China

Vape offfline sales channel expansion has just begun in China

On November 1, the State Tobacco Monopoly Bureau and the State Administration of Market issued relevant notices, and the electronic cigarette shops and products on the e-commerce platform almost disappeared.

Does the “cut-off” of online channels mean that the electronic cigarette industry is “ceased”?

Actually, the vape offline sales channel expansion has just begun.

Part.1 Electronic cigarettes rush to Huaqiangbei, and match with digital businesses sales

At the beginning of December, in the still hot weather, the author came to Huaqiangbei, an electronics city that has highlighted the atmosphere of beauty make-up. In the Saige square on Huaqiang North Street, there are more than a dozen merchants placing electronic cigarettes in the most prominent position on the front door. Whenever passers-by passes by, the shopkeeper will shout, “Take a look, electronic cigarettes.”

Part.1 Electronic cigarettes rush to Huaqiangbei, and match with digital businesses sales
Compared with the situation that only a few counters sold e-cigarettes half a year ago, Huaqiangbei is now the distribution center of e-cigarettes. Liang, a chatty shopkeeper, told the author that the scene was suddenly revealed after the State Tobacco Monopoly Bureau and the State Administration of market administration issued a “notice” last month.

“Shenzhen is the center of the e-cigarette industry chain. After the notice, many manufacturers and brand salesmen went to Huaqiangbei to find the counter.” Lao Liang also started selling e-cigarettes two months ago. “I have those in the front, which are the first batch of e-cigarettes in the market. Later, these shops are following the trend.”

The author found that these stores, including Laoliang, which sell electronic cigarette products, are not exclusive electronic cigarette stores, but mainly engaged in ordinary digital products such as hand-held piano, jukebox, karaoke microphone and so on.

“It’s hard to sell digital products since the beginning of the year. I’m looking forward to the opportunity to make more money at the end of the year.” Laoliang said that most of the electronic cigarette products placed in the most prominent position in the shop were sold by the manufacturers in the mode of “consignment”.

This kind of cooperation does not need to pay for purchase or stock up, but to settle accounts with the manufacturer’s sales personnel as much as it sells. As for why manufacturers sell e-cigarette products in the mode of “consignment sale”, LaoLiang revealed that many stores are afraid of potential risks and resolutely do not purchase, so the manufacturers came up with this compromise way, “if one day they suddenly do not let them sell, we have no loss.”

Although it is “consignment sale”, many stores, including Laoliang, will try their best to put advertisements in the most prominent position on the front door to promote the electronic cigarettes of various brands. “Now many manufacturers attach great importance to the offline market, especially in Huaqiangbei. After all, electronic cigarettes are also electronic and digital products. ”

When asked about the profit margin of the product, Lao Liang kept quiet and said that it was much better than any digital or mobile phone product. “You can imagine how much the profit is if you see all the people working hard to promote and publicize it. If you earn less than the original digital products, you won’t fight like this. ”

LaoLiang said with a smile, the business sense of Huaqiangbei merchants is very sensitive, because the policy is not clear, everyone is not interested in the electronic cigarette products, which led to the early development of the electronic cigarette industry, Huaqiangbei stores rarely have agents selling electronic cigarettes and related products.

Now, the digital and mobile phone business is becoming more and more difficult this year. Huaqiangbei has shown an obvious trend of “transformation.” in the past six months, almost a lot of stores have begun to transform to make up. We are slow to respond, and now we are also starting to sell e-cigarettes. Since their manufacturers attach so much importance to offline channels, the profit space is good. Why not. ”

If one-fifth of the people who come to Huaqiangbei to get goods are going for beauty products, what proportion of people who come here to buy e-cigarettes?

Part.2 Young groups in “Electronics First Street” looking for new flavors of cartridges and pods

“Are there any pod vapes I can try first? You don’t have a lot of flavors”

When talking with LaoLiang, two young men came to consult with him. Young people said that it was difficult to search for e-cigarettes on the e-commerce platform, so they had to come to Huaqiangbei to find new “flavors”. “After all, this is the first electronics street. I think there will be a lot of electronic cigarettes for sale.”

No.2 Young groups in "Electronics First Street" looking for new flavors of cartridges and pods

Before arriving at Laoliang counter, they had visited three stores selling e-cigarettes. “The price is about the same as online, cheaper than the vape shop, that is, more brands and less flavors.” One of the young people told the author that some vape stores in Shenzhen were closed one after another due to various problems such as sales volume and rent. He also searched here on the recommendation of his friends. If the price and quality are appropriate, he should buy consumables such as electronic cigarettes and pods in Huaqiangbei for a long time in the future.

“I can see the iQos e-cigarettes here. It’s hard to buy them in online stores before they are banned.” The young man was overjoyed and said that he bought two kinds of electronic cigarettes in Laoliang store, saying that he would try the taste first.

“Recently, there are many customers like them. They can’t buy e-cigarettes online. The first thing they think about is to come to Huaqiangbei to do some shopping.” Mr. LaoLiang said that now the retail sector can sell more than 20 sets of electronic cigarette devices and pod kits every day, each of which costs about 100 yuan. The wholesale situation is good and bad every now and then.

Pointing to a red paper with the words “no minors” printed on it, he whispered that some of the people who came to Huaqiangbei to buy e-cigarettes should look like high school students, with childish faces. “When we sell cigarettes, as long as the other party doesn’t wear school uniform, we open one eye and close one eye.”

“Isn’t this for the sake of being handsome?” LaoLiang said in a low voice. As for whether Huaqiangbei’s e-cigarette business will become more and more popular in the future, LaoLiang shook his head. “I don’t think it’s possible. Now Huaqiangbei has two obvious trends, one is beauty make-up, the other is e-cigarettes, but there are many uncertainties in e-cigarettes. Many shops are doing and watching.”

Nowadays, although wholesale beauty make-up is different from Huaqiangbei’s “Electronic First Street”, there is no policy risk. And although electronic cigarettes are connected with digital, once the relevant departments expand the ban on online sales of electronic cigarettes to offline channels, Huaqiangbei will not be spared. Now so many stores are doing “consignment sale”, which is an obvious evidence.

“It can be said that the profit margin of e-cigarettes is really large now, but only a short profit can be achieved.” Based on this kind of psychology, many businesses are trying, while a small number of businesses are focusing on the needs of some “professional customers”.

Part.3 It’s still profitable to only focus on the wholesale “middle zone”

“It depends on the quantity you buy (e-cigarettes). If there is more, the price can be lower.”

In another digital store selling e-cigarettes, Ms. Li, the shopkeeper, told me that she understood notes and cared more about wholesale customers than retail customers. Generally, the retail price of e-cigarettes in the store will increase a lot and will not be easily reduced. But for the customers who take the goods in batches, they will give different discounts according to the quantity of goods.

No.3 It's still profitable to only focus on the wholesale "middle zone"

In her opinion, at present, many manufacturers give Huaqiangbei merchants a large profit margin. If they focus on wholesale, they will definitely earn a lot of profits in the short term. Moreover, Huaqiangbei has always been famous for wholesale of digital products and distribution of goods sources, so it is unnecessary to focus on those ordinary users.

“E-cigarettes (in Huaqiangbei) are also sold with more backbone than vape stores and franchise stores.” Ms. Li said that in more than a month, it was obvious that Huaqiangbei had many customers looking for sources of goods, mainly e-cigarette merchants who operated tobacco hotels and convenience stores in urban areas and surrounding cities.

The merchants of these tobacco stores and convenience stores benefit from the online “ban” and have a lot of growth in sales volume. They are also optimistic about the potential of the offline e-cigarette market in the future. “Especially for the users in the second and third tier cities, it is not easy to buy e-cigarettes without E-commerce. These convenience stores and small sales departments have naturally become brands’ favorite.”

These small-scale wholesalers began to select suitable electronic cigarette sources in Huaqiangbei, hoping to establish a relatively smooth purchase and logistics channels, “you see those who are carrying large backpacks to test vapes are all, many of them are taking pod vapes to try.”

No.3 It's still profitable to only focus on the wholesale "middle zone"

Under the guidance of Ms. Li, the author found that some businessmen dressed in the Middle East and Southeast Asia also “tasted” in the wholesale shops selling e-cigarettes. Ms. Li said that it was heard that many countries in Southeast Asia and the Middle East have also introduced the ban on electronic cigarettes, and the number of foreigners who come here to pick up goods has also increased significantly. “Originally, they should also be businessmen in digital and mobile businesses. Now they are optimistic about Huaqiangbei’s e-cigarette channel and want to sell it to users in need in the black market by wholesale.”

Like LaoLiang, Ms. Li also believes that although focusing on wholesale, but limited by the uncertain market prospects, these products can only be made for a short profit. “Anyway, it’s all uncertain. Why don’t I devote my energy and time to dealing with wholesale customers?”

“The owner of the shop across our shop is good at speaking. He said that every day now should be regarded as the last day to sell e-cigarettes. How funny!” Ms. Li said with a smile.

A month ago, a ban made the e-cigarette industry “earthquake”, and also made many entrepreneurs like Luo Yonghao bet on the e-cigarette market trembled. From the current development of e-cigarette industry chain, the change of Shenzhen market can be said to be representative. This increase in offline channels also reflects the dilemma faced by many production and processing enterprises in the middle and tail (more than 80%) of the industry pyramid structure.

Part.4 Industrial chain pressure is concentrated at the middle and bottom of the pyramid

Shenzhen is one of the most important cities in China’s e-cigarette industry. It is said that domestic production capacity accounts for 90% of the global industry’s total production, while Shenzhen accounts for more than half of the domestic production capacity. In the past, nearly 84% of the products of domestic manufacturers were sold to the European and American markets, and the remaining 6% of the production capacity was for the domestic market. However, in the past year, capital has poured into the e-cigarette industry, and many emerging brands have emerged in an endless vape market, which has also inspired the birth of various e-cigarette production enterprises (workshops) in Shenzhen.

However, after November, a large number of local e-cigarettes upstream supply chain, production and processing enterprises, as well as a wide range of brands are undergoing tremendous changes.

No.4 Industrial chain pressure is concentrated at the middle and bottom of the pyramid

“The implementation of relevant bans will certainly speed up the reshuffle of this industry, especially those small and medium-sized enterprises and workshops, as well as a large number of small brands. This industry itself is capital intensive and technology intensive, and only some enterprises at the top of the pyramid can sustain it.” An electronic cigarette industry analyst said.

The so-called top of the pyramid structure can be understood as a long history, strong production plant, and well-known e-cigarette brand. As for the total number of middles and bottoms, the figure is just too much to describe. “For export, those big factories have opened channels, and there is no chance for these small enterprises; for domestic market, now everyone is betting on offline sales channels. Huaqiangbei is an example. Once zero wholesale market price war starts in the future, how long will it leave for these small enterprises? ”

According to the related report issued by the prospective industry research institute in September, there are nearly 4000 domestic e-cigarette enterprises, and the number of local enterprises in Shenzhen alone exceeds 500, accounting for nearly 14%. Data show that about 80% of them are small enterprises with less than 50 people, which are small in scale and have a short start-up time.

“The actual data is sure to exceed this proportion. The proportion of electronic cigarette industry belt in Bao’an District of Shenzhen in China will not be less than 15%.” These people said that the enterprises (brands) facing elimination are mainly those at the bottom and middle. Even now, all of them are betting on the offline market, which is only a temporary measure.

Indeed, at present, the situation of European and American e-cigarette market has begun to reverse, especially under the pressure of relevant laws and regulations, the U.S. local market is obviously shrinking, which is undoubtedly a major negative for many export-oriented e-cigarette enterprises (brands). In the past year, the severity of “Regulations” on electronic cigarettes in American States (cities) can be seen from recent news: on June 25, 2019, San Francisco voted to pass the ban on electronic cigarettes, and the city banned the sale of “non FDA” approved electronic cigarettes from 2020; on September 25, Massachusetts announced a total ban on all kinds of electronic cigarettes for four months; on October 22, Montana banned the sale of electronic cigarettes flavored e-cigarettes, also for 4 months; on November 26, New York City passed a resolution banning flavored e-cigarettes, which will be implemented from July 2020

In addition, the current “online sales ban” in the domestic market, to increase the capacity of offline channels, naturally became the common action of the main participants in the industrial chain. Some insiders pointed out that at present, there are no more than 30 leading enterprises in the camp of e-cigarette related enterprises, among which nearly 90% of the other large factories, except Huizhou GR, are gathered in Shenzhen, including Smore, Smok, Joyetech, Innokin, IVPS, Kanger, Fisrt Union technology, Jasper, Indel, Celebor, and Kmree. The negative impact of the market For them, it may be resisted by production cuts or staff cuts.

The hundreds of enterprises in the middle are mainly Shenzhen local enterprises with certain scale and R & D ability, such as Shenzhen Smiss, iJoy, iSmok, Konsted, Regus, Meichang, Ruiku, Green Sound, etc. at present, these hundreds of enterprises are more affected, even though they are slightly better than the “basic group” at the bottom, but in the case of export blocked, all offline sales channel movement is also significantly increased. As for the thousands of enterprises at the bottom, the situation can be seen from the decline of many factories and workshops in Shajing, Fuyong and Xixiang of Bao’an District.

No.4 Industrial chain pressure is concentrated at the middle and bottom of the pyramid

Once these industrial belts gathered hundreds of production and processing enterprises (workshops), some of which provided spare parts and some directly produced finished products. According to the sources familiar with the local market situation, at present, many small factories with less than 100 people have been closed, and those with a larger scale have either reduced production or reduced staff. The main reasons for this situation are: first, there is no order; second, even some small orders are cut off by large enterprises in the head and middle. If even big factories are scrambling for small orders, the fate of many small factories at the bottom can be imagined.

[Conclusion]

Nowadays, a large number of manufacturers and brands are actively responding to the impact of the online ban, and their initiative to explore the offline market has also resulted in more and more e-cigarette brands pouring into Huaqiang North Street, appearing in many shop counters.

With the growth of domestic demand market, some of them have the opportunity to formulate further countermeasures and think about their survival direction in the buffer period. At the same time, it also gives Huaqiangbei some digital sellers who are trapped in business difficulties the opportunity of “temporary” survival and transformation.

According to VAPEHK’s field offline sales investigation to a dozen of first-tier cities in China, 2 first-tier cities in China have the best offline sales channel development. Almost every convenience store in that city sells vapes, it’s not Shenzhen. Contact us or comment below to know more details.

Source
Financial circles

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