Dongguan boss Sigelei CEO details his 9 year experience in vape industry and the butterfly effect

Global electronic cigarette industry depends on the United States, American electronic cigarette industry depends on California, California electronic cigarette industry depends on Los Angeles. On October 12, O Junbiao, the founder of Sigelei, told TIME, “Los Angeles is the vane of global electronic cigarettes, and we must fight for it.

Los Angeles wanted to be another city where e-cigarettes are banned.

Sigelei employees Alesha and Allen spoke at the hearing. “There is no evidence that the seven previous deaths were related to electronic cigarette products,” Alesha said. “In fact, the causes of death are all related to cannabis, and there is no point in banning flavored electronic cigarettes.” Allen continued, “Adults are free to smoke or not, and adults should also have the right to choose e-cigarette flavors, not just tobacco flavors, but all flavored e-cigarettes.”

“Our struggle won.” But when Ou Junbiao said this, there was not much excitement. Although the Los Angeles government’s original plan to start the “flavored e-liquid” smoking ban 90 days later has been extended to 180 days, and “the whole territory” has also given way to “prohibition only in the unincorporated region”, the global sales of Sigelei have been cut in half.

Ten thousand kilometers away, Dongguan Sigelei factory really felt the chill of a sharp decline in sales.

75 seconds to produce an electronic cigarette

Six production lines have been installed in the 1800 square meters workshop, which can produce nearly 20,000 electronic cigarette kits (atomizing core and device) per day at full load. Today, only three of the six production lines are working, producing more than 10,000 sets a day.

L5 production line is mainly responsible for the production of atomizing core. Xiong Guohua, 25, is in charge of the first process. He layers a five-layer piece of corrosive cotton, wraps it in a corrosive piece, and then inserts it into a 7.5 cm high atomized core bracket to ensure that it is firmly placed on the conveyor belt in front of him. The whole process takes about 23 seconds, which is the most complex and time-consuming process in the workshop. The person in charge of the next process will cut off the excess part of the corrosive cotton sheet made by Xiong Guohua and put it on the conveyor belt.

In 40 seconds, nine processes, one atomizing core about 2 centimeters long has been completed.

Xiong Guohua has just arrived here for two months, before working in a nearby silk flower factory and a shoe factory. “There is not so much pressure to pay the wages according to the piece-by-piece hours. I’ve been quite free recently. I can still get more than 4000 yuan a month. ” Xiong Guohua told TIME in an interview. “Piecemeal production is mainly to ensure the quality of production, where wages are about 10% higher than those of surrounding factories,” Huang Fangfu, production manager of Sigelei, told TIME Weekly in an interview. “New employees can basically meet production needs in about three days.”

The electronic cigarette device is manufactured according to the same process. The materials provided upstream of the supply chain, such as circuit board, battery and shell, are assembled. Finally, the atomizing core and mainframe are assembled and packaged and anti-counterfeiting is carried out. Each step requires 89 processes, that is to say, nearly 30 processes are needed to produce an electronic cigarette package, but only “75 seconds needed”, Huang Fongfu stressed.

“The principle of electronic cigarette is very simple.” “The threshold of e-cigarettes is very low at the beginning. When I started my business in 2011, it only cost 60,000 yuan to do it,” Ou Junbiao said.

“Many people have fallen, but others are alive.”

In September 2011, Ou Junbiao, 31, founded Shenzhen Sigelei Technology Co., Ltd. to make electronic cigarettes. First, he got the materials from the supplier, and then receive the orders through the online business platform. “I take four general workers to make one or two hundred kits a day, one earns 50 to 100 yuan, and one day I can earn ten thousand yuan.” Ou Junbiao recalled, “The supplier gave me a two-month account period, and the customer gave me cash. Basically, he could do business without money.”

Previously, Ou Junbiao and his brother Ou Junjie, who is engaged in hardware industry, started a business together. Ou Junjie’s hardware factory has thirty or forty employees in Dongguan. Seeing that business has not improved, Ou Jun-biao turned to Shenzhen to make electronic cigarettes, and Ou Jun-jie stayed in Dongguan to make hardware.

Since the first electronic cigarette Ruyan came out in China in 2003, the electronic cigarette industry has been dominated by disposable vape pens. In 2011, an electronic cigarette called EGO came out, which is bigger than one-off vape, and can replace the atomizing core for continuous use, but with only 4 watt power. At this time, because of the emergence of electronic cigarettes from mechanical device, a mod vape wave is rising. Mechanical mod has no circuit board, the resistance value is very low, can burst out a large amount of smoke instantaneously. So far, the electronic cigarette has emerged the trend of mod vapes.

In 2013, Ou Junbiao just stood in the eye of the storm. Because of its monopoly on the technology of mod circuit boards, Sigelei quickly became the world’s largest seller of mod, with 95% of its products exported abroad. “The four years of 2012- 2015 are mod age. In 2015, we are the first in the world. The best sales are a little lower than last year’s last year. According to Time Weekly, Smoore’s annual revenue in 2018 was 3.434 billion yuan.

Sigelei made foreign currency crazily through mod vapes, while a lot domestic pod-making enterprises fell. “An OEM pod can only make a dime, while a mod can make 200 yuan, because I have absolute pricing power. I sell a mod and a pod factory needs to sell 2000 . I only need hundreds of workers and a pod factory needs ten thousand workers.” Ou Junbiao recalled, “A lot of people fell down, but some people were still alive.”

In the same year, Ou Junbiao acquired his brother’s Dongguan Shenxi Hardware and Electronics Technology Co., Ltd., which was renamed Dongguan Shenxi Electronics Technology Co., Ltd. after the merger of the two companies, and Guangdong Sigelei Electronics Technology Co., Ltd. in 2017, and landed on the new third board.

But the trend of the electronic cigarette market has changed again.

In 2015, Pax Labs, an American electronic cigarette company, launched an electronic cigarette called Juul. It is this Juul that turns the market trend of electronic cigarettes from mod to pod again. “In 2016, pod suddenly became popular again. I was foolish and slow-witted. The company’s development slowed down.”

“The e-cigarette market is like driving on the highway. It’s moving forward without retrogression. Only at some point can someone step on the accelerator and run faster.” Ou Junbiao said. In 2018, Sigelei’s sales declined sharply, with more than 1300 employees at most, down to more than 300 now. The Los Angeles “flavor ban” although was introduced with a discount, but still gave Sigelei a serious blow.

Rising prices of core raw materials

The decline of Sigelei runs counter to the explosive growth of the global electronic cigarette capital market.

In 2017, Juul was separated from Pax Labs and became today’s Juul Labs. After taking 70% of the U.S. market share, Juul Labs was officially acquired 35% of its stake by Altria, Marlboro’s parent company, for $12.8 billion at the end of 2018.

This time, electronic cigarettes are being chased by capital crazily. According to the incomplete statistics of ec e-cigarette world, in the first half of 2019, there were more than 35 investment cases in domestic e-cigarette industry, with a total investment of more than 1 billion yuan.

“All the bustling in the world are for profit” At the same time, Ou Junbiao, chairman of the Electronic Cigarette Industry Committee of the China Chamber of Commerce, settled the accounts. “There are 1 billion smokers in the world, one for each person is 1 billion vapes, and the demand for atomization cores is 10 times that, and the quantity of e-liquid is 20 times that. 99.9% of them are produced in China. Among them, the sales volume of electronic cigarette enterprises in Guangdong Province accounts for 90% of the whole country.

Under the temptation of capital, the electronic cigarette industry pours into a large number of Internet brands. “Ninety percent of Internet brands find our factories for OEM, put their logo on them and become their own brand, and then take them to hotels, KTV, bars and other stores.” Ou Junbiao asked, “Have you ever seen traditional vape brands publicized vigorously in China? No.”

“Some people say that 5 million yuan can create an e-cigarette brand, it’s ridiculous.” Ou Junbiao analyzed, “A disposable pod, with its own logo, about 10 yuan a, to the market 200,000, the remaining 3 million yuan for advertising. If successful, is it a brand? If you don’t succeed, it’s not a big deal. Counting the loss of e-liquid and batteries, we may run out of electricity before we sell it.”

Ou Junbiao has been disturbed by the hype and crazy marketing of e-cigarette Internet brands: “Last year, the price of nicotine was about 500 yuan a kilogram, but now it needs about 3000 yuan to buy it.”

Fight in medical device field after vape

Today’s e-cigarette market is similar to the smartphone market in 2005. Products are flourishing everywhere, but the quality is uneven. Ren Zhongyang, 34, saw the unqualified e-cigarette products exposed at the March 15 party this year, and decided to leave his seven-year-old Lenovo mobile phone to enter Sigelei. “I look to further increase if the e-cigarette market, which will have the same market value as smartphones in the future.” Ren Zhongyang said.

Ren Zhongyang is the product quality manager in Sigelei. He is mainly responsible for the reliability and functional verification of products. At the same time, electronic cigarettes enter mouth, so mouthpiece needs to be tested at food level. For example, Ren Zhongyang, the temperature range of high and low temperature tests is minus 20- 80 degrees Celsius. If the electronic cigarette is to be sold to Russia, the low temperature test will be adjusted to minus 30 degrees Celsius to meet the market demand.

Before the introduction of the national standards for electronic cigarettes, “the quality control of electronic cigarettes can only rely on self-awareness,” Ou Junbiao said. “The national standards for electronic cigarettes are imperative, especially for the specification of e-liquid. It can not be like THC and vitamin E in the United States.”

While many brands of electronic cigarettes await the introduction of national standards, Ou Junbiao has planned to expand the market on the basis of electronic cigarette technology. “We prepare to make medical devices,” explained Ou Junbiao. Some diseases need to be solved by taking drugs. “Then I can produce the corresponding device. At present, we are in talks with our partners, which is no longer part of the electronic cigarette industry.