After taking a puff of the tobacco-flavored vape, Wang threw the pod into the drawer. For him, losing the fruity flavor loses the meaning of vaping. For more than half a year, Wang became more and more anxious seeing that the stockpiled fruit flavored pods were about to be exhausted.
On April 12, the State Administration for Market Regulation and the Standardization Administration of the People’s Republic of China approved the mandatory national standard for E-cigarette and announced it to the public, setting a five-month implementation transition period.
One of the “new national standards” is that vapes should contain nicotine, and should not make the product’s fruit flavors appear other than tobacco. This means that from October 1st, the sale of flavored e-cigarettes other than tobacco flavors will be banned in China, and fruity pods that are highly addictive to young people will also be withdrawn from the market.
However, one month after the official sales ban, Wang found that e-cigarette merchants became active again in Moments. Disposable e-cigarettes of various flavors have swept back, as if they have not disappeared. Milk tea cups, Coke cups, all kinds of disposable fruit-flavored vapes are free from regulation and circulated in large quantities. E-juice exceeds the standard, the highest price exceeds 100 yuan a cup, and it can also be purchased online. An underground gray industry is undercurrent.
In 2022, the e-cigarette industry will move from brutal expansion and chaos to safety and compliance. Whether it is factories, brands, retailers, or consumers, they are all trying to adapt to a new order.
But obviously, during the five-month transitional period, nearly half a year, some people still couldn’t give up the temptation in front of them. Although the risks are extremely high, some factories and merchants are taking risks in hidden ways in the invisible gray area for the sake of profit.
A single factory ships 300,000 pieces per month
“All the pictures in the circle of friends are available, you can choose at will”, “80yuan/piece, free shipping for three pieces”, “18 flavors to choose from”, flavored e-cigarettes have reappeared in the public eye.
The difference from before is that these are disposable products and cannot be replaced with pods. Because the shape resembles milk tea, and in order to avoid regualtion, everyone tacitly calls the disposable flavored e-cigarette a “milk tea cup”.
The price of a disposable “milk tea cup” is not cheap. The general price of products with 15ml e-liquid and 3.5% nicotine content is between 70-90 yuan, and the highest can exceed 100 yuan. But young people don’t care about the price, they need “milk tea cups” to maintain their fruity e-cigarette habit.
Lee’s factory has been producing “milk tea cups” recently. He revealed that the factory shipped about 300,000 pieces in November, and the sales were between 6 and 7 million yuan. And this is just the monthly sales of a factory. “Our factory doesn’t do OEM, and we can’t produce our own branded products. The factory is operating at full capacity every day,” Li Said.
In order to avoid risks, the online agents of “Milk Tea Cup” posted topics related to “Milk Tea Cup” on Weibo, Xiaohongshu, Douyin and other social platforms, but the final transactions were basically diverted to WeChat.
These WeChat agents who are in direct contact with consumers often do not stock up on goods, but feed back orders to superior agents in the form of “one-piece dropshipping”. Although they vowed to guarantee the quality of the products to customers, they did not know where the e-cigarettes they sold were produced, or even who the sender was.
For them, selling “milk tea cups” is a zero-cost business. They just need to find young people in need and sell “milk tea cups” with a product picture. And they can also develop agents downward on their own and expand their monetization methods.
“You only need to pay an agency fee of 66 yuan,” Huang Hui, the agent of “Milk Tea Cup”, explained her agency rules. Huang Hui normally sells “milk tea cups” at 65 yuan. After becoming her agent, you can get the goods for 55 yuan and set your own price.
More “milk tea cup” agents do not have agency fees, but there is a sales threshold ranging from 200 to 300 yuan. Once the sales exceed, they can enjoy more favorable agency prices.
However, this single-line agent mode does not have any credentials and is not subject to any constraints. The whole process of online communication between the upper and lower level agents. Even if you become an agent, you don’t know how many agents your superiors have developed across the country and who you are selling for.
In the past two months, under the covert trading method and relying on layers of agents, “milk tea cups” that are smaller than blind boxes have appeared in the hands of young people.
And if you are worried about online transactions, you can try your luck at offline e-cigarette stores. There are only a few tobacco-flavored e-cigarettes on the shelves. But when asking the boss if there is a “milk tea cup”, the knowing boss will also take out disposable electronic cigarettes of various flavors from the container.
In the market, it seems that there are many categories of “milk tea cups”, but very few can be called brands. However, some agents still sell disposable “milk tea cups” of some well-known brands under the banner of “removing inventory”, such as WDG and FLOW.
In fact, these regular brands have long stopped producing flavored e-cigarettes. WDG has repeatedly cracked down on counterfeiting on the official account, and issued a statement stating that the company has stopped production on September 25, 2020. The relevant staff of FLOW also told that they have temporarily stopped e-cigarette related business.
But this does not affect consumers’ pursuit of “milk tea cups”. Wang Jiancheng compared and found that the taste of the “milk tea cup” is lighter, but the design of 6,000 puff is enough for him to smoke for a month. Taking advantage of the discount, he stocked up a few more boxes of “milk tea cups” with different flavors. And last month, he discovered that his colleagues around him basically held a small “milk tea cup” in their hands. Flavored vapes seem to have never left their lives.
Who is taking the risk?
Shenzhen’s Bao’an District is a gathering place for domestic e-cigarette companies. Shajing Street in Bao’an District is known as “E-cigarette Street”. At present, most of the “milk tea cups” and “Coke cups” on the market are sent from Guangdong and Shenzhen to all parts of the country.
Li’s factory is located in Shenzhen, and has been producing e-cigarettes for 5 or 6 years. But they have not yet obtained the “Tobacco Monopoly Production Enterprise License”.
Wang An, an e-cigarette practitioner, told Tech Planet that there are now about 600 e-cigarette companies across the country that have obtained licenses, including production, wholesale, and retail. According to the “2021 Electronic Cigarette Industry Blue Book” data, as of the end of 2021, there will be more than 1,200 manufacturers alone.
This means that most e-cigarette factories are now “unlicensed enterprises”. For these profit-oriented bosses, spending time waiting for the issuance of the next batch of licenses is the least cost-effective option. They either shut down their factories, or they took the risk and dived into the gray area. Li told that now basically unlicensed factories are secretly producing “milk tea cups”.
In Shenzhen, factories with complete OEM capabilities basically have their own e-cigarette brands. Under the new rules, they all started selling their goods overseas. And those unlicensed factories are sold domestically through agents.
“Most of our customers are physical store owners. They have many stores in the local area. Because the tobacco flavor cannot be sold, they can only sell our products to survive,” Li told, “There are also micro-businesses. Take the goods and sell them to the agents below.”
Li has no worries about not being able to sell the goods. They even have exclusive agents in some provinces and cities in Guangxi and Jilin. “There is a client in Northeast China who took 100 at the beginning, and then 300 in a few days. Now Jilin has an exclusive agent, and I can’t get the goods if I want to get them.”
Compared to this, Li was more worried that strange customers with unknown backgrounds would hurt him. “Customers that I don’t know generally don’t deliver the goods. I will only reply to them when they have an order in hand.”
Many factories are more willing to do OEM and OEM than to self-produced and self-sold factories. And they have almost no threshold for the selection of customers. This also means that anyone can find a factory to get goods, customize and sell e-cigarettes. In this gray area, any ordinary person with thousands of dollars can own his own “e-cigarette brand”.
“We don’t need design drawings, we can produce any style,” Cui, a salesman at an e-cigarette foundry, told, “Whatever brand name you need, just print it for you.
In their factory, even if they only take a hundred pieces of goods, they can OEM them. Cui doesn’t care whether the customer has the relevant license, but they will definitely ask the other party how to sell. When he received a large order, he even shipped it in batches to ensure that he could “get away perfectly”. “I will not send more than 50,000 pieces of goods. Once checked, our factory will be shut down,” Cui Shang told Tech Planet.
“Milk tea cups”, Coke cups, milk bears, and even World Cup-limited styles, all kinds of disposable electronic cigarette products have emerged on the market. And these products may all come from the same foundry.
According to relevant regulations, enterprises that have obtained a tobacco monopoly license in accordance with the law need to conduct transactions through the electronic cigarette transaction management platform, and the transportation of related products also needs to be subject to the regulation of the Tobacco Monopoly Bureau. After entering the gray zone, the so-called rules no longer exist.
Profitable business: The gross profit of “milk tea cup” exceeds 80%
“There will be more than a dozen orders a day,” Huang, the agent of “Milk Tea Cup”, revealed. The profit of a single order is basically between 15-25 yuan.
Huang will become an agent entirely for the convenience of obtaining goods for herself. “My friends and I are all smoking e-cigarettes. At first, it was to make it cheaper for ourselves,” Huang said with a smile. That’s why Huang basically doesn’t spend time on publicity, and relies entirely on her friends to place orders.
As a college student, she is very satisfied with an income of at least 200 yuan a day. But what Huang didn’t know was that she was stepping into a gray business with huge profits.
Li told that when they apply for a license, they will abandon their domestic business and turn to foreign countries. But now in a special period, the price of their factory has even increased to 23 yuan, even if they take tens of thousands of pieces, it can only be lowered by 0.5 yuan. “In this sensitive period, if there is no great profit, we will not deliver the goods.” In a limited time, the factory must maximize its own interests.
At present, the price of “unlicensed factories” is generally concentrated in the range of 13-18 yuan. Cui Shang revealed that in their factory, the quantity of goods purchased is less than 1,000 pieces, and the ex-factory price is 16 yuan. If you want to get more than 5,000 pieces at one time, the price can be lowered to 14 yuan. “Our prices are still moderate, and the prices of the Shenzhen factory are not the lowest, only lower,” Cui told.
Compared with the online agency model, offline store owners have fewer intermediate links, and the profit margin of selling “milk tea cups” will be greater. “Offline bosses have fixed channels, and they purchase hundreds of pieces directly,” Li told. Based on the average sales price of 80 yuan for online micro-businesses, the gross profit of a “milk tea cup” can be nearly 66 yuan, and the gross profit rate is as high as 82.5%.
As far as the factory is concerned, there is no supervision at all levels for the production of “milk tea cups”, and the customer does not inspect the goods, and the production cost is also lower. But behind the huge profits, from production to distribution to sales, the entire chain is trying its best to evade supervision.
In terms of production, the factory does not leave production-related information on the packaging, or present product information in English, pretending to be overseas imported products.
In terms of sales, often the customers who get the goods do not directly face consumers, but wholesale to many agents. But the customers who get the goods do not trade online, and deliver the goods offline.
“My clients and my agents basically don’t chat too much on WeChat, and they are also offline cash transactions,” Li Xin told Tech Planet, “Basically, personal WeChat is not used for transactions, so you need to apply for a new WeChat account to specialize in transactions. .”
In fact, if you really want to sell flavored e-cigarettes in China, there is a safer way, but the cost is higher. “If you want to comply with the regulations, you can register a company overseas, export and import products,” Li said. But in this way, various taxes have caused the cost of products to rise sharply. “13% value-added tax is charged for customs clearance, and consumption tax is charged for domestic sales. Basically, the ex-factory price is 16 yuan, and the final customer cost will increase to At least 26 yuan.”
The right path is difficult to walk, and the huge market makes some people choose to take risks. According to the estimation of Qianzhan Industry Research Institute, by the end of 2021, the number of e-cigarette consumers in China will be about 7.7 million. In the past, e-cigarettes attracted young people with a variety of flavors. Under the regulation, the manufacturers turn around and the products are removed from the shelves, which may only happen overnight.
This year’s e-cigarettes are undergoing a major reshuffle. It seems to be heading towards a calm ocean, but there is another world under the sea level. The benefits at your fingertips are tempting the unwilling people to go to the darkness.