China’s e-cigarette industry, which has been frozen for half a year, is making a comeback.
18 months ago, e-cigarettes were accompanied by Internet celebrities and hot money. Luo Yonghao, Uncle Tong, former Didi executives, and endless dollar financing. Six months ago, a ban on the sale on the Internet from the state made the hot e-cigarette business drop. Three months ago, the new coronavirus epidemic broke out, and the e-cigarette under the transition to offline hit the black swan. Long time no big news of e-cigarettes. Not long ago, even Luo Yonghao put down the business of e-cigarettes and went live to sell goods on Douyin.
But now, there are signs that the e-cigarette seems to be standing up again.
The press conference started, new products were launched, new recipes were announced, and the e-cigarette community in the silence suddenly became more active. Even the banned online advertising of e-cigarettes and the review of new products are beginning to be unscrupulous and uncovered.
Price war is also coming. YOOZ Cai Yuedong fired the first shot. His 9.9 yuan device, breaks the industry bottom price. A middle-level e-cigarette entrepreneur vowed to say that this year’s strategy is very simple, that is, to fight the price war.
However, this time is different. The giant China Tobacco stood in front, holding the throat of the industry. Under the pressure of policies, is China’s e-cigarette entrepreneurship still a good business?
Those e-cigarette entrepreneurs who want to come back, need to re-evaluate this business to see if they want to enter the game.
The temptation under the ice
Zhao was a little flustered. Starting in late April, the movements of his peers increased, but he was not ready yet.
As an obscure member of many e-cigarette brands, his sales volume shrank by 80% during the epidemic. Holding the few specialty stores, he makes a living on the customer resources accumulated before the outbreak. WeChat contact, flash delivery, “no contact” business seems to be fine.
It wasn’t until he heard the news that YOOZ launched 9.9 devices, Zhao felt that he couldn’t sit still to die.
In the ecosystem of China’s e-cigarettes, this wave of entrepreneurs who entered the game at the end of 2018 is automatically divided into two major schools – disposable products and pod system products. The pod system type is divided into two main components, device and pods, which are sold in kits. Devices can be reused, and they must be purchased again when they are used up. Therefore, it is the consensus of almost all players in the industry to earn profits by repurchasing pods or cartridges.
In the past, it was a common practice in the industry that the pod system starter kit comes with four pods and costs 299 yuan. In the second half of last year, LINX lows down the kit price to 99 yuan, refreshing the industry’s lowest price. But now, according to YOOZ’s move, the price of a device and a pod is only 49 yuan, which is even lower than the price of most disposable products.
“The wolf is coming.” Some e-cigarette entrepreneurs said so.
However, this may just be an appetizer. Cai Yuedong told RanFinance that the price reduction of devices is inevitable market competition. In the future, the core of this industry competition will still return to the product repurchase rate. In addition, some e-cigarette entrepreneurs said that there is still much room for price reduction in the future.
YOOZ’s new product launched and did not hold a press conference, another electronic cigarette brand Mystlabs, just held a high-profile new product launch conference in early April.
At the meeting, Mystlabs released the first product of the S series and the pod product named No. 3 mellow, claiming to reduce the nicotine content to 1.7%, ensuring the user experience while the amount of nicotine is reduced. Previously, the industry’s minimum standard was 3%. In addition to the high-profile appearance of the product, Mystlabs also publicly set a goal to become the top three in China and the top five in the world within three years.
This should be the most high-profile conference in the domestic e-cigarette industry in the past 6 months. “A little surprised, I don’t know where these brands come from.” Lao Zhao said.
In fact, more electronic cigarettes with new flavors, new formulas, and new actions are being launched.
Boulder, which specializes in disposable vape, released a formula called “sea salt nicotine” at the end of March. This technology was applied to the new product “Dandelion” in April. RELX announced on April 22 that it will start comprehensive cooperation with Gome Electrical Appliances and enter the 500 Gome stores and other Gome brand stores. VAZO, an electronic cigarette brand under the Zippo lighter, also officially entered Chongqing Yonghui Supermarket at almost the same time.
Two news about e-cigarettes are circulating rapidly in the industry. One is the affirmation of overseas scientific research reports on the health of e-cigarettes forwarded by the Ministry of Information, and the other is Guangdong Tobacco ’s answer to confirm that e-cigarettes are not monopolized. The e-cigarette community, which has been quiet for several months, has started to relive discussions about e-cigarette products, channels, and policies. Various unbox reviews, as well as product publicity, have also begun to have a big fanfare.
Even in such a huge uncertainty, there are actually new brands entering. An e-cigarette brand called Feixi quietly joined the battle in April, and said that the first phase will receive 50 million yuan of financial support from Dingzhi Communication.
Mt Zhao can’t settle down. A step forward is a quagmire, a step back is an abyss. The opponent is about to move, but his instinct tells him that it is not the time to act rashly. “The epidemic has not passed, the policy is not clear, and the risk is too great.”
Reset and restart everything again
It seems to be true, everything is going to be started.
Wang Zeqi, founder of Boulder Electronic Cigarette, revealed that China Tobacco had a discussion proposal in the first quarter of this year, and plans to jointly investigate the market specifications of electronic cigarettes with the relevant departments at the end of the second quarter, and plans to examine certain cores of electronic cigarette, strict review and approval of raw material supply. Because of the impact of the epidemic, these measures may be delayed. But once implemented, it will have a huge impact on the industry. “Many people don’t know that they passed by a thunderstorm.”
China e-cigarette entrepreneurship track has long been different. The market has changed, the players have changed, and the style of play has also changed.
The first is that online business is completely a thing of the past
During the epidemic, the head e-cigarette players are increasing the distribution of offline channels. The most typical way is to increase subsidies and attract offline franchisees.
At the end of last year, Boulder launched the “Thousand City and Ten Thousand Stores Plan”, preparing to spend 300 million yuan in subsidies, opening 10,000 franchise stores in 1,000 cities across the country, and RELX set up a 20 million yuan “retail store assistance fund” on February 11. And it’s offering free NANO products by leaving phoner numbers in thousands of offline convenience stores and supermarkets. “SNOWPLUS announced the launch of five support policies and 10 million yuan subsidies for partners on the second day. MOTI also announced a 10 million yuan subsidy program on February 25, which will distribute goods worth 1,000 yuan at the end of March, offering subsidies for distribution services in franchised stores.
Online subsidies and competitions have been transferred to offline, and the epidemic has not weakened the enthusiasm of the head players. Cai Yuedong revealed that YOOZ has 410 franchised stores and more than 60 new applications in April. “More agents are increasingly recognizing the e-cigarette industry. Everyone is also looking for new business opportunities due to the recent epidemic. ”
The second is that the industry says goodbye to barbaric growth, and the rules of the game have to be rewritten.
“Last year ago, some players who rushed in with VC money did a lot of stupid things and lifted stones to hit the foot of the industry itself. The industry is now more standardized than last year.” Wang Zeqi analyzed.
In the past, the industry’s popular strategy is-financing, expansion, financing, price war, refinancing. There are overwhelming advertisements online, and hustle and bustle of offline battles. In the eyes of the outside world, most of them are speculations driven by huge profits.
Now, Luo Yonghao no longer mentions his e-cigarette project vvild. He signed on Douyin, started live broadcast sales, and also joined Zhu Xiaomu, the founder of Flow vape, to cooperate with him on the same stage. Some e-cigarette founders said that since this year, there have been too few actions of vvild and Flow in the market. It is very common for Flow’s agents to clear stock at a loss.
“If many new brands still follow the previous style of play, the probability of survival is not high, and differentiated competition is becoming more and more important.” Cai Yuedong said.
An agent acting for both RELX and YOOZ did not suffer much from the sales during the epidemic because he was the earliest group of agents with a large and stable number of old users. “Addictive products, with stores and customers, it is still very stable, and it will be difficult to open a new store. We live on the stock market and the micro increment market. ”
In addition, e-cigarettes have changed from a trending field to a supplement to traditional tobacco, and the market positioning should be re-launched.
E-cigarettes have changed from tobacco “full enemies” to “niche supplements”, saying goodbye to the arrogance of capital influx and learning to survive under the eaves of tobacco to achieve a delicate balance.
Today, no e-cigarette player will ignore the existence of the Tobacco Bureau. “After all, in the face of greater power, the head funds or entrepreneurs, whether they are Ma Yun or Soros, are all floating clouds.” Wang Zeqi said.
After heavy rectification, China’s e-cigarette industry has become a “survivor under the roof” of traditional tobacco. This industry is no longer a trending industry. “Electronic cigarette is an industry controlled by the state. Do not move all the exaggerated routines of the pure market industry to the electronic cigarette industry. If you do too much, you will be hit hard again. ”
An agent analyzed that China’s electronic cigarettes can be buckled with the hat of “toxic, endangering minors, illegal business” at any time, “Now don’t shout to fight, ask China Tobacco first .”
Survival under the roof of tobacco, may become the normal state of China’s e-cigarette industry. “Once this state is broken, China Tobacco has the ability and willingness to promote the amendment of the tobacco monopoly law. Then there will be no such industry in China, except for the black market. The user population and scale are supplemented by niche.” Wang Zeqi said.
“It is not that there is no comeback, but a change of posture to come back.” Lao Zhao said.
Reassess the business of electronic cigarettes
A year and a half ago, many e-cigarette entrepreneurs entered the game with dreams and desires. At that time, China e-cigarette entrepreneurship had just emerged, and it was a market of hundreds of billions or even trillions that most people saw.
The valuation logic at the time was simple: e-cigarette market space = total revenue of traditional tobacco * market penetration rate. The total revenue of China Tobacco Corporation is about 1 trillion yuan a year. If the e-cigarette is calculated at a penetration rate of 1%, the market space is 10 billion yuan. When the penetration rate reaches 10%, then the market scale will reach 100 billion yuan.
The penetration rate determines the size of the e-cigarette market, but the increase in penetration rate means that the benefits of traditional cigarettes are eroded and the cake is cut. Then there was the story of China Tobacco’s fist attack and the regulation of the electronic cigarette.
Wang Zeqi believes that the penetration rate of the vape industry in China will not and cannot exceed 5%, and the scale will be the industry’s total plate of 50 billion yuan. Once the total size of the China vape industry exceeds this figure, the industry will be substantially affected in terms of regulation, operation and core raw materials. This influence is a national force and cannot be controlled by any VC capital or entrepreneur.
The failure of the penetration rate means that the valuation model of e-cigarettes must be reinvented.
According to a report released by AiMedia, the market size of China’s e-cigarette industry will be 7.86 billion yuan in 2019, 8.38 billion yuan in 2020, and more than 9 billion yuan in 2021. It seems that there is no possibility of explosive growth.
Zhao Chenbo, vice president of Qichen Capital Investment, told RanFinance that the core users of e-cigarettes are not old smokers. In fact, the proportion of young people is very high. In the future, traditional cigarettes cannot completely eliminate e-cigarettes, and e-cigarettes cannot completely replace cigarettes. This will be two types of coexisting products.
This idea provides a new path for the future of e-cigarettes: To develop the domestic e-cigarette industry in the future, it is necessary to bypass China Tobacco, and in addition to China Tobacco’s existing stock market, seek new incremental markets-development for new smoker.
The founder of a head e-cigarette brand told RanFinance that e-cigarettes are more like chewing gum or candy than tobacco, because there are many flavors, which is why many young people choose e-cigarettes. He believes that e-cigarettes and traditional tobacco users are not the same group.
In any case, China’s e-cigarettes will not be able to reproduce the capital madness of 2019.
Cai Yuedong believes that there is a high probability that no big hot money will enter the e-cigarette brand’s circuit. His reason is that, on the one hand, funds have become cautious in the past, and more importantly, the downturn of the environment and the epidemic have made many companies cheaper. From an investment perspective, there are more and better on the consumer goods track.
Vapes have become a traditional business that is no longer exciting. Some investors bluntly stated that electronic cigarettes (referring to the China market) no longer have VC investment value. However, it has the value of Evergreen Capital as a long-term stable cash return allocation.
Since capital cannot win the game, players must fight in the sales channels, supply chains, and prices.
An e-cigarette entrepreneur uses price war as an overall strategy this year. “This year is to fight the price war, which is more brutal than usual, because everyone is driven crazy and has no growth point.”
Cai Yuedong simply sold cigarette lighters by selling lighters. He even set the price of the overseas market to $ 1. “We removed all non-core functions and modules on the device, so we control of the cost of new products well.”
The importance of the supply chain began to emerge. Without capital and money support, only by reducing the cost of the supply chain to a sufficiently low level can we have greater bargaining power and the confidence to fight the price war. This may become an important variable for e-cigarette players to widen the gap between competitors in 2020.
The e-cigarette is making a comeback, and the industry is lively, but today’s vape industry in China are no longer the same.
