Vape industry earthquake
A big earthquake caused by the statement of regulatory authorities is spreading rapidly in the electronic cigarette industry in China or in the world.
On the afternoon of November 1, the State Administration of market supervision and the State Tobacco Monopoly Administration jointly issued a circular, saying that minors should be prevented from buying and vaping through the Internet, so as to further protect minors from electronic cigarettes.
Specific implementation to three points: first, clean up the online e-cigarette sales platform; second, ban online e-cigarette products; third, prohibit Internet e-cigarette advertising. All in all, it is necessary to ban the sale of electronic cigarettes online.
Later, the head of the China Tobacco Monopoly Bureau made it clear in an interview with Xinhua news agency that more stringent measures would be taken to clean up and rectify Internet e-commerce platforms, e-cigarette enterprise marketing websites and e-cigarette shops, and crack down on illegal production and sale of e-cigarettes.
For a long time, the electronic cigarette industry has been in a blank area without supervision, production standards and safety certification. At the beginning of 2019, e-cigarette became popular, which was full of controversy and developed blindfolded. The national regulation for electronic cigarettes, which the industry is looking forward to, was not issued as scheduled in October this year. The announcement is the most important one on regulation policy since 2019.
The ban on online sales will undoubtedly have a huge impact on the electronic cigarette industry.
Announcement makes the electronic cigarette industry explode, electronic cigarette enterprises have expressed support imediately one after one. RELX’s first public posting said it would stop all sales and advertising on the Internet. In the next three hours, a number of e-cigarette brands, such as Boulder, FLOW, MOTI, Wel, SnowPlus, etc., expressed their determination and unanimously claimed to support.
A person close to the national tobacco administration told us that the announcement was just a “warm-up” aimed at the e-commerce channel of e-cigarettes. More extensive and detailed regulations will be issued in succession in the near future.
How will things keep going
To some extent, this announcement is a ratification of last year’s policy.
On August 28, 2018, the State Administration of market supervision and the State Tobacco Monopoly Administration issued the circular on banning the sale of electronic cigarettes to minors. At that time, the policy was introduced because some stationery stores near primary and secondary schools sold e-cigarettes to students, and some e-commerce platforms also appeared so-called “student e-cigarettes”. The circular emphasizes the prohibition of the direct promotion and sale of e-cigarettes to minors.
But a year later, according to the new announcement, “there are still minors who know, buy and smoke electronic cigarettes through the Internet. There are even e-cigarette enterprises in the blind pursuit of economic interests, through the Internet to publicize, promote and sell e-cigarettes. ” Obviously, compared with the general appeal of the last time, the target of the attack is the Internet platform.
Therefore, there are three regulations for the Internet:
Urges electronic cigarette production, sales enterprises or individuals to close online electronic cigarette sales website or client in time, urge electronic business platform to shut down electronic cigarette shops in time, and timely remove electronic cigarette products; urge electronic cigarette production, sales enterprises or individuals to withdraw electronic cigarette advertisements distributed through the Internet.
These three regulations are all about online sales channels for electronic cigarettes. In other words, the sales and marketing of e-cigarette brands on the Internet platform will be prohibited.
For the electronic cigarette industry, this is a delicate time node. First, the national standard of e-cigarettes is brewing, and second, it is on the eve of the 11th shopping festival.
Before that, although there were voices to crack down on e-cigarettes every now and then in the industry, more criticism was made at the macro level, and there was no specific regulatory measures. Both the 315 Party of CCTV in March this year and the statement of the national health and Health Commission in July this year are just commenting on the harm of e-cigarettes and emphasizing the need to strengthen regulations.
The original plan of the national standard of the people’s Republic of China – e-cigarettes, which is believed to have the meaning of birth permit, was to be issued in October this year. But until now, the national standard is still under review.
In September, however, President trump called on the FDA to ban all non tobacco flavored e-cigarettes from teenagers. The directive points directly to Juul, the No. 1 e-cigarette player in the United States, a $38 billion e-cigarette start-up company that faces the biggest charge of luring teenagers to smoke.
A number of insiders told us that the negative news transmitted from the United States delayed the introduction of the national standard to some extent, and also promoted the appearance of this announcement.
Some e-cigarette entrepreneurs believe that, behind the policy, to eliminate the use of minors is on the one hand, and the complex interests of the tobacco industry are on the other. Even China Tobacco, which pays a trillion yuan tax a year, can only be sold offline. But e-cigarettes have spread their sales channels online, which is not only inevitable for minors to buy, but also competing with traditional tobacco.
Is vape dead?
As soon as the announcement was issued, the electronic cigarette industry was suddenly in a state of shock.
Up to the time of publication, most of the mainstream e-cigarette brands in the market have publicly agreed to cooperate with the state, and their voice is surprisingly consistent.
“Full cooperation”, “firm support” and “firm implementation” are high-frequency words in brand statements. Most brands stand at the height of industry and social development, saying that they should strictly self-discipline and protect minors. Some brands also said in the statement that they are “very happy” and “exalted”.
Interestingly, a few hours before the announcement, Luo Yonghao also tweeted for vvild’s upcoming new product launch and posted a pre-sale web link for the double 11 shopping festival in China.
Shortly after the announcement, RELX’s official website couldn’t be opened. RELX responded to us saying: the website is adjusting according to the new rules, strictly implementing the new rules, and revoking the pages linked to e-commerce. Subsequently, RELX’s official website has returned to normal.
But the response of major e-commerce platforms is different. At present, Suning and Gome’s e-commerce platforms have failed to search for electronic cigarette products, but as of 7:00 this morning, Tmall and Jingdong can still browse and purchase vapes normally.
Some practitioners questioned the legal effect of the announcement. It is believed that there are several doubts in the announcement: first, the issue subject is not clear, which is not a document of the State Council or the Ministry of industry and information technology; second, the expression in the article is “urging” rather than “prohibiting according to law”; third, there is no punishment measures and lack of specific law enforcement basis.
In response, lawyer Li Changqing, senior partner of Beijing Long’an law firm, told us that the announcement belongs to the “departmental normative document”, and the name of the normative document is generally referred to as the method, regulation, decision, detailed rules, circular, etc. Although its effect cannot be completely equivalent to the administrative regulations, as long as it does not conflict with the provisions of the superior law, its effect should be higher than that of the local laws, and this regulation has legal effect.
However, lawyer Li Changqing also believes that since most of the notices are proclamations or call clauses and do not list specific normative measures and punishment methods, the actual implementation effect is still in doubt, which means that the current notices play more role of policy guidance and warning.
Zhang Jianshu, President of the Beijing Association for tobacco control, told us that last year’s circular had not been implemented, and specific laws should be required to rise to the level of legislation, at least departmental rules and regulations, as well as penalties.
A number of e-cigarette entrepreneurs said that in any case, the announcement of banning the online channel of e-cigarette would have a certain impact on the e-cigarette industry. Although there are no specific rules, they will inevitably lead to a chain reaction of policies. As for whether to close the flagship stores in Tmall and Jingdong, they said they were “still waiting for the notice”.
“The direct impact on the industry is not great, but it will affect the psychology of consumers, and the number of people willing to take risks to try e-cigarettes will be reduced.” An e-cigarette brand founder said.
The upcoming double 11 will be the first concentrated battle in the electronic cigarette industry. As early as more than a month ago, the relevant person in charge of Taobao came to inform them of the relevant policies of this year’s double 11 in advance, so as to give priority to the launch, according to the electronic cigarette brand.
Doing fake positive reviews is a common phenomenon in electronic cigarette industry. Some e-cigarette entrepreneurs disclosed to us that in the current e-cigarette industry, e-commerce fake review making is a “daily operation”. A real order will be matched with two fake orders. Before 618, there were a lot of fake review making behaviors.
However, according to the current situation, the sales volume of e-cigarettes in this year’s double 11 shopping festival, together with the fake review making industry chain, are both completely dead.
How will vape industry go?
Online sales channels will be banned. Where will the domestic e-cigarette industry go?
According to an insider, the state’s control over online sales channels of e-cigarettes is inevitable, and this announcement is just a warm-up. “It won’t be allowed to sell online. And it’s expected that an order will be released from the end of November to the middle of December. At that time, convenience stores and tobacco stores can’t sell e-cigarettes as well. ”
Another saying is that in the future, the tobacco bureau will increase the control of nicotine, and control the unified production, circulation and production of e-liquid through the implementation of license system.
In any case, it is inevitable to control the domestic electronic cigarette industry in the future. At present, if online sales channels are banned, offline sales channels and overseas sales channels will be crucial.
Jiang Menghan, an analyst at Tianfeng Securities Research Institute, thinks that online sales accounts for 1 / 4 of the electronic cigarette industry at present. For hundreds of brands in China, online businesses can only consider selling products without nicotine in the future. The approval issued by the tobacco bureau shows that the vape regulation will be tobacco-like, which is probably supervised by China tobacco, and the offline sales channel competition is even more fierce.
In fact, offline sales channels have always been the focus of the layout of major e-cigarette brands.
In the past, tobacco was forbidden to be sold on the Internet. Users’ online buying habits were not formed. In addition, the traffic and price of e-commerce platform were expensive, which made e-cigarette companies focus on offline channels.
E-cigarette brands have already played a sales channel war offline. Through agent distribution, with the help of large-scale FMCG channels, e-cigarette brands have laid products to the offline scene where smokers appear frequently. Nightclubs, bars, supermarkets, convenience stores and other places are currently better off-line channels for sales.
From the first half of this year, the popular e-cigarette stores are the current channel layout of various brands. Because of the low cost, on-site experience and guaranteed after-sales service, franchised stores became a trend for a while. It is a common practice of e-cigarette industry to subsidize franchise stores. E-cigarette brands are trading time for space, burning cash at the market, and running to the top of the industry to get preferential policies.
For e-cigarette brands with deep offline channel layout and store resources, the current policy will not have a great impact on them, but it is easy to form an advantage in the competition. “I’ve turned over to be the master. The one with a brick and mortar store takes the throne now.” The provincial agent of an e-cigarette brand said.
In addition, the vape brands with the advantages of the overseas market get limited impact.
Before the rise of this wave of vape brands, the domestic e-cigarette industry was dominated by OEM exports. Data shows that 95% of the world’s e-cigarettes are produced in Shenzhen, China. The industrial chain of domestic e-cigarette production and export is very mature. If the market turns overseas, it is another way out. It is reported that RELX began to go overseas in the second half of last year, and its products have entered 43 countries around the world, its overseas market income accounts for 23% of its total revenue.
For some e-cigarette brands, this announcement is an industry earthquake, but for the domestic e-cigarette industry, this may just be the beginning.