How to Enter the Vaping Market and What Are the Prospects?

How to enter the e-cigarette market entrepreneurship? In 2019, e-cigarettes have become a new hot topic of discussion in the venture capital industry. There are still many people who are tempted by the profits of the e-cigarette industry and want to enter the e-cigarette market; but at the same time, more people remain skeptical: Is it worth starting a business if a company with no clear policy to control and is suspected to have occupied the interests of tobacco groups?

To this end, on February 27,"Consumer New Voice"(ID:varitrend) invited six researchers and practitioners related to the e-cigarette industry to organize a small salon to discuss related issues. Among them are Wu Li, deputy director of Tianfeng Securities Research Institute, Guo Xiaoyu, deputy director of the Franchise and Monopoly Commodities Research Center of Communication University of China, Qiu Yiwu, founder of Whale Light Cigarette Wei, Li Oucheng, investment partner of Bopai Capital, Guo Yue, vice president of Qingdao E-Cigarette Chamber of Commerce, head of Elego's e-commerce channel, and Jiang Hanzhong, founder of Trend Community Instreet. Overall, the growth trend of closed small cigarettes that can improve nicotine intake efficiency and achieve the goal of reducing harm from cigarettes is an established fact. However, there are complex factors that create such growth: for example, the country began to crack down on the import of heated non-combustible e-cigarettes, which led e-cigarette practitioners to turn to research and produce e-cigarette products using tobacco oil, which virtually increased production and expanded the market. Secondly, young people who pursue technology, trends and fashion are better able to understand and embrace this new way of ingesting nicotine.

The current situation is that entrepreneurs still have a window period and dividend period to promote products and build brands in the e-cigarette industry. However, with the influx of a large number of entrepreneurs this year, price wars, subsidy wars, product quality crises and public opinion crises may all appear in the e-cigarette industry.

At the same time, the giants are still watching. Although the world's four major tobacco companies will not set foot in China for the time being, each of China Tobacco's companies, such as Yunnan Tobacco and Sichuan Tobacco, have their own e-cigarette departments and have strong research and development capabilities. Once they officially enter the market, the industry will see tremendous changes.

So another way for e-cigarette practitioners is to actively seek partnerships with tobacco companies. For example, Huabao, an edible flavor company, and Jinjia, a tobacco packaging company, both established cooperative relations with tobacco companies at an early stage, thus becoming leading enterprises in their respective industries.

The following are the main views of the guests compiled by "Consumer New Voice"(Weixin Official Accounts ID:varitrend), without my confirmation:

1. Wu Li

▲ Wu Li, Deputy Director of Tianfeng Securities Research Institute

As the first brokerage institution in China to conduct systematic research on new tobacco products, Tianfeng Securities fully felt the rapid development of the e-cigarette industry. For example, Relx raised $30 million for the first time, with a valuation of $800 million last year and may reach $1.2 billion in March. At the same time, many listed companies he knew also began to accelerate their entry into the field of e-cigarettes. In particular, companies such as McWare that have entered the New Third Board have presented opportunities for the entire industry to the world.

In Wu Li's view, the state of the new tobacco market in China is similar to that in the United States ten years ago. Many new brands have not yet appeared, and the industry has just begun to develop. However, it should be noted that the traditional tobacco market is still very strong.

In China, China Tobacco Group paid 118 million yuan in taxes to the country last year. The global number of cigarettes was 62 million. Last year, China sold 47 million cases. Smoking rates are declining everywhere except China. Electronic cigarettes are developing well in Japan, South Korea and other places. An important reason is that their tobacco control efforts are stronger.

In terms of the international market, starting from 2017, the world's four major tobacco companies have begun to deploy new tobacco products. British American Tobacco acquired Renault and Japan Tobacco launched Ploom Tech, which had a significant impact on IQOS. But then Altria's president (the parent company of Philip Morris International, to which IQOS belongs) said at the annual report meeting that after the U.S. FDA quickly approved IQOS sales in the United States, Altria and the shares of Yingqu Technology, a China company that works for IQOS, are rising sharply. Wu Li believes that for a long time, Philip Morris International, which also owns a 35% stake in JUUL, will still lead the entire new e-cigarette trend.

In China, some tobacco origin countries, such as Yunnan and other places, have begun to crack down on (heated non-burning) e-cigarettes. Some news reports that dozens of major tobacco smuggling cases are actually talking about IOQS. In terms of small cigarettes, Yue Shi has attracted much attention. In January and February this year, Yueshi was out of stock, which shows that they have opened up a non-smoker market in their marketing channels.# p#pagination title #e#

Regarding whether e-cigarettes are really a big industrial outlet in the China market, Wu Li believes that the current situation is still unclear. More e-cigarette startups are still targeting the European and American regions. In the tobacco system, Hubei China Tobacco, Sichuan China Tobacco, Yunnan China Tobacco, and Shanghai China Tobacco are all actively launching their own products.MC, Moke, and Hubei China Tobacco have a greater influence in South Korea.

"IQOS's idea is to design a smoke-free future and become a technology company. If it can make the transition from a traditional tobacco company to a technology company, Philip Morris's current market value is $100 billion, and Apple's is $1 trillion. In other words, in terms of capital, it still has at least ten times room for growth. This also means that companies in its industrial chain system can also expect a ten-fold growth in performance.& quot; Wu Li is very much looking forward to similar targets.

In Wu Li's judgment, if e-cigarette companies do not raise money this year, then survival problems will arise. Because many traditional e-cigarette factories are still relatively dilapidated and the quality of personnel is not high, there are great opportunities for industrial improvement here. After a 2-3 year significant expansion, only companies with sufficient capital, fast enough iteration speed, and strong enough marketing capabilities will be left to be king.

2. Guo Xiaoyu

▲ Guo Xiaoyu, deputy director of the Franchise and Monopoly Commodities Research Center of Communication University of China and COO of Juanjuan Technology, as a researcher on the traditional tobacco industry and an entrepreneur who has established an Internet platform for traditional cigarettes, in Guo Xiaoyu's view, it is the same as cigarettes for Indians. Like the way they put tobacco directly into their mouths, e-cigarettes are a more efficient way to ingest nicotine. Therefore, the future development of e-cigarettes can also refer to the direction of traditional cigarettes: industrial scale, capital intensity, and technology concentration. Giant mergers may also occur in the future.

The first focus is, where does nicotine come from? In China, nicotine intake is an access mechanism for enterprises, and production is not enough to provide Shenzhen's e-cigarette industry with 95% of the global supply of e-cigarettes. Another method is to import from overseas. Although tobacco leaf extract is not currently a monopoly commodity, it is likely to be a core element at the next legislative time point.

In terms of consumer analysis, it is still difficult for consumers of traditional cigarettes to be transformed into consumers of electronic cigarettes. In the "Electronic Cigarette Trend Report from the Perspective of Traditional Tobacco" edited by him, there is such a set of data: 60% of traditional cigarette consumers have ever been exposed to e-cigarettes, but 2.8% have converted to smoking only e-cigarettes, while the number of people who smoke traditional cigarettes and e-cigarettes is 11.8%. Consumers who are unwilling to continue using e-cigarettes mainly provide two reasons: one is that the taste is not good, and the other is that they cannot alleviate their addiction.

Guo Xiaoyu pointed out that tobacco industry companies may be the main body in the industrial field to deal with the development of e-cigarettes, but e-cigarettes are still sitting on the bench at present. For example, Yunnan China Tobacco, which covers 350 million smokers in China, established a strategic cooperation with Alibaba in 2016. Their strength in the Internet is at the level of giants. Secondly, Yunnan China Tobacco has strong research strength and deep technical reserves, which can quickly transform into an advantage for them to enter e-cigarettes.

The second is regulatory issues. Traditional tobacco has been an intensive field of capital, policy, including fiscal and taxation games for 100 years. In the past, the U.S. FDA has always supervised e-cigarettes as food. Later, several tobacco companies won through judicial procedures, reversing the positioning of e-cigarettes to tobacco products.

Next is the issue of tax supervision. The main consumer groups of e-cigarettes are young people, or people with higher consumption levels, which are the two most valuable groups for China tobacco. Without e-cigarettes, this group of people should consume traditional cigarettes with retail prices of more than 18 yuan. After e-cigarettes eroded 5% of the traditional tobacco market share, the lost tax revenue figure should be 72.5 billion yuan.

Taking into account the above conditions, in Guo Xiaoyu's view,There are two development directions that can be considered. One is to focus on development on the dimension of electronic products and avoid tobacco products. The second is to actively cooperate with traditional tobacco companies. Huabao and Jinjia have established close cooperative relationships with tobacco companies since a very early age, becoming the largest company in the two industries of cigarette flavor and packaging.

3. Li Oucheng

▲ Li Oucheng, Investment Partner of Bopai Capital

From an investor's perspective, Li Oucheng believes that e-cigarettes may move towards technology and trendy style. They found in California that most of JUUL's loyal users are not junior high school and high school students as people imagine, but young people under the age of 30 working in technology companies. He believes that this group of highly educated groups can analyze more rationally and better accept the concept of e-cigarette harm reduction.# p#pagination title #e#

He believes that judging from the current trend, it will take 3-5 years for the country to establish policies. For now, the magnitude of the e-cigarette market in China is still very small, even not enough to the sales of tobacco in a county-level city.

In the Asian region, there are indeed certain risks. For example, Malaysia used to be the fastest-growing market, but later directly banned e-cigarettes; Thailand also adopted the same approach. Hong Kong originally planned to adopt similar measures for heated non-combustible e-cigarettes, but the final decision was not passed.

But in the British market, the British government, medical community and insurance companies are more serious about tobacco groups and have always hoped to suppress the development of tobacco. When e-cigarettes appeared, they believed that it was a product worth encouraging, so in the whole of Europe, the UK's e-cigarette industry was also the fastest advancing.

Based on the trend that the UK market has begun to subsidize smoking equipment, Li Oucheng predicts that a similar price reduction strategy may emerge in the China market this year. A technological breakthrough that may occur this year is whether it is possible to make e-cigarettes that do not leak oil, and also give relevant parties greater advantages.

In addition, in Li Oucheng's view,Another possibility for the future development direction of e-cigarettes is to become a means of efficient intake of caffeine and even dopamine. This is a feasible solution that can cooperate with medical institutions.

4. Qiu Yiwu

▲ Qiu Yiwu, founder of Whale Light Smoke

For Qiu Yiwu, the most exciting thing about the e-cigarette track is that it has evolved into a new species and category, bringing opportunities to build new brands and enter new channels. Although the policy is still uncertain, for entrepreneurs, e-cigarettes have provided a visible dividend period and window period.

Qiu Yiwu believes that the situation of the e-cigarette industry is similar to the mobile phone industry when Lei Jun first started making Xiaomi, with three main driving points. The first is that the underlying technology upgrades drive product upgrades; the second is that the preferences of consumer groups in the market have changed. The third is that the current market pattern is undecided, and startups still have to seize market space and become the top three and top five. Opportunities to be among the top five.

Whale Light Cigarette began to enter the e-cigarette industry in the second half of last year. At that time, they expected to enter the war of ten thousand cigarettes in 2019, including those who used to do blockchain, sharing economy, and even media people, due to low thresholds, they will flock in. He also believes that capital wars, channel subsidies and marketing wars may occur.

In addition, Qiu Yiwu also predicts that there may be quality accidents this year, because when product quality is uneven, such a situation is likely to occur. Qiu Yiwu once communicated with Yue Shi, and they said that relevant departments believe that it may be inappropriate to use smoking cessation and cigarette substitutes to promote it.

In his judgment, in the short term, Internet celebrity brands will have an advantage, because as long as there is goods, the conversion rate will not be low. But by the end of the first stage and the online conversion capabilities are exhausted, when we return to the channel's sinking capabilities competition, if we do not establish corresponding advantages before, a large number of companies may die.

Therefore, the current whale smokeThe strategic focus is to sink channels. They introduced three products to the market: disposable cigarettes, cigarette replacement cigarettes and cigarette holders, to meet the different needs of terminal channels such as bars, KTVs, canteens and Internet cafes. In the statistics of whale light cigarettes, their shipments among e-cigarette startups are currently among the top three.

5. Guo Rui

▲ Guo Rui Guo Rui, vice president of the Qingdao Electronic Cigarette Chamber of Commerce and head of Elego's e-commerce channel, said that judging from the data currently available to the e-commerce channel, Yueshi has now reached the first place in the Tmall e-cigarette category. Tmall is also the largest e-cigarette trading platform in China. In addition, in general, before Double Eleven, Tmall merchants 'data will drop because consumers are waiting for the discount on Double Eleven. But for e-cigarette merchants, their sales have been rising and have not been affected by too many fluctuations in the e-commerce industry. He believes that this may be a sign that cigarettes and bombs are gradually becoming a rigid demand.

Secondly, the current market for heated non-combustible smoking sets and heavy cigarettes that people were accustomed to in the past is shrinking, and sales of some merchants have even begun to fall off a cliff, and in fact the market is getting colder. Therefore, practitioners are also very much looking forward to what new performance of closed small cigarettes at the Shenzhen e-cigarette exhibition in April this year.

6. Jiang Hanzhong

▲ Jiang Hanzhong, founder and CEO of Instreet

Jiang Hanzhong is the founder of Instreet, a trend cultural community. Since 2015, he has been researching cigarette e-cigarettes that require their own assembly of parts. In Jiang Hanzhong's memories, e-cigarettes were a niche consumer product in first-tier cities for a long time due to the high price. But since the second half of 2017, he gradually felt that e-cigarettes were receiving attention from the capital circle.# p#pagination title #e#

There are two reasons: the first is the opportunity for channel brands. When people still don't know what e-cigarettes are, the stronger the channels, the more users the company can get. In the past, channels referred to offline stores, but now channels such as Mini programs, apps, etc. can expect to achieve a billion-level volume.

The second one is,Through grafting with trend culture, domestic brands still have greater opportunities. However, he believes that this year's fashion brand market is still larger than the e-cigarette market, so he did not make more layout.

Note: This article was reproduced by Consumer News.