Opportunities and the Future of China's Vaping Industry

This article is transferred from 36 Krypton for sharing only!

In 2003, China pharmacist Han Li invented e-cigarettes; today, China owns 90% of global e-cigarettes patents, more than 90% of production, and nearly 90% of exports.
 
However, with the rapid rise of e-cigarettes in the domestic market, the industry is ushering in the best and worst window period. The e-cigarette chaos exposed at the March 15th party and the increasing negative impact of young people smoking e-cigarettes in the US market have cast a shadow on this fledgling industry.

On November 1, the State Administration for Market Regulation and the State Tobacco Monopoly Administration issued the "Notice on Further Protecting Minors from E-Cigarettes", which gave the online marketing business of e-cigarettes a head blow. The "Notice" shows that from the date of issuance, relevant departments will urge e-cigarette production and sales companies or individuals to promptly close e-cigarette Internet sales websites or clients; urge e-commerce platforms to promptly close e-cigarette shops and remove e-cigarette products in a timely manner; urge e-cigarette production and sales companies or individuals to withdraw e-cigarette advertisements posted through the Internet.

The official interpretation of the State Administration of Tobacco Monopoly believes that some e-cigarette companies add various additives at will to change the taste of e-cigarettes and the color of tobacco oil, which has serious harm to the physical and mental health of consumers, especially minors."As the focus of Internet marketing, young people mislead consumers with propaganda that violates objective facts such as helping to quit smoking is healthy and harmless, and flaunt e-cigarettes as representatives of young fashion trends to induce minors.

As soon as the "Notice" was released, major brands issued statements one after another to resist the sale of e-cigarettes to minors. In fact, there are 350 million smokers in China, and e-cigarettes, as a smoking alternative for some smokers, can still support 95% of global e-cigarette suppliers, sufficient capital and ambitious entrepreneurs.

The promulgation of relevant policies and regulations will promote the healthy development of the e-cigarette industry. At the e-cigarette Forum held at this IECIE e-cigarette exhibition in conjunction with 36Krypton, e-cigarette practitioners from different companies or practitioners in related industries, They also expressed their opinions.

So, how can the e-cigarette reform become formal? How should industry participants ensure the safety of e-cigarettes and sell them to users who really need them? This forum has given practitioners some experience and suggestions.

The following is a transcript of the speeches of some guests at the event:

relx Yueshi Co-founder Jiang Long, head of channel sales

Over the past 40 years, despite major efforts by the World Health Organization, the number of smokers around the world has increased from 700 million to one billion. With the growth of the base of smokers, many social problems have also occurred. About 6 million people die each year from first-hand and second-hand smoke. The main culprits are tar and its derivatives. Therefore, for decades, consumer groups have not only wanted to satisfy their demands for nicotine, but also began to pursue healthier and safer ways.

So when introducing e-cigarettes, how did Yue Shi not only consider user needs but also ensure product quality to the greatest extent? The answer is: In the past 24 months, we have mainly focused on five aspects: first, a good product, second, a good service, third, corporate social responsibility, fourth, strategic talent reserve, and fifth, brand construction.

Five aspects are taken together:

1. A good product is still the stepping stone to open the hearts of consumers. In the past 24 months, any new product launched at Yueshi has gone through at least 5-6 rounds of rigorous testing internally. For e-cigarettes, the two most important aspects of the product are: safety and experience. From a safety perspective, Yueshi is the first company in China to set up a brand laboratory based on SNAS standards; from an experience perspective, Yueshi is also the first company in China to launch an e-cigarette sensory evaluation system, with a total of 76 evaluation dimensions. Any tobacco oil product takes up to 80 days of internal research and development from the laboratory to the market. During these 80 days, more than 500 consumers will conduct experience tests, and there will be an average of 100 formula adjustments. Of all internally matched formulas, only 1.5% will currently be introduced to the market.

2. The most important thing is service. First of all, users pay, not just to buy physical products, but products + services. Especially for e-cigarettes, because the penetration rate of e-cigarettes in China is still very low, several teachers have just shared that the penetration rate in China is still below 1%. This means that leading companies need to shoulder a lot of industry responsibilities to educate consumers, whether it is pre-sales and after-sales consultations or in-sales examples. These processes are considered to be the most important third truth moment when brands or categories contact consumers. Yue Shi has formulated strict pre-sales, sales, and after-sales processes to provide users with good services.# p #pagination title #e #

3. From the perspective of social responsibility, Yueshi has launched the Guardian Plan to protect minors in the past year and proposed the Golden Shield Plan to ensure consumers 'rights and interests in authentic products. The new smart product we launched in August has a child lock function. Our vending machine project had products in January, and it took eight months to embed identification functions into vending machines to ensure that minors could not purchase products through vending machines. This is a reflection of our social responsibility and a responsibility of the company.

4. In terms of strategic talent reserves, we have recruited more than 600 outstanding employees and partners in the past 20 months, and everyone joined Yueshi because of their common mission and vision. We are now continuing to recruit outstanding talents from all walks of life on a large scale, and welcome people who want to devote themselves to e-cigarette entrepreneurship to join Yueshi.

5. When we hand products to users, we are actually conveying triple values: one is the physical value of the product; the other is the service. We believe that service is a continuation of the product and the best interpretation of the product and brand value; Third, users 'psychological satisfaction. We not only provide products and services, but also convey a cultural outlook and values.

Tang Wei, founder and CEO of Shanghai Kaishan Wine Industry

Kaishan Wine Industry is making brands, and the most possibility for e-cigarettes at this stage is also brands. The best consumer brands must have two major attributes: 1. There is a very large gap in the crowd, and 2. Demand is anti-cyclical. The best consumer brands must have these two attributes. If they do business without intergenerational changes, they can only achieve small achievements.

The current population in China is facing 30 years of intergenerational changes. We will feel that 50, 60, and 70 are a generation, and there is a big gap in the Internet from 80 and 90. If consumer goods can seize this gap, they will become a giant brand, which is very suitable for happening in the tobacco industry and the wine industry.

Second, we believe that the industry we are engaged in is a very good industry. Not only FMCG, cigarettes and alcohol are social currencies, as well as indispensable communication tools for lifestyles. This demand continues to arise in China and will never encounter a cyclical crisis.

As an entrepreneur in consumer goods, there is indeed a methodology that may also be applicable to the e-cigarette industry. First of all, there is no need to say much about the crowd. Everyone has a relatively clear judgment about the e-cigarette crowd. After finding the crowd, the second thing to do is to make differences. ldquo; Less oil leakage, better appearance, and higher performance. These seem to me the same. So at this point, it is very clear to you that even in the tobacco industry, it is still a brand economy.

Be the most powerful solution to a certain pain point in the e-cigarette industry. I think this is a very important matter. In the first two years from 2016 to 2018, our Kaishan Liquor Industry did not launch any products at all or have no contact with any capital. If we did not have a moat, we would be killed by traditional liquor as soon as we came up. If you want to live to the end and live a very good life, I think the most important thing is to find differentiation and build a moat.

LOVE VAPE Yuan Jia, founder and CEO of Luweipu e-cigarette

In the past ten years of the e-cigarette industry, its development has been mainly seen for the entire industry. After being popular abroad, e-cigarettes have returned to domestic development and contributed to today's market. We have supplied an e-cigarette brand in the United States for ten years. We have relatively good sales in the American convenience store system (such as 711 convenience store) and have accumulated experience in both market and technology. At present, we believe that the technology has been iterated to a certain extent and needs to start upgrading. How can the updates of tobacco oil and atomizer be carried out simultaneously? At the same time, how to increase market segments through new smoking methods such as smoke-free technology and serve more users in need is what we are doing.

Since the invention of tobacco oil, it and smoking equipment have been complementary and constantly upgraded. Over the years, we have learned that during the market process, we have found that their quality is uneven. Small workshops will use substandard technology to make e-cigarette oil products, or add substandard substances, many even incomplete or banned substances.

As a brand, we need to increase our efforts to invest in costs and make products that are safe, such as ensuring consistency in taste and quality control in each batch of product cigarettes. At this stage, e-cigarette products are already a closed type that closely combines tobacco oil and smoking equipment, which is also to avoid risks. Because of the earlier open-ended e-cigarettes, users had no way to monitor their safety when adding ingredients privately; in the future, with the further improvement of national regulatory policies, closed-ended products will be able to be physically monitored and product traceability can be realized.# p#pagination title #e#

Of course, if you want to be a good brand and a good e-cigarette company, the management of the entire supply chain must be done well, and no mistakes can be made in any aspect of the product.

Wang Sa, co-founder of Xuejia SNOWPLUS

Today, I want to discuss with you the responsibilities and bottom line of enterprises and industries. The past two months have not been pleasant for e-cigarette practitioners. The latest report released by the U.S. Centers for Disease Control and Prevention disclosed a series of e-cigarette deaths. Although the specific cause of the incident has not yet been determined, an examination of the patients found that most patients had inhaled tetrahydrocannabinol (THC) through e-cigarettes containing cannabis or nebulizing devices.

All atomizing equipment and all e-cigarettes in the United States are called Vaping. When this information spread to China, China regarded e-cigarettes as the chief culprit of the entire incident. During the entire process, information asymmetry and information chaos caused many problems in the domestic e-cigarette industry. But after the whole incident, we also thought about many questions: what is the bottom line of the entire industry, what are the industry's responsibilities and principles; how to achieve a balance when interests conflict with corporate responsibilities and social responsibilities; and under what circumstances, When we encounter what kind of situation, we must put corporate responsibilities and social responsibilities before all economic interests.

The social responsibility of the company is our original intention. This original intention and responsibility are divided into three parts. One is to protect traditional smokers, that is, smokers who have already smoked cigarettes; the other is to protect non-smokers, that is, people who have not been exposed to tobacco before; The third is to protect minors, which is the red line of the company during the entire stage.

There is a special feature in our industry, and we often have the opportunity to face many minors. Therefore, we must keep in mind the bottom line of protecting minors in all dimensions and scenarios on the product side, sales side and marketing side.

Specific to the implementable level: In product research and development, learn the packaging logic of traditional cigarettes on the outer packaging, and remind minors in the most eye-catching position to prohibit purchase and use. This has a great impact on sales, but it is the most important thing for the company, so it is placed in the most important position in packaging. In terms of sales, minors will be reminded in a prominent position to prohibit purchase and use, and identity verification systems will be opened on online platforms such as Jingdong to control the harm that online sales may cause to minors.

Offline channels strictly regulate and require Xuejia SNOWPLUS dealers not to sell to minors. Once violations are discovered, they will immediately cancel agency qualifications, and they are not allowed to set up stores around primary and secondary schools. In terms of brand promotion, no slogans are used to induce minors. All offline activities remind minors not to enter in prominent positions and are supervised by on-site staff. All we do is ensure that e-cigarettes do not have any intersection with minors.

There are many dealers present today, but why did I give such a speech and even mention that dealers will be disqualified when they discover that they sell e-cigarettes to minors? Because I want to tell everyone that a company's social responsibility is really the cornerstone of everything, and it is the 1 in front of all zeroes. This 1 determines how far the company goes in the acceleration process, and whether it can continue to bring opportunities to everyone in the process to make money or what kind of opportunities. The cornerstone must be firmly established, which is what I want to share with you.

Weng Xueyi, General Manager of Langyan World

I am Weng Xueyi from Shenzhen Wolf Smoke World and an e-cigarette practitioner. There are two attributes of brand positioning that we want to grasp both of. One is the basic attributes of the product, and the other is the attributes of the brand itself. Whether the brand has a good story.

Wolf Tobacco World has a brand called AN, which is the abbreviation for safety. We believe that to make products and brands, we must first lay a solid foundation for the industry to which we belong. Safety is the focus of e-cigarettes.

When making e-cigarettes, two positioning are very important. One is the positioning of the product. Because of the AN small color strip owned by Wolf Smoke World, when this product was originally released, it was hoped that it would have a portable and compact appearance and was also easy to use. When research and development began at the end of 2017, the product was positioned to be like chewing gum in 2018. Appearance, small and easy to use. At the same time, thinking about the market positioning of the product, where should we put it? Because in the past, e-cigarettes were still considered to be the era of heavy smoke before 2018, heavy smoke had limited characteristics and was not convenient for universal promotion. It would turn out many people in use scenarios. The second is the inconvenience of purchasing. Its unit price is relatively high. When we were doing it at that time, the wholesale cost of a set of heavy smoke was almost 800 to 900 yuan, or even more than a thousand, or more than 10,000 yuan.# p#pagination title #e#

After our product came out, we defined it as a fast-moving consumer product. In terms of making e-cigarettes and small cigarettes, it allowed it to develop rapidly and comprehensively and allowed consumers to have more convenient purchase channels. In sales places such as Internet cafes, KTV, and commissaries, consumers used to need to find professional stores to buy e-cigarettes. Now if there is a need for purchase, we have many platforms to complete it, which plays a role in product circulation and brand awareness. Very important role in promoting.

The process from 0-1 in the e-cigarette industry is a bit long. It has been four years since we started the domestic market to lay a solid foundation for users. If we had promoted it directly on a large scale without paying attention to our own products themselves, and the company itself could not accept such blind satellite-like expansion behavior, it would have been easy to encourage the brand to grow at the initial stage, and the effect would have been counterproductive.

Since we made e-cigarettes in Langyan World, we have never relied on capital. At first, we acted as an agent for foreign e-cigarette brands, and from the small color strips we started making in 2018, its circulation on the market has always been very high. In the early stage, we considered more to have our own blood-forming capabilities first, and then step by step to establish and maintain the first-mover advantage, production capacity balance, and established channel advantages of our products and brands. Only then can we have the opportunity to develop our brand market space. The rise of market space and the leapfrog development of the entire company have achieved the goal of expanding advantages from quantitative change to qualitative change.

Firearms Ammo Chairman Fan Jingyu

The most fundamental thing to build a good brand is to create a product. The e-cigarette brand is like all other products. It is very difficult to make a good product.

How long do you think it will take to make an e-cigarette product with a complete experience? Based on our experience, it takes about 8-9 months from product project establishment, research and development to testing of finished products. It took so long to polish the product in our hands. If you have a little understanding of the e-cigarette industry, you will observe that problems such as oil leakage, oil leakage, and condensate of e-cigarette products are very serious. This most basic point alone can PASS a large number of products. This requires the joint efforts of friends in the entire supply chain, including brands and distributors, to promote the industry.

Firearms Ammo has a major shareholder in Shenzhen Bolton Group. Bolton Group is a giant in the flavors and fragrances industry. It provides half of the flavors and fragrances of China's tobacco. The core technology of cigarette oil comparison is the ratio of nicotine to flavors and spices. Flavors and spices are the core thing in the taste of e-cigarettes. So Firearm Ammo put forward the slogan about taste: taste buds magician. We hope that by constantly changing new flavors of tobacco oil, adult smokers can experience the beautiful world outside cigarettes. E-cigarettes are not only a cold tool, but also another identity symbol and pastime for adult smokers.

I believe that based on the vigorous development of e-cigarettes, three areas have relatively great investment value.

The first is the supply chain. The supply chain is very tight now, and good supply chains and good products are very scarce. If I want to build an e-cigarette supply chain, I think the opportunity is very big, and the production capacity of good products is seriously insufficient.

The second is brand. Brands are relatively risky, but if they are completed, the return will be greater.

The third is the safest channel. The importance of channels is very high when every industry really develops. If branding costs too much money and supply chain technology is too difficult, you can dig deep into channels.

Many brands are talking about the issue of social responsibility, and I am slightly different from everyone else's opinion on this point. I think this is a social issue and a future that requires many of our e-cigarette brands to work together to create. We believe that under the guidance of policies, maintaining good corporate values and shouldering due social responsibilities will become compulsory introductory courses for many of our brand owners. Friends who cannot do this homework well will be naturally eliminated.

Yao Jide, Chairman of Hengxin Group

I am Yao Jide from Hengxin and the executive vice president of China Electronic Commerce Electronic Cigarette Association. It has been more than ten years since its birth, and I have followed the pace of the e-cigarette industry from the beginning. The achievements achieved in the development of e-cigarettes to this day really make e-cigarette people very happy. Exports have increased from zero to tens of billions a year. It can be said that China's e-cigarettes are found everywhere in the world. However, there are still some problems with the development of e-cigarettes, especially the incidents in the United States in the past two months in which e-cigarettes were used to smoke marijuana, resulting in the death of users. This incident triggered accusations from foreign media and many other departments against e-cigarettes.

Based on this series of events, what I want to share with you today is that forging iron requires one's own strength. If we do not pay attention to the safety of e-cigarettes, then we ourselves cannot withstand the test. E-cigarettes did have battery and other problems at the beginning. Now the technical problems in this area have been completely solved, but cigarette oil still poses potential risks. At present, the development trend at home and abroad is more focused on the pursuit of taste. So what are the ingredients of the taste in tobacco oil? If practitioners do not add ingredients that are safe and guaranteed and comply with national standards seriously and responsibly, problems will occur.# p#pagination title #e#

As e-cigarettes people, we also deeply feel that e-cigarettes cannot be developed blindly. We urgently hope that relevant government departments will issue regulations and mandatory standards in the field of e-cigarettes. In this way, the entire industry can truly move forward and continue to develop.

At the same time, all of us e-cigarette people must put safety first. I just heard Weng Xueyi from Langyan World say that their brand is designed based on safety, and the first concern for products is safety. I hope everyone has this awareness, not just thinking about how much they can sell.

36 Krypton Partner and Assistant President Ma Jinnan

Hello everyone, I am a 36-kryptonite gold man. As one of the organizers of today's event, 36Krypton plays a media role in the e-cigarette industry. We are more likely to provide you with some experiences and sharing based on your own perceptions from the perspective of bystanders.

The theme of my speech is from niche to mass, a market of hundreds of billions is ready to go.

From the perspective of overall market demand, the space stock in the global market is very huge, and China is the largest supplier of products. 2013-2018 The compound annual growth rate of the global e-cigarette market reached 30% in 2008. This figure is extremely surprising. It is rare to see an industry with a compound annual growth rate of 30% in a short-term outbreak period. As of 2018, the market size has increased to US$18 billion. It is expected that the scale of e-cigarettes will reach US$26 billion in 2019. The year-on-year growth rate of the entire industry is increasing year by year. The largest market owner is the United States, followed by Europe. Other countries such as China and Asia are once again in a period of rapid development.

Sales growth in the global e-cigarette market in the past two years has been very rapid. North America is the world's largest vapor e-cigarette market. Closed e-cigarettes have risen, with a year-on-year growth of 46.53%, close to 50%, followed by Europe, and then Japan. Japan is the largest heating non-burning combustion market, not the market for vapor cigarettes.

China is the birthplace and major producer of e-cigarettes in the world. Compared with foreign countries, my country's e-cigarette market is still relatively small, with an overall scale of about 4.312 billion, of which the scale of e-cigarettes is 1.36 billion, and the scale of remaining supporting products is 2.952 billion.

The characteristics of e-cigarettes will not go into detail. Let's take a look at the current situation at the regulatory level. Everyone is saying that the national standard will be issued and the license will be issued. We see that in the future, as regulatory policies gradually become stricter and the industry gradually becomes standardized, the current status of the previous Sanwu products will gradually change. At the same time, the entire threshold of the entire industry will be raised. Some people want to enter the industry and make a quick profit. It is difficult for entrepreneurs with money to survive. There are stronger requirements for cyberspace, and publicity, advertising, and sellers will have stricter policies, including likely stronger rules requiring minors to provide identification, etc.

Since the overall market environment has not been particularly good in the past year or two, there are actually not many industries that can truly become popular. It is a surprise for investors to see that the e-cigarette industry has become one of the few outlets, so a lot of capital has entered the market and joined the competition in this industry. Many channel operators are also expanding upstream and building their own brands. Many non-industry practitioners see opportunities in the industry and continue to flock to the industry with heavy money.

The above is the development of 36krypton on the entire e-cigarette industry, its future possibilities, as well as some changes that may occur at the regulatory level, and some new thoughts to give some reference for industry practitioners.

IECIE Project Director Li Wangfeng

The theme of my speech today is that the future is here, overcoming thorns and thorns. This theme is divided into two aspects. First, the entire industry is experiencing a so-called trough period. Second, I want to talk about the road to smoke-free, that is, since Mr. Han Li invented e-cigarettes more than ten years ago, the entire industry has gone from technological iteration to globalization.

As of now, the global sales data of the e-cigarette industry has continued to maintain rapid growth for many years, indicating that the industry is moving along the path of global development. From another perspective, the penetration rate of e-cigarettes in the smoker market in China is only 0.6%, indicating that there is still a lot of room for growth in the development of this industry. Currently, four large global multinational tobacco companies around the world are launching e-cigarette products, which also represents a trend and future.

With the impact and trend of smoke-free, first, political factors, second, social factors, and third, marketing promotion and whether brand owners can promote according to local conditions. These are several important reasons that affect the development of our entire industry. As we all know, our country has not yet issued detailed regulations and standards for e-cigarettes; social factors, such as the ban on the sale of e-cigarettes against minors; the third one is a preliminary understanding of which some manufacturers have also shared, but the industry is still in a stage of improvement and change. I hope everyone will strictly abide by the red line and jointly promote industrial prosperity.# p#pagination title #e#

Li Oucheng, Partner of Bo Bank Capital

The e-cigarette industry began to become a hot spot after the Chinese New Year, so let's first take a look at what the first half of the entire e-cigarette industry was like before June this year.

According to my statistics, about 35 brands have received and disclosed financing. The total financing amount is said to have exceeded 1 billion yuan. However, from the perspective of capital, the total financing amount is discounted according to media reports, and generally at about 50% discount. Currently, the industry's highest valuation is 20 billion.

After looking at financing, then looking at shipments. After counting the first half of this year, we calculate them based on shipments, not terminal sales. I think the industry's shipments are around 3.5 billion yuan. After 315, it will not have a particularly big impact on the entire industry. On the contrary, the growth rate after 315 will be more obvious. Among all brands, Yueshi leads the rankings; at the same time, this year's one-off small cigarettes broke out.

6-8 In September, a very big thing emerged in electronic smoke circles, namely lung deaths in the United States, which has a very big impact on the entire industry. Since June, I have found that all financing in the entire e-cigarette has decreased. At present, the latest round of financing should be before June and will not be disclosed until June. I think there are three main reasons:

First, after the outbreak of lung disease in the United States, many countries continued to put pressure on public opinion and policy control of e-cigarettes.

Second, capital was invested in March. After reviewing the mid-market in June, it was found that the efficiency of capital use was too low, because at this time of e-cigarettes, it was not the time when you could invest 50 million yuan in e-cigarettes. Instead, you must rely on the offline and slowly start the amount.

Third, many brands blindly expand after taking the money, resulting in an increase in the cost of the entire promotion and production system. Exhibitors, product promotion, promotion, and channels earn most of the money in the industry, while e-cigarette brand merchants rely on both ends. The upstream control is in the factory and the downstream control is in the channel. After the overall expense ratio is increased, the gross profit margin is much limited.

These are my sharing and opinions, thank you.