On May 26, the National Health Commission issued the Report on the Health Risks of Smoking in China 2020, which caused an uproar in the industry for a while. However, this does not affect the deep involvement of major capitals in the upstream and downstream of the vape industrial chain and continuous expansion of production.
The report reveals that e-cigarettes are unsafe?
The publication of the report may affect the enthusiasm of merchants to open vape stores and their yearning for the vape industry. However, the merchants are currently most concerned about shipments.
In addition, regarding the e-cigarette part of the report, China Central Broadcasting Network and Securities Times have issued questions about it. Among them, the Central Broadcasting Network pointed out that for the merits and demerits of e-cigarettes, we need to compare the pros and cons of the evidence, so as to provide all parties in the dispute with a fair opportunity to compete, instead of just believing that e-cigarettes are harmful. Securities Times also questioned the timeliness and comprehensiveness of the harmful evidence of e-cigarettes listed in the report.
The secretary-general of the Electronic Cigarette Association told reporters, “The industry has been constantly innovating. In terms of quality and safety, taste experience and other aspects, technology upgrades and consumer stickiness are increasing. Therefore, the secondary market stock fluctuations and downstream dealers’ The worries are understandable. They don’t know much about industry development laws and regulatory policies.”
Capital catalyzes offline expansion
For Chinese e-cigarette brands, offline store expansion is currently one of the main tasks.
The reporter visited several city business districts in Chongqing and found that there are many e-cigarette brand stores. A total of 7 e-cigarette stores have been opened in the underground passage from Shidaitian Street, Daping, Yuzhong District, to the Shiyoulu Station of Rail Transit, two of which are of the same brand. On the most densely populated section of e-cigarette stores in this channel, two e-cigarette stores are relatively open. One store is separated from the same side by only one storey and the third e-cigarette store is located, and the fourth store is less than 10 meters away from these three stores.
Two e-cigarette stores opened relatively
The reporter noticed that at present, capital has entered the upstream and downstream links of e-cigarettes, and a complete industrial chain has been formed. In the upstream link, China Boton and Huabao International, which provide flavors and fragrances, Smoore International, which provides vaping kits, and many subcontractors such as Jinjia, Yinghe Technology, Changying Precision, etc.; brand owners include Bode, etc.; sales channel links, Ai Shide, Tianyin Holdings, etc. have all intervened, and will continue to expand the number of stores in the future.
Different from other fields, joining an e-cigarette brand does not require an initial fee, and the threshold is very low. Many e-cigarette brand investment personnel said that to join with zero threshold, only need to distribute the goods. According to another industry insider, many e-cigarette brands, including decoration costs and exhibition equipment, can be refunded through stock replenishment on a monthly basis.
The person in charge of investment promotion for a well-known e-cigarette brand in Henan mentioned that many specialty store owners are young people and they are e-cigarette consumers themselves, but they don’t have much business capabilities, which leads to low survival rates in stores. “At the same time, most e-cigarette brands adopt the mode of contract processing. At the peak of 2019, there will be two to three thousand e-cigarette brands in the China market, with varying quality. Now they are increasingly concentrated on top brands.” He said.
From the current point of view, the industry is concentrating on leading companies. Smaller e-cigarette brands have had a hard time, and stores have begun to close in the second half of the year. The biggest plan of the brand is to expand the number of stores, and many provinces are under great pressure. According to the information he has, many channel merchants even sell e-cigarette products on the basis of a catty in order to dump the goods.
The future of electronic cigarettes in China
Many related persons and industry insiders of listed companies involved in the e-cigarette business told reporters that the stricter the external regulation, the higher the degree of industry purification, and the more profit-seeking space for capital.
A well-known e-cigarette investment promotion staff in Henan mentioned that many people value the business opportunities of e-cigarettes, so they go to Shenzhen to find an OEM factory, but they do not have R&D capabilities themselves, and they can’t control product safety well. Such brands will soon be eliminated.
However, the Frost & Sullivan report shows that 90% of the world’s e-cigarettes are produced in China, but 90% of the e-cigarettes produced in China are for export. In other words, for upstream manufacturers, changes in the China market are not enough to destroy their foundation. It can adjust the China and foreign markets according to market conditions.
Sikary, a subsidiary of Yinghe Technology, is the case. Yinghe data public number shows that in 2019, the sales of Sikary in China market accounted for 34.28%, and the international market accounted for 65.72%. However, based on the huge space in the US market, Sikary began to set up a sales team in the United States in the second half of 2019, and will increase the proportion of the original business from 1.54% to 33.43% in 2020.
China e-cigarette brands, distributors and specialty store operators may bear more pressure.
It takes a long process for China e-cigarette brands to enter overseas markets. The detailed information in the prospectus of Smoore International shows that, according to US regulations, all manufacturers of electronic nicotine delivery system products are required to submit pre-market tobacco applications to the Food and Drug Administration (FDA).
Pangu Think Tank Senior Researcher Jiang Han told reporters that e-cigarettes can be said to be a trend in the current development of the entire tobacco market. More and more tobacco companies, including state-owned tobacco companies, are beginning to develop in the direction of e-cigarettes.
From a long-term perspective, whether e-cigarettes can have a good market development prospect depends mainly on whether the market can prove their safety. If it can be determined that e-cigarettes are relatively safe, then its development prospects are still promising. Therefore, the future e-cigarette brand must increase investment in research and development and produce more products of higher quality, so that it will be more competitive.
The e-cigarette industry is in a stage of continuous iteration, and the market is constantly concentrating on leading companies. It is foreseeable that the electronic cigarette industry will face a new round of reshuffle in the second half of the year.
