Interview: HUOQI Chairman Fan Jingyu on Why Slower Means Faster in Vaping

An industry-recognized fact is that with the 35% stake in Juul being acquired by Marlboro parent company Otria for US$12.8 billion in 2018, the former's valuation instantly soared to US$38 billion, and the entire e-cigarette industry fell into madness overnight.
  Fig.| Chinese enterprise Gao  Chengwen| The source of Zhang Sanfeng in West Lake| Mr. Virus
  There is an endless stream of people entering the game. Internet companies, technology companies, mobile phone brands and even new media companies have all become trendsetters. After Cai Yuedong sold his fellow uncle, he vigorously entered e-cigarettes; Luo Yonghao held hands with Edison Chen, and e-cigarette Ono attracted enough attention from the beginning.

There is a reason for madness. There are 350 million smokers in China, but the penetration rate of e-cigarettes is only 1/26 of that in the U.S. market. E-cigarettes are like a huge treasure house to be developed, attracting capital and enterprises to enter the market.

But in the view of Fan Jingyu, chairman of firearms, the wave is far from here. ldquo; At present, the e-cigarette industry is still in a very elementary market, whether in terms of the supply chain or the education level of consumers. People in the entire industry are too impetuous.& rdquo;
 
01 First entrants: Build product hard power

While the latecomers were launching channel battles, firearms cleverly assumed the attitude of the first comers and took advantage.

As the first domestic company to be listed in the flavors and fragrances industry, Bolton Group acquired all shares of e-cigarette group Geirui at a high price of 750 million yuan in 2015, and has a very in-depth layout in the field of e-cigarettes. Firearms, as the best-selling e-cigarette brand under the Bolton Group, has unique advantages in many aspects of e-cigarettes.

In Fan Jingyu's view, the main components of tobacco oil are nicotine and spices. The biggest feeling consumers feel about smoking e-cigarettes actually comes from spices. The health and quality of spices are the biggest factors that directly affect cigarette oil. Bolton's strict control over spices has made it possible to create Ammo, a popular firearms hit model that sells 200,000 yuan a month.

In addition to raw materials, the design and manufacturing aspects of the midstream are also crucial. For a long time, due to the lack of technology, most e-cigarette brands have had to seek substitute processing. Shenzhen, which produces 95% of the world's e-cigarettes, has become a holy place in the industry, especially led by McGeill's FEELM technology. As of the first quarter of 2019, the cumulative shipments of equipment equipped with FEELM technology have exceeded 150 million units.

The so-called core technology is first and foremost the oil leakage rate. For a long time, the oil leakage rate of e-cigarettes has been an inseparable topic and has become a scar on e-cigarette companies. A survey showed that almost 2 out of 5 smokers mentioned oil spills. Regarding the oil spill rate, Fan Jingyu gave three data. ldquo; The actual oil leakage rate in the industry is between 20% and 30%. Some mobile phone brands have switched over to 80%, but firearms have dropped to 0.3%." rdquo;
 
With 5 rounds of random inspections and 3 rounds of internal testing, leveraging the Burton Group's natural advantages in the design and manufacturing process, firearms are able to control the oil leakage rate in the strictest way possible. ldquo; Funding is second, and the key is time cost. Fan Jingyu said that the firearms manufacturing machine was put into testing in March 2018 and was not completed until March 2019 this year. This process took a whole year. rdquo;

In 2019, the e-cigarette industry was in full swing. Firearms took advantage of the trend and launched a new ammo that had been developed and tested for a year. The market gave feedback: in less than three months, more than 200,000 units were sold in a single month, and nearly 3 million cigarettes were sold. rdquo;
 
A year's accumulation has become a hit.

02 Brands come first and deepen offline channels

Ammo's success lies not only in the strict control of raw materials and design, but also in the layout of sales channels. With a monthly sales volume of 200,000, e-commerce platforms contributed 20,000 units, and offline channels accounted for a total of 180,000 units. Offline channels have long been a battleground for e-cigarette brands. ldquo; Seize channels first, then refine brands, and finally, the issue of production capacity. This is almost a tacit strategy in the industry.# p#pagination title #e#

Relying on the hard power of products, firearms are also favored by channel dealers. In 2019, firearms were used for 256 hours and successfully won 41 provincial agents, including Taiwan, and strongly opened up ammo's offline channels. In Fan Jingyu's view, in an era when everyone is competing for offline channels, the success of firearms in channel strategy comes from two aspects.

The first is that the product itself is of sufficient quality.& ldquo; In fact, there are still some core users of e-cigarettes. The moment they get the product, they can identify whether the e-cigarette is good or bad. This part of KOC becomes our distributors and consumers the moment they get the ammo. Most of them are young people, aged 25 to 35.& rdquo;
 
Secondly, it has strong channel protection capabilities. Every e-cigarette is equipped with anti-counterfeiting logos. Goods within provincial agencies can only be circulated within the region. The penalties faced by cross-shipment are also very serious, first fines, then deductions of deposits, and finally cancellation of agency qualifications. ldquo; On the issue of cross-shipment, the attitude towards firearms is zero tolerance." rdquo; Fan Jingyu said.

Bars, nightclubs, convenience stores, restaurants, countless companies are competing for offline channels. The core is that when they are subject to policy supervision, online channels will be the first to be affected, which is something companies do not want to see. At this year's 315 party, in less than an hour after e-cigarettes were named by CCTV, mainstream e-commerce platforms such as Suning, Tmall, and Jingdong blocked keywords for e-cigarettes.

Fan Jingyu, who realized the importance of offline channels, made arrangements in advance. Having managed the Hanfu Palace investment project, he understands the importance of brand communication. As early as 2018, Fan Jingyu made two preparations for the channel layout of firearms: first, he adjusted firearms business strategies and business ideas, and established a brand team; second, he joined hands with first-line brand service providers and Chinese enterprises to present high-level firearms brand image. The product was not moved, and the brand came first. These two steps finally enabled the firearm to complete the deep sinking of the brand.

As of September this year, Firearms has established a brand team of more than 100 people and has established cooperative relationships with many mainstream e-cigarette media.
 
03 The wave has not yet arrived

A fact that is difficult to ignore is that capital has played a role in fueling the development of e-cigarettes. As of June 5, 2019, at least 14 cases of e-cigarette financing have been completed in China, with the amount exceeding 574 million yuan. In an era when everyone has become a fan of capital, Fan Jingyu has a quite cautious attitude. What the e-cigarette industry lacks is not money. Generally, tens of millions are enough. The key to whether this can be truly done depends on whether everyone can correctly understand and treat it rationally." rdquo;

After an e-cigarette brand originating in the United States was introduced into China, it was finally forced to withdraw from the China market two years later despite continuing losses. Qiao Qiao, the general representative of China, who once made American e-cigarette oil, also said that the manufacturers and agents he had cooperated with have also withdrawn from the China e-cigarette market.

Driven by capital and in the face of huge interests, many people still flock to it. At the 2019 Shenzhen E-Cigarette Industry Expo, as many as 1500 e-cigarette companies participated in the exhibition. ldquo; That's crazy, this is just part of it. There are at least 2000 e-cigarette companies in China." rdquo; In Fan Jingyu's view, the reason why capital is jealous is that the most profitable company in China is not Tencent Ali, nor the four major banks. It is China Tobacco: its pre-tax profit in 2018 reached an astonishing 1.1556 billion yuan.
 
“Only when the tide recedes can we see who is swimming naked. Now, hundreds of boats compete for the current is actually a matter of chaos and increasingly charming eyes. rdquo;

One of the reasons why the wave has not yet arrived is that e-cigarettes have not attracted enough attention from the government. For a long time, whether e-cigarettes are harmful to the human body has been the focus of debate among all parties, and it is also the sword of Damocles hanging over everyone's heads. As early as June this year, news that the mandatory national standard for e-cigarettes (new national standard) had entered the approval stage appeared on the official website of the National Standardization Administration Commission. The two versions circulated in August and October were ultimately turned out to be false news.# p#pagination title #e#

Firearms Chairman told Mr. Virus reporters that at present, the government's attitude towards e-cigarettes is only about paying attention, but it has not paid enough attention. The main reason is that e-cigarettes currently account for less than 1%, only a few tenths of the tobacco market, and their share is still very small. rdquo;

“It may have to account for 5% or even 10% of the share to attract the attention of regulatory authorities, Fan Jingyu said.

The second point that the wave has not yet arrived is that e-cigarettes have only begun to rise in the past two years, and the entire industry is still in its primary form. From the perspective of enterprises, they also face difficulties and challenges such as imperfect supply chains, serious product oil spills, and market cultivation. It also takes a lot of time to educate consumers and precipitate products.

Generally speaking, the e-cigarette industry chain consists of three links in total: the upstream raw material link, the midstream design and manufacturing link, and the downstream sales link. In China, more and more e-cigarettes are disappearing. In addition to the rupture of the capital chain, the deeper reason is that it is difficult to control the industrial chain.

After taking advantage of raw materials and product design, and using brand effect to successfully introduce ammo into the channel, Firearms 'thinking in 2019 is also very clear: to achieve the goal of exceeding 100 million in monthly sales by the end of the year. To this end, Fan Jingyu was prepared from five aspects:

In brand promotion, complete cooperation with mainstream e-cigarette media;

In the supply chain, sufficient sources of goods are prepared to cope with market sales, and a separate production line is even opened;

In the channel, a very high-level manager who has been in charge of Jiaduobao has been hired to manage and build offline channels;

In product promotion, 4A company was invited to conduct the operation;

In terms of funds, a round of financing is expected to be completed by the end of 2019, with an estimated amount of 50 million to 100 million yuan.

“Don't rush, take your time and settle yourself. Build your products and supply chains well first, and then think about making money.& rdquo; This is also the initiative made by Firearms Chairman Fan Jingyu in an interview.

Thinking summary

From its official birth in March 2017 to the official launch of the first hit product ammo in 2019. Firearms were used for two full years. In a sense, in an era when everyone pursues speed, the movements of firearms seem a little slow or even clumsy. While competitors are frantically deploying offline and expanding rapidly with capital, firearms are moving very slowly. Use ingenuity to polish products, use products to attract channels, and firearms have proven that the slower the faster the faster the time is.

As Chairman Fan Jingyu said, many people want to make money as soon as they come up. This way, they can't make e-cigarettes well, and there are too few people who do things solidly." rdquo;

The tide rises and falls. In the era when the tuyere is fried into the sky, only by deeply embedding the roots into the soil can they not be blown up by the false tuyere. Only when the real wind outlet comes can we grow savagely.