The threshold for the new e-cigarette business is less than 5 million yuan. The representative factory directly provides the finished moulds to the enterprise, and then selects one of them and pastes its own logo to start production.
With the advance payment from the supplier and the payment owed to the OEM factory, the most important thing in the electronic cigarette industry is technology accumulation rather than money.
Before the introduction of regulatory policies, entrepreneurs focused not on industry competition, but on policies. After all, the cake they saw in the tobacco market was big enough.
The special attributes of electronic cigarette industry are sensitive. It is not clear where the final path will be. But if we want to go further, we must keep restraint.
90% of the world’s e-cigarettes are produced in Bao’an District, Shenzhen. There are more than 600 e-cigarette manufacturers in a 13 square kilometer Industrial Park.
Compared with the “thousand regiments battle” in the field of group buying, Yao Xiaochao, a silicon valley investor, used the eve of the “thousand cigarette war” to describe the current situation: “once you think it’s a big opportunity, thousands of companies rush in. No one will consider the protection and respect of intellectual property rights, or future policy risks.”
Many brands in “thousand vape brands” dream of becoming “Juul of China”, but there is also speculation of “making a quick fortune”. The two different mindsets are filled with the most popular entrepreneurial opportunity in 2019. Capital is ready to move, new IP continues to join, and the market is in full swing.
The wake-up call of the 315 party didn’t stop the industry’s galloping pace. The US news of more than 530 cases and 8 deaths always affects the sensitive nerves of the local market. Juul’s plan to enter China is almost stillborn. Everyone knows that the regulatory policy is in the works, but it is surprisingly quiet at the moment.
Fan Jianming, co-founder of FLOW electronic cigarette, made an example to the reporter: “a reporter from National Geographic magazine once took a picture of a horned horse falling into a crocodile pool. Why hadn’t it been eaten then? Because crocodiles are still full. ”
Electronic cigarette base
Starting from Shenzhen Bao’an airport, Yanjing Hong Kong Macau expressway, you can arrive at Shayi community in 40 minutes. There are more than 20 floors of farmer’s houses everywhere, so there is no trace of the countryside. The habitual claim of “villagers” can hardly hide that this is a place of gold.
Village committee of Shayi, Shaer, Shasan and Shasi, village committee of oyster one, oyster two, oyster three, oyster four, the name is still the same, but the beach is no longer. Now, the famous oyster town no longer sells oysters, and more and more enterprises making e-cigarettes are swarming here.
This is just a miniature of Shenzhen’s e-cigarette industry. Apart from “the city of design” and “the city of piano”, Shenzhen also has a title of “global e-cigarette base”.
In the late 1970s, facing the sudden opening up of Shenzhen, Hong Kong’s labor-intensive manufacturing industry began to shift one after another, and China’s unique regional “shop before factory” model began to take shape.
In 2004, MediaTek, a Taiwanese company founded on DVD, released an MTK chip to make mobile phones a very simple thing. The investment of start-ups dropped from several billion to millions. With the abolition of the mobile phone license system, the “Counterfeit phone” became a full-fledged one night, making Huaqiangbei the center of the world’s electronics manufacturing industry.
Shenzhen has many unique features: it can always accommodate everything from serious to stupid, from experimental nature to promising, from poverty reduction equipment to online influencer products. Within a 100 mile radius, thousands of factories produce products together, and within two weeks, the concept to product transformation can be completed, which is the speed of hardware manufacturing in Shenzhen.
With the rise of mobile phone brand, counterfeit market began to die out, and the original mobile phone supply chain began to turn to e-cigarettes.
“When you go to Huaqiangbei, you can see the development trend and direction of hardware all over the world. The newly established e-cigarette brand can do it as soon as 39 days from order to product sale.” Yao Xiaochao, a silicon valley investor, told the reporter.
A professional disclosed to the reporter that many OEM can directly provide forming molds to enterprises, and they only need to choose one of them and paste their own logo to start production. The threshold for the new e-cigarette business is less than 5 million.
The positioning of factories and brand makers is also changing. Fan Jianming told the reporter that although the largest income of the current generation of factories is still from overseas, there is also a big customer in China. In the case of insufficient production capacity, although it is impossible to give products to only one, there is a priority.
“I’m going to make my own customization. I don’t need to ask the OEM owners any more. I don’t want to talk nonsense.” In May 2019, Fan Jianming, who successively participated in the design, R & D, supply chain and OEM management of FLOW, came to Shenzhen alone, and put two tables in the elevator room to change the blank house of the teluminescent network building into the factory of FLOW.
From the 5 floors of phase I to phase II, the company has expanded seven or eight floors. The company, which has thousands of employees, is still interviewing new employees. The base salary is only 2200 yuan, but the overtime pay is as high as 19 yuan / hour. The concise recruitment inspiration has attracted many young people.
“On the most amazing day, they recruit 200 people, such a large scale, regardless of open eyes and closed eyes, my brain is full of all kinds of factory expenses, very flustered.” In the afternoon of interview with the reporter, Fan Jianming, who stayed up all night, had no tired expression on his face.
“We’ve been holding back on Smartisan for years, so we’re eager to succeed. We’re eager to really make a company. No matter what the project is, I will make even it’s a drink product. ”
However, many new entrepreneurial teams are not reliable. Chen Xueliang, secretary-general of Shenzhen electronic cigarette association, told the reporter, “with the suppliers’ advance payment, we owe the payment for the factory. The most important thing in the electronic cigarette industry is money, but the lack is technology accumulation.”
Chen Xueliang, who has been an agent for six years, is now the general agent of RELX e-cigarettes. Before that, he worked for Alibaba for ten years. “An old lady in her 70s has lost her way. She pushes the shopping cart with shaking hands around for making up the coil and fill the e-liquid.” Chen Xueliang, who saw this scene in Manchester, was particularly touched. The popularity of e-cigarettes in the UK has reached 40% and that in the US is close to 40%, which makes him feel that China’s e-cigarettes market still has great potential for growth.
Sparks of fire
In 2004, Hon Lik, a pharmacist in China, officially launched a product called “Ruyan(smoke-like)”. The noble golden appearance and the single price of 599-16800 yuan seem to indicate the symbol of high-end users. In the era of TV advertising, health care products are in vogue, and the middle-aged business style with the banner of quitting smoking makes the sales of the vape pen billion yuan in the first year.
Seeing the development of Shandong Ruyan, Shenzhen, thousands of miles away, also a Health Source of TV shopping, started the project of e-cigarettes, but encountered the crisis of capital chain rupture at the time of SARS. The Health Source e-cigarette project was aborted. Three employees of the engineering department with sensitive sense of smell chose to leave their jobs and start their own businesses. They are the three generation factories of First Union, Kanger and Smoore.
Concerning the regulatory policy that is not yet clear, and the difficulty to form scale benefits, Ruyan planned to open overseas market. In 2006, the sales volume of vape reaches 1 billion, but in this year, it was exposed by CCTV because of false propaganda and smoking cessation effect, the safety and supervision of electronic cigarettes were pushed to the forefront of public opinion.
In the next seven years, the factory in Shenzhen has made a long “escape” for foreign brands. With the rise of counterfeit mobile phones, a mature consumer electronics industry chain has been formed here, which provides unique conditions for the OEM production of electronic cigarettes.
Ten years after the birth of e-cigarettes, the number of e-cigarettes in the market has increased from Ruyan to 466 brands. From 2008 to 2012, the use of e-cigarettes in North America, the European Union and South Korea has doubled at least. In 2016, the global e-cigarettes market reached 7.1 billion US dollars, in 2018, it exceeded 10 billion US dollars, and the global users are nearly 40 million.
“Previously, the brands made in China tried to promote in China, but they were not successful. The e-cigarettes made in Taobao and Jingdong must have the word” quit smoking “. After discussion in 2014-2015, it was finally considered as a false proposition.” Chen Xueliang told.
In 2013, a Chinese named Xing Chenyue accepted the invitation of Juul to become the company’s first scientist and co invented nicotine salt with his colleagues.
“In the early us, 60% of smokers had tried electronic cigarettes, but the conversion rate was very low. One of the biggest breakthroughs of nicotine salt is the ability to simulate the real smoke completely, including the amount of nicotine in the blood from producing to peaked until the degradation is almost the same as that of real smoke.” Yao Xiaochao, a silicon valley investor, told.
This revolutionary compound made it easier for smokers to inhale high concentrations of nicotine, which quickly became popular in the United States. In four years, Juul has grown from a small team of 20 people to the largest electronic cigarette company in the United States, with the latest valuation of up to $38 billion. At the end of 2018, a news story of “annual bonus per capita of 1.3 million US dollars” lingered for a whole week on the hot microblog search, which was about Jull.
“Before that, we will get the domestic offset for the products that can’t be sold abroad, because the domestic is not used to the mod vape of refilling and battery changing.” A Shenzhen agent told that “Chinese people like fool style that don’t need any operation. They are very anxious to smoke at once. As Cao Dewang, Fuyao’s boss, said, for many things, Chinese people can’t wait.”
The transitional expansion made Xing Chenyue decide to leave Juul in 2015. He could not adapt to the scene of American office smoking cannabis and was unwilling to develop hemp related products.
In 2018, Wang Ying, who witnessed the rapid development of Juul in the United States, set up a team to establish RELX electronic cigarette. Different from the regular export sales, RELX caters to the Chinese smoking habits and becomes a preacher of pod vapes in the Chinese market.
In this year, Smoore, who is eager to promote Feelm ceramic core to the market, launched OEM cooperation with RELX. The total profits of the four quarters are: 110 million, 123 million, 268 million and 283 million respectively, with a net profit of 785 million yuan, a year-on-year increase of 257%. ODM business has achieved nearly 2.5 billion revenue, an increase of 148.28% over the previous year.
Now, Smoore l has replaced First Union as China’s largest e-cigarette OEM factory, and RELX has become the top e-cigarette manufacturer in China, with the latest valuation of $2.4 billion.
“Now you come to the Starbucks under the SOHO in Wangjing and I’ll tell you an amazing project!”
One afternoon in October 2018, Fan Jianming, director of industrial design of Smartisan division, received a call from Zhu Xiaomu, employee of Smartisan division 001. Fan Jianming, who had a high fever, repeatedly pushed him to the appointed place with his sick body and saw Zhu Xiaomu with the Research Report and RELX electronic cigarette, which was the beginning of their decision to jointly establish FLOW.
Material, mold, production line… All kinds of problems came one after another. Zhu Xiaomu came to Shenzhen with fan Jianming in his marten. The mature industrial chain of the local area has made two foreign brands suffer. Every negotiation seems to be a game of wits and courage. The most common picture is that both of them are hypoglycemic, sitting on the curb, nobody says a word, and they don’t care about each other. “Like a little beggar, but I think it’s beautiful.” Fan Jianming told.
In the last time of the Smartisan, Lao Luo, who often held meetings and complained about the mentality of the old employees, always asked Fan Jianming similar questions: “how do I think you are the same every day, working overtime every day, working overtime every day, walking at two or three o’clock every day? Why are you so arrogant?”
“I’m not a fan of Lao Luo, but I’m grateful for his kindness.” Fan Jianming told, “the Smartisan was built by us. I can’t wait for the company to sell it, and then wait for the next receiver to come and make a report. So I left without waiting for the Smartisan to sell.”
In 2018, Yao Xiaochao saw the rapid development of e-cigarettes in the United States and then went to Shenzhen to look for opportunities: “in fact, at that time, he just wanted to make investment, but after a round of watching, he didn’t find the project he wanted, so he invested himself into it.” The investor who successively invested in Paytm, the largest payment platform in India, and Lime, the largest shared e scooter company in the United States, used “a man of no business” to ridicule himself.
Yao first talked to Xing Chenyue, the inventor of nicotine salt, and then brought Chen Min and Liu Yu, who met at TCL. “In fact, what attracts me most is Xing Chenyue. Daniel (Chen Min) can do everything, Yao can do everything, but Xing Chenyue can’t do anything.” Liu Yu told.
Liu Yu, who has been in charge of TCL R & D for ten years, participated in the case of BlackBerry acquisition and summarized the final state of his last job, was different from Fan Jianming’s arrogance. Liu Yu used the words “physically and mentally exhausted” and “loveless”. “Later, when we had a meeting with Dong Li (TCL chairman Li Dongsheng), we were often scolded: Luo is so fat, you are so fat, he is so boastful, how can you not boast?” Liu Yuxiang’s memories.
In this way, four people, 39 years old per capita, set up a team centered on scientists in March this year, founded MYST LABS, and set foot on the last bus of electronic cigarette industry. In the first two months, Cai Yuedong, who sold his “Tongdao uncle” and cashed out a sum of money, issued a poster in the circle of friends to announce the establishment of Yooz, an e-cigarette brand; in the next month, Luo no longer chose the platform and joined vvild, an e-cigarette brand founded by Peng Jinzhou, the former president of Smartisan technology, as the co-founder.
These are also just the tip of the iceberg for China’s e-cigarette brands, with IDG, Source Capital, Meihua venture capital, Jingwei China and other capital behind them.
The players on the stage are well versed in the mobile Internet era, but they seem to be particularly restrained at present. They are busy cutting cakes while paying attention to the policy trend. The whole industry is far from the stage of fighting each other.
The test before dawn
In the movie A Better Tomorrow, the picture of young brother Ma lighting cigarettes with counterfeit banknotes is regarded as an eternal classic by countless Post-70s and post-80s, and the electronic cigarettes used to puff up smoke are labeled as young and fashionable.
“I’ve seen that electronic cigarette products are sold in toy stores. The need is sales channel control. High school students and junior high school students see e-cigarettes in the canteen, where it’s much faster and easier to make money. ” Yao Xiaochao told shenzhen.com.
3.15 at the party, e-cigarettes were exposed by CCTV’s roll call and pushed in the opposite direction of “health”. CCTV reporters bought eight kinds of e liquid randomly from the market and sent them to a laboratory certified by Johns Hopkins University and the Global Institute of tobacco control. The results show that there are dozens or even hundreds of times more formaldehyde in the vapor than the maximum allowable concentration in the indoor air, as well as a large number of propylene glycol and glycerin, which have a strong stimulating effect on the respiratory tract.
Before the regulatory edge is wielded, it is difficult for practitioners in the electronic cigarette industry to give up this huge market. In 2018, the total amount of China’s tobacco turned over to the state finance is RMB 1 billion, which is equivalent to the total profit of “two barrels of oil” + “four major banks” + “BAT”.
Data shows that at present, China’s smokers have reached 350 million. According to the consumption proportion of electronic cigarettes in some developed countries in Europe and the United States accounting for about 30%, while the penetration rate of domestic electronic cigarettes is only about 1%. This gap is enough to create a giant company with a market value of 100 billion.
Before the introduction of regulatory policies, entrepreneurs now focus not on industry competition, but on policies. After all, the cake they see in the tobacco market is large enough.
E-cigarettes are neither drugs, medical devices, nor officially classified as tobacco. China’s tobacco monopoly law stipulates that tobacco monopoly products refer to cigarettes, cigars, cut tobacco, redried tobacco leaves, tobacco leaves, cigarette paper, filter rods, cigarette tow and special machinery for tobacco, but vape electronic cigarettes are not included.
Therefore, most electronic cigarettes are still in the blank state without product standards, quality supervision and safety evaluation.
Jiang Xingtao, RELX’s research and development director, told: “the development period of e-cigarettes is in a period of chaos. Zero test, random addition and fake products occur from time to time. Not all e-cigarettes are safe. If we follow RELX’s standards, more than 90% of the brands on the market are unqualified.”
The special attributes of electronic cigarette industry are sensitive. It is not clear where the final path will be. But if we want to go further, we must keep restraint. Business is a restrained game. Any desire beyond the limit of ability will cause terrible consequences.
As Wang Ying worried: “the industry is now most afraid of meeting pig like teammates.”