Five-Year Vaping Veteran: Is Franchising a Vape Business a Good Idea Amid the Pandemic?

In the current economic climate, the e-cigarette industry is struggling. If someone were to recommend a business—franchising an e-cigarette brand—many people's reaction would likely be one of confusion.

Franchising an e-cigarette business now? Are you serious?

The data and industry status are evident. In the first quarter of 2020, the GDP fell by 6.8% year-on-year; Fulu was reported to have delayed salaries and laid off 70% of its staff...

Yiwuyou expressed to customers that they had limited stock, delivery had not resumed, production had not resumed, and supply had not resumed, and the bad situation might continue for a while...

Should one franchise an e-cigarette business at this time? The answer seems obvious, but the veteran in the industry, Cai Gou, clearly disagrees.

As a five-year veteran in the e-cigarette industry, Cai Gou, who entered the field in 2015, currently runs an e-cigarette collection store and acts as a provincial agent for a certain brand. Compared to many purely investment-focused e-cigarette investors, Cai Gou has a much deeper and longer-term perspective.

**01. Trend Iteration and Pursuit**

"Whenever there is a switch in product categories, the previous category will inevitably be abandoned by the market. Each era has its trends, just like lipstick shades in cosmetics; different periods have different trend trends. The most important thing in business is to follow these trends and make early arrangements."

It is well known that the e-cigarette industry has gone through the regulated pressure era, the atomizer era, and the small device era. Each technological innovation spawns a new product era, and behind each technological innovation is a surge in market demand.

In the past, vape culture led to the popularity of large clouds, with regulators and vape pens becoming favorites among users; nicotine salts caught up with the taste of real cigarettes, making small devices the mainstream e-cigarette product; later, the pursuit of convenience led to the emergence of disposable small devices, which now dominate the market.

It is not difficult to see that the trend led by e-cigarettes has shifted from initially quitting smoking to playing, and gradually to fashion and flavor. Luo Yonghao spent millions inviting Edison Chen to endorse the Xiaoye e-cigarette, while brands like RELX, Fulu, and VPO invested in sponsoring music festivals. Marketing has become a catalyst for qualitative change in the e-cigarette industry, driven by a group of internet entrepreneurs.

Because marketing has brought about a change in e-cigarette culture, Cai Gou has shifted his previous "scientific product introduction" to the popular "eyeball economy."

Cai Gou mentioned to Gewu Consumption (ID: gewuxiaofei01) that starting from small devices, especially from small colorful devices, many brands have recruited a large number of fashionable, well-made women to endorse e-cigarettes. These girls do not need to describe how e-cigarettes work; they only need to showcase the fashion of e-cigarettes.

"At times, I can sell over 80,000 units in a month!"

Looking back at the marketing strategies of e-cigarettes, brands have gradually shifted the focus of their promotions from the e-cigarettes themselves to endowing products with new perceptions and scenarios, familiar internet product flavors, digging and creating scenarios to meet people's inner needs for a high-quality life. This approach has proven to be effective.

Marketing has driven the influencer economy, which in turn affects e-cigarette sales. Smart e-cigarette practitioners have already boarded this trend ship.

**02. Setting Aside Technology, Focusing on Popularity**

"For us, technology is optional; we only look at brand influence and market response. If the market reacts and is popular, we will proceed."

Since the e-cigarette market boom in 2019, there have been over 35 financing rounds totaling nearly 1 billion in the first eight months. Among them, MOTI secured $30 million, Bink received $20 million, and flow Fulu, which was just established in January, also received millions in funding by May.

Where did all this funding go?

The conventional routes can be divided into three categories: brand marketing, product development, and offline channels.

For example, VPO completed a $30 million financing in April 2019, mainly for product quality, safety control improvements, establishing the VPO atomization technology laboratory, expanding international markets, and building new retail systems and social e-commerce. Similarly, Fulu completed a million-dollar financing on May 23, focusing on hardware, promotion, and channels.

Among the three financing directions, the marketing strategies for brands and products have been the most successful, as Cai Gou mentioned earlier, the "eyeball economy" is one of the results.

In terms of brand marketing, RELX has clearly taken the lead.

"Brands like RELX, which have already matured, do not need us to explore further; just relying on the RELX name, they can easily connect with many willing store owners through phone calls."

Ordinary practitioners cannot become market drivers like RELX, but they can ride the wave of popularity like most products on the market, achieving marketing goals within their capabilities.

**03. Opportunities Remain, Perspectives Vary**

In today's highly homogenized market, how to create differentiation, achieve cost-effectiveness, and penetrate consumer hearts has become a major consideration for the industry.

Differentiation usually manifests in two aspects: rational technology and emotional design. The former is key to forming barriers and may determine the future; the latter is crucial for attracting consumers and determines the present. All differentiation concepts should serve people's needs and the market.

The e-commerce blackout has long been anticipated, and that day has finally arrived, which for Cai Gou is a kind of liberation.

"Because at that time, I was always worried about when they would stop sales, and what would happen to my stock?"

Last year, when distributors were gearing up to stock up for a big sale during Double Eleven, a notice titled "Notice on Further Protecting Minors from the Harm of E-cigarettes" was issued on November 1, undoubtedly injecting a cold wind into the e-cigarette industry. Even though some brands still participated in the Double Eleven event, the results were generally mediocre.

The notice only targeted online sales and did not involve offline sales, so some brands that primarily used financing for offline expansion, like RELX and MOTI, might become the lucky ones in the future market.

Behind the notice, there are also concerns from regulatory authorities about minors. Cai Gou believes that such a one-size-fits-all approach may not fundamentally solve the problem.

Good fortune does not come alone, and misfortune does not come singly. Under the pandemic, e-cigarettes have encountered a "cold winter," but is that really the case? Cai Gou does not think so.

When faced with the sudden pandemic this year, Cai Gou did not appear flustered; perhaps having been in the industry for a long time, he has grown accustomed to the ups and downs.

In fact, Cai Gou mentioned to Gewu Consumption that the reason for his optimism is that his customer base has already been established. With customers and demand present, external disturbances will not have a significant impact; demand is the essence driving e-cigarettes.

"For old customers, you don’t even need to ask; they directly message you on WeChat saying they want this, and you send it to them or tell them where to pick it up tomorrow."

When discussing which brand he is more optimistic about, Cai Gou mentioned Shenkai.

"Currently, only Shenkai has a product that uses that type of mouthpiece, targeting IQOS users. Now that IQOS cartridges are unavailable due to the pandemic, we aim to find customers with this demand to sell to them, which is why I choose Shenkai."

"The next plan is to acquire IQOS users targeted by Shenkai. Then, we will attract customers who dislike RELX or store owners who are not fond of RELX."

Finding product differentiation from the fundamental needs of users is a rare concept in the e-cigarette market. Even in a relaxed environment for e-cigarettes, most brand product upgrades are still focused on breaking through aesthetic demands. Instead, through breakthrough points, amplifying differentiation has allowed many distributors, including Cai Gou, to see a future.