment, will offline e-cigarette sales channelists also worry that future operations will be further impacted?

In the eyes of most people, obviously not.

“In fact, I think this is a good thing. At least as a terminal merchant, I don’t have to worry about it anymore.” Xiao Li runs a mainstream brand e-cigarette counter in a complex in Linshen, Huizhou, although the counters have been in the past two months. Men can be very happy, but he admits that he is a “acquaintance” business.

Every day from morning to night, customers will place orders on their mobile phones to buy pods from him, and “regular customers” often introduce “new customers” to buy e-cigarettes. This small one-meter counter is just “accepting customers” to Xiao Li “A channel and a means.

“There are nearly 4,000 friends in my phone, most of whom are customers who have bought e-cigarettes with me.” Although there are a large number of “acquaintances” who maintain the daily operation of the counter, he is still scared all day long. Especially in the past six months or so, he has been afraid that relevant regulations will be introduced again to tighten the “lifeblood” of electronic cigarettes.

Xiao Li told me that the e-cigarette product is relatively special and the audience is very single. He has accumulated thousands of “friends” regular customers after two years of operation. If the e-cigarette industry is faced with new license regulations or even stop, These customer connections cannot sell other products.

“It’s all right now. I really hope that the giant cigarette companies will launch heated e-cigarettes.” He emphasized that what offline merchants are most worried about is the current management attitude of relevant departments on e-cigarettes, and they are afraid that one day they will completely ban e-cigarette sales.

However, this patent news that went viral recently seems to be a reassurance for the majority of channel vendors. It indicates that e-cigarettes will not be banned in a short time, and there will even be new development space. “Now we are sitting in the same boat as traditional giants. , The possibility of capsizing is unlikely.”

Don’t offline merchants worry about the impact of traditional tobacco companies on the business of their small stores?

Xiao Li replied: I am not worried. In his opinion, after all, there are a large number of “smokers” customers in their hands, and they can continue to do so as long as there is still an electronic cigarette business.

Merchants will not mind the difference between vape and HNB products. As long as there are electronic cigarette products in the market, there will be corresponding consumer demand. In fact, Xiao Li has joined three different e-cigarette brands in the past two years of business.

“Which brand has great support, high profits, and many rebates, I choose which one.” He revealed that some dealers in the industry even joined a certain brand of e-cigarettes, and then all brands are doing it behind the scenes. In actual operation he only push products with high profits.

In many commercial complexes in Shenzhen, the reporter found that almost all merchants will invite consulting customers to add friends in order to develop the private domain traffic of smokers “regular customers”. The “internet disconnection” of e-cigarettes and the off-line efforts of brands indirectly enable franchisees to master a large number of customer resources, and it is also convenient for future expansion of new brands or new businesses.

In the past two years, the e-cigarette industry has developed rapidly under the impetus of capital, and a large number of new brands have been born. However, no relevant product standards have been issued in the industry so far. This has also led to chaos in the market, with more and more brands, merchants and factories began to expand blindly and grow wildly.

Concluding remarks

Some industry analysts pointed out that if traditional large-scale cigarette companies enter the e-cigarette industry, it may be expected to accelerate the regulation of product-related standards and at the same time guide the e-cigarette industry to regulate. At the same time, it is also a good thing to be able to bring sales and distribution networks into unified and strict regulations.

At the same time, a large number of e-cigarette brands in the industry that have refilled their numbers may also face a new round of reshuffle and elimination after the “giant” enters the game. It can be said that e-cigarettes, as an industry that is difficult to “restricted”, strict regulations may promote the industry to really start to grow and become stronger.

 

Source
Blue Whale Finance

VAPE HK

The author who has 5 years of experience writing on vapes, stays in Shenzhen and follows the origin of vapes closely. He distributes the earliest vape news & reviews from most authoritative vape insiders. DISCLAIMER
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