Was China's Vaping Market a Hot Opportunity in 2019?

Was China’s vaping market a hot opportunity in 2019? At a time when major players were continuously pouring into the new retail space, when vertical e-commerce was steadily maturing, and when social e-commerce was booming, e-cigarettes suddenly caught fire. A single product category became a hot trend, with a very low barrier to entry, yet it was also a product carrying its own so-called “original sin,” attracting serial entrepreneur celebrity Luo Yonghao as well as major capital investors to enter one after another.

Putting aside the issue of that so-called “original sin,” I’ve been thinking about the key reason it became such a hot trend.

I believe it lies in a market choice shaped by both trend and individuality, as well as the template provided by the already mature vaping markets in Europe and the United States, which highlighted the enormous potential of China’s domestic vaping market. What does it mean for trend and individuality to coexist? We can start by talking about the history of retail development, especially the development of retail since the rise of the internet.

E-commerce 1.0 was about connecting people and goods. In the beginning, B2B was really about connecting people and information, while the true connection between people and goods began with C2C and B2C. E-commerce 2.0 was about connecting people, goods, and places. New retail talks most often about restructuring the relationship among people, goods, and places, while traditional retail was also a business of “goods, place, and people,” except that at that time, the place occupied the core position.

E-commerce 3.0 is a variation of scenario-based commerce. To some extent, scenario-based commerce is actually the core of new retail.

But scenario-based commerce most importantly drove another wave of growth in vertical e-commerce. Combining vertical e-commerce with offline consumption scenarios is the main event of E-commerce 3.0.

Vertical e-commerce is a concept with two dimensions: one is vertical specialization in product categories, emphasizing integration of upstream and downstream resources in the industrial chain, turning standardized products into differentiated offerings and non-standardized products into brands; the other is vertical specialization by target audience, which simply means discovering the core needs of specific groups of people.

What we are currently entering is E-commerce 3.0, and its true core is tapping into the inherent potential of every product and the core needs of specific groups. So starting from e-cigarettes as a single product category and deeply exploring the personalized needs of China’s vast smoking population—needs that differ from those served by traditional cigarettes—is something driven by the trend itself.

In China, more than 90% of projects that attract investor attention have successful precedents in Europe or the United States. This is determined by China’s massive user base. If the vaping industry could disrupt the traditional cigarette industry, it would become a blue-ocean opportunity worth well over 100 billion in market value.

So it is not surprising at all that this sector could become a hot trend. There is a new hot trend every year, but the market is the only ultimate standard for judging a product, and a product must deliver value.

As for e-cigarettes, there is still no final conclusion on the degree of harm they may cause to the human body, so from the day they were born, they were destined to carry this so-called “original sin.” As for what kind of place they will ultimately occupy in the market and within the legal and regulatory framework, I believe there is still a long road ahead.