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Author | Tang Yahua Editor | Mu Feng
Source: Deep Burn
The “National Standard for Electronic Cigarettes” was introduced, and electronic cigarettes ushered in the strongest supervision after the Internet ban.
On October 1, 2022, the State Administration for Market Regulation, together with the State Tobacco Monopoly Administration, organized the National Tobacco Standardization Technical Committee and related technical institutions to formulate the “Mandatory National Standards for Electronic Cigarettes” (hereinafter referred to as “national standards”) officially implemented.
In a nutshell, this round of new regulations on e-cigarettes includes: From October 1st, market entities including e-cigarette manufacturers, retail stores and other e-cigarette producers and operators should obtain tobacco monopoly licenses and conduct e-cigarette transactions through the e-cigarette transaction management platform. At the same time, the “national standard” stipulates that “electronic cigarettes should not induce minors, and should not make the characteristic flavor of the product present other flavors than tobacco. That is to say, the original electronic cigarette will take the lead. Flavored electronic cigarettes are completely banned.
In fact, before the official implementation of the above-mentioned new regulations, the State Tobacco Monopoly Administration had issued the “Administrative Measures for Electronic Cigarettes” as early as March 11, and various dealers had been conducting crazy marketing and stockpiling for more than half a year.
Post-90s Jiaojiao has been smoking e-cigarettes for two or three years. Originally, he wanted to quit traditional cigarettes, but then he became addicted to the e-cigarettes with mung bean paste flavor. In recent months, there have been merchants suggesting that he stock up, but Jiao Jiao refused, “If the market doesn’t sell fruit-flavored e-cigarettes, I won’t smoke anymore. I’m thinking about quitting smoking, but I don’t have the perseverance. Since the outside world has Given the unavoidable circumstances, I just urged myself to quit smoking.”
He thinks that the ban on fruit-flavored e-cigarettes is a good thing. In the past, when smoking e-cigarettes, the subconscious suggestion to him was to smoke fruit-flavored e-cigarettes instead of traditional tobacco. In addition, even if there are tobacco-flavored electronic cigarettes, he is used to fruit-flavored electronic cigarettes in the past few years, and he smells the traditional smoke and even wants to vomit.
Users do not have fruit-flavored e-cigarettes to smoke, and retail stores do not have e-cigarettes that users like to sell. Both parties are caught in the wait-and-see of the industry. For large and small e-cigarette brands, the loss of fruit-flavored e-cigarette products, the original channel is zero, and it is like a giant who has lost its right-hand man and has nowhere to go.
Cyclonus has been in the e-cigarette industry for a few years. What tricks can he use in the face of the only “national standard” tobacco-flavored e-cigarette, the “composition on the same topic”?
“Fruit-flavored” electronic cigarettes are banned, dealers panic
The 26-year-old Lan Rui has never smoked traditional cigarettes. He came into contact with electronic cigarettes two years ago. At that time, he was under a lot of work pressure. He felt good about the smell of a lemon ice smoked by a friend. After tasting it, he found that Not as choking as traditional cigarettes. I don’t know if it was a psychological effect. He felt a little relaxed at the time, so he started smoking electronic cigarettes. His favorite flavors were lemon ice and yogurt.
In the past two years, when the work pressure is high, he may smoke three or four pods a week. When it is exaggerated, Lan Rui is working in front of the computer while smoking an electronic cigarette, one movement for several hours. Every month, he spends about 500 yuan on electronic cigarettes.
In May and June, before the sale of fruit-flavored e-cigarettes was about to be banned, many merchants hyped up and encouraged hoarding. Lan Rui hoarded more than 20 boxes and spent nearly 2,000 yuan. Now there are only four or five pods left. Lan Rui is very resistant to traditional cigarettes, “I only rely on two favorite flavors, and I can’t accept the tobacco flavor.”
Recently, Lan Rui began to plan to quit e-cigarettes. He went to the company during the day without e-cigarettes, and only smoked two puffs at night before going to bed. “Because there are not many pods, I am also in control. I don’t feel like smoking during the day now, and I feel that I am not so addicted to smoking, and I can control it.”
Lan Rui’s friend first switched from smoking traditional cigarettes to electronic cigarettes. Recently, he mixed the only remaining fruit-flavored electronic cigarettes with traditional cigarettes, and plans to return to traditional cigarettes in the future. The reason for not switching to tobacco-flavored e-cigarettes is that considering the price, cartridges of more than 30 yuan are not cheap compared to traditional cigarettes, and the experience of e-cigarettes without fruity flavors has not improved, which he thinks is not worthwhile.
Rong Rong is a girl who has been smoking fruit-flavored electronic cigarettes for two years. She noticed that after the ban, some channels can temporarily buy fruit-flavored electronic cigarettes, but the price is too high, “I saw me smoking in Jinan night market during the National Day holiday. The same type of e-cigarette pods that you used in the past, a box is 20 yuan more expensive than the counter. Stop smoking in the future, after all, the smell of tobacco is too unpleasant for girls.”
The survey found that young male office workers, young female consumers, and adult students are the “three main forces” of e-cigarette consumer groups. These people are generally addicted to fruit-flavored electronic cigarettes. Today, electronic cigarettes that have lost their “soul” may soon lose most of their supporters.
The situation is not optimistic on the dealer side. Tang Chaoying, an e-cigarette agent, has entered the e-cigarette industry since 2019 and has opened 16 stores in Wuhan. “The total investment of a store is nearly 100,000 yuan, including the security deposit and prepaid rent. The electronic cigarette industry can basically be regarded as a zero-cost store, and it is not easy to lose money.”
However, after the overall operation, Tang Chaoying was at a loss, because he had been in the investment period and the market competition was fierce. In order to get the provincial general agent, he did not represent RELX but represented a number of other brands. Looking back, he was still Yueke. The market share is even larger.
By 2021, he will switch to wholesale, and the main brands of agents are grapefruit, magic flute and Ono. He also obtained the authorization of more than 30 other brands, tried the model of the brand collection store, became a national chain, and opened the franchise. Before the new regulations, it was still in the stage of expansion and loss. In 2021, he lost more than 4 million yuan.
As soon as the new regulations came out, there was no room for the role of provincial agents and wholesalers like Tang Chaoying. At present, he has completely stopped the wholesale business, the company has also reduced staff, and there is only one retail store left, and the license has also been obtained. , put up some national standard electronic cigarettes, “Maintain it first, and then observe to see if there are new opportunities. If there are no new opportunities, you don’t have to insist.”
However, the market has not given feedback so quickly. “In the past few months, many dealers have been frantically creating anxiety and stockpiling. At present, there are still many fruit-flavored electronic cigarettes in private circulation on the market. As far as I know, the inventory in the hands of dealers and users should be kept for three months. problem, but upstream manufacturers are no longer allowed to produce fruit-flavored e-cigarettes, and the real market situation may not be revealed until the end of the year.”
In the future, many stores should be closed, in addition to not being able to operate without a business license, but also because only selling national standard electronic cigarettes is not enough to make money. He calculated an account. In Wuhan, the rent, manpower and other aspects of a store cost nearly 20,000 yuan. To achieve a balance, a box of pods for 100 yuan per month would sell 500 boxes. A consumer who draws five boxes a month must have 100 loyal users. “Can we maintain 100 heavy customers who can accept ‘national standard’ electronic cigarettes within three kilometers? I think it is difficult.” He analyzed.
Daqiang operates grapefruit e-cigarettes in Nanjing. According to him, the rent and labor costs of small e-cigarette retail stores in Nanjing are about 10,000 yuan per month. A box of e-cigarette cartridges priced at 99 yuan is purchased at a price of 10,000 yuan per month. In the early 50s, the gross profit is 40%-50%, the net profit exceeds 20%, and his monthly revenue is around 50,000 yuan.
In the past few years, it was more profitable to sell electronic cigarettes, but the income situation in 2021 will not be very good, because some micro-businesses or other channels sell goods at lower prices than physical stores, which will have a greater impact on physical stores. Now with a 36% tobacco tax added, the retail store’s profit margins are squeezed further. “I will wait and see. At present, it is more pessimistic, and I will see if there will be a new turnaround in the next few months.”
Although the retailer’s sales were good in the months before the new regulations were implemented, everyone knew in their hearts that this was the “last madness.” Now that it is almost halfway through October, Daqiang only sold it for more than 1,000 yuan. On the one hand, users have stockpiled more goods in the past few months, and the tobacco-flavored electronic cigarettes have not been accepted by most people. There are very few customers who buy national standard e-cigarettes, some are middle-aged and elderly smokers who want to quit traditional cigarettes, and some use e-cigarettes as a substitute when traditional cigarettes cannot be smoked in offices and other places, but the number of such customers is very small.
E-cigarette users, retailers, and agents have fallen into pessimism.
Brands are hit hard, compliance and innovation are new propositions
After the new regulations, the e-cigarette industry returned to zero overnight.
Today, the first step for practitioners in the electronic cigarette industry is to comply with regulations, that is, to obtain the corresponding license.
In addition to brands that need to be licensed for production, in terms of channels, all e-cigarette retail stores must obtain an e-cigarette retail license issued by the Tobacco Bureau. There are no longer brand franchise stores, but a unified e-cigarette retail store. The platform purchases national standard electronic cigarettes.
According to the data of the “Blue Book of Electronic Cigarette Industry in 2021”, as of the first half of 2022, there were more than 1,500 domestic electronic cigarette manufacturing and brand enterprises, including nearly 200 brand enterprises, nearly 100,000 electronic cigarette supply chain and surrounding service enterprises, and electronic cigarette manufacturers. 190,000 retail outlets. RELX has more than 15,000 retail stores in the past few years, and other brands also have hundreds to thousands of offline retail stores in the form of specialty stores or collection stores.
At present, there are only more than 40 electronic cigarette brands that have obtained licenses. According to the layout plan of e-cigarette retail outlets released across the country, the total is expected to be only about 50,000. That is to say, in the short term, hundreds of e-cigarette brands and nearly 140,000 retail stores will be eliminated.
In terms of products, e-cigarette brands have always been committed to the research and development of various flavors. The more popular flavors include mung bean, cola, and watermelon, as well as dozens of flavors such as purple potato, green mango, blueberry, lemon tea, mint, and old popsicles. . According to a number of industry insiders, more than 95% of e-cigarette sales in the past were fruit-flavored e-cigarettes, and very few people chose tobacco-flavored e-cigarettes.
Today, all fruit-flavored electronic cigarettes are banned, and tobacco-flavored electronic cigarettes must pass the “national standard” before they can be marketed. The whole industry was hit back to the same starting point and began to answer the same question. This explains why pessimism pervades the entire e-cigarette industry.
However, Sun Haiming, founder and CEO of the e-cigarette brand Bolan, predicted that the trend of the entire e-cigarette being widely accepted in the global market is inevitable and irreversible.
The sword of Damocles that domestic e-cigarette practitioners are most worried about is policy. He analyzed that the Tobacco Bureau has built a unified national procurement platform and a special e-cigarette department for e-cigarettes, the same as cigarettes. Dedicated warehouse and logistics, etc. This proves that the domestic market will be a trend of stable and sustainable development in the future.
However, a very cruel reality right now is that factories, brands, channels, and retail merchants are all shuffling their cards. “There are many voices in the entire industry, because the majority of people are washed out.”
Sun Haiming believes that the industry prospect of electronic cigarettes is bright, and the exploration process is tortuous. “In the future, only tobacco-flavored cigarettes and electronic cigarettes will be placed in front of consumers. When the post-50s, post-60s, and post-70s smokers gradually withdraw from the mainstream consumer market, I think the post-80s, post-90s, and post-00s will be more inclined to choose electronic cigarettes. cigarette.”
As for the taste issue, he admitted that the current suspension of fruit-flavored e-cigarettes will have an impact on users who are accustomed to these flavors. “The next step is that young people who are not addicted to nicotine, but who smoke e-cigarettes just to be cool and handsome will bid farewell to e-cigarettes completely. Those smokers who are already addicted to nicotine will not change because of the change in taste. .”
According to Sun Haiming’s analysis, the first challenge that brands will face in the domestic market is the genetic challenge. Electronic cigarettes used to be a 3C digital trendy product in the pure market. Now they are included in the scope of tobacco monopoly. The logic of the category has changed. It is necessary to do a good job in brand cultivation according to the logic of tobacco.
Second, the micro change is that the retail channel has changed. At present, a large number of retail stores are taking a wait-and-see attitude, “I predict that the new channel will be traditional tobacco and alcohol specialty stores, because the policy mentions that ‘electronic cigarette retail stores cannot increase cigarette sales, but cigarette retail stores increase electronic cigarette sales. The category time will be notified separately’, after the opening of this new channel, the development of the entire market will speed up.”
At present, the top priority of each brand is to be outstanding in the “composition on the same topic”.
Recently, RELX’s national standard products Phantom “Xinghe Dream” atomizing rod, Phantom “Wangjiang Youjing Mountain Grill 25” and Phantom “Forest Fuxing Mountain Grill 53” atomizer bombs have been put on sale. The two flavors have different aromas based on tobacco flavor, which can be regarded as innovations in product flavor.
In terms of business strategy, Sun Haiming’s plan is to take a differentiated mid-to-high-end route. “In the future, comprehensive retail stores will not only sell products at one price, but also meet the needs of some high-end customers. , profit and other aspects to differentiate.”
As for which one can take the lead in breaking out of the encirclement, we have to wait for the next market feedback.
Where is the way out for e-cigarettes?
Electronic cigarettes are not new, they were born as early as 2003. But the industry was detonated in 2018 to 2019.
The Ono electronic cigarette launched by Luo Yonghao, coupled with the endorsement of Edison Chen, has entered the public eye with a high profile; Zhu Xiaomu, the No. 1 employee of Hammer Technology, founded the Flow electronic cigarette, which has attracted attention; another high-profile brand RELX, in 2018 and In 2019, three rounds of financing were successively obtained, and the valuation rushed to more than 2 billion US dollars.
Capital has spawned, entrepreneurs are active, and the e-cigarette industry has embarked on the fast lane.
In October 2019, the e-cigarette “online ban” was implemented, and the industry was subject to strong policy supervision for the first time. Subsequently, the brands shifted their focus and opened stores nationwide.
Just 3 years after its establishment, RELX’s parent company Fog Core Technology was listed on the US stock market. The stock price soared 145.92% on the day of listing, with a market value of 45.8 billion US dollars, or about 300 billion yuan. The prospectus and financial report show that in 2018, RELX sold 500,000 cigarette sticks and 5.9 million pods, with a revenue of 132 million yuan. In 2019, its revenue rose to 1.549 billion yuan, an increase of 1073.48%, and its revenue in 2020 reached 38.2 million yuan. 100 million yuan, an increase of 146.5%. By 2021, RELX’s revenue will be 8.521 billion yuan and net profit will be 2.028 billion yuan.
According to data from research institute Euromonitor, in the three years from 2019 to 2021, the domestic industry size of e-cigarettes will grow at a compound annual rate of nearly 60%. By 2021, the domestic industry scale will be close to 20 billion yuan.
In the first two quarters of 2022, RELX’s revenue and net profit declined for the first time. The company’s explanation was “regulatory changes, and the sales of new products that meet national standards in the new trading system prescribed by the regulatory agency started slowly.”
As of October 11, RELX’s share price has fallen to $1, with a total market value of $1.548 billion. Nearly $44 billion has been evaporated from the market value of $45.8 billion at the time of the highlight.
In the eyes of practitioners, the pattern of the electronic cigarette industry is divided into RELX and others. RELX is firmly in the top position in the industry with a market share of more than 60%. Among other companies, brands such as Grapefruit, Bode, Ono, Fulu, Snow Plus and Magic Flute are well-known, and the size is not much different.
After the new regulations, Tang Chaoying estimated that the overall scale of the electronic cigarette industry will decline by 70%-80% in the future. Because the users of electronic cigarettes are still mainly young new smokers, they have only become popular in the past few years. Most of the young people are not addicted to the nicotine in electronic cigarettes, but are addicted to some fruity and cold experiences. In fact, Similar to drinking milk tea and coffee, “it is more difficult for young people to accept tobacco-flavored e-cigarettes. Most young people are not too addicted to it and are likely to quit.”
There is also speculation that users will turn to alternatives to e-cigarettes. At present, there are products called “flavor stick” and “flavor stick” on the market. The principle is to add a filter stick to the national standard electronic cigarette cartridge to bring fruity and cool effects. Although the taste is not as good as the taste of electronic cigarettes, it can improve the experience to a certain extent.
Sun Haiming believes that the so-called flavor-enhancing sticks can be called e-cigarette accessories. “I tend to think that supervision will not allow such disguised e-cigarette flavor products to circulate freely.”
In today’s electronic cigarette industry, the first way out is to make technological innovation in the field of national standard tobacco flavor. How to restore the taste of tobacco as much as possible and adjust the softness to a better level while meeting the standards is a test for brands.
Ruili Technology is an electronic cigarette research and development service enterprise. Wu Pengfei, the founder of the company, mentioned that the current market situation is relatively embarrassing, and young new smokers may be lost, and it will not be accepted by older smokers for the time being. However, there are more than 300 million smokers in China, and there are about one billion smokers in the world. The whole market is very large, but the focus of many companies has not turned to tobacco flavors. In the long run, the future should focus on the research and development of tobacco flavors. If electronic cigarettes and electronic cigarette products are accepted by mainstream smokers, their consumption volume will increase greatly.
Ruili Technology has been doing the research and development of tobacco atomization. “We are optimistic about the industry for a long time. In the future, electronic cigarettes will form a complementary relationship with traditional cigarettes and can be used as a consumption alternative for old smokers to a certain extent.”
In terms of population, e-cigarettes may lose some young people, and may also win some old smokers. Many practitioners mentioned that with the standardized operation and unified supervision, the public opinion of e-cigarettes will gradually improve, and some stubborn old smokers in the past will look at e-cigarettes again.
Tang Chaoying is also optimistic about an opportunity to be a universal pod for RELX cigarette sticks, because RELX currently occupies most of the market and can focus on making some innovations in tobacco flavors, as long as users accept it.
The second major way out is going overseas, which the industry has been exploring. The challenge of e-cigarettes going overseas lies in localization. It is necessary to be familiar with local products, users, channels, and culture, and quickly respond to local market demands.
At this stage, the entire industry is reshaping from upstream factories to brands, to the terminal retail landscape, including regulatory exploration of e-cigarette management.
At the same time, many companies in the industry are also undergoing transformation. For example, RELX is exploring new businesses in coffee and oral care. The world’s largest e-cigarette foundry and Hong Kong-listed company Smol has also made a medical industry layout in addition to e-cigarettes. But they are only used as a supplement to the e-cigarette business.
In the next step, the e-cigarette industry needs to improve not only product taste, compliance management ability, channel ability, but also the confidence of the entire market.
*The title picture comes from Visual China, and the pictures in the text come from pexels and unsplash. At the request of the interviewee, Jiao Jiao, Lan Rui, Rong Rong and Da Qiang are pseudonyms in the text.
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