2019 China Vaping Industry Report (Brief Edition)

E-Cigarette Market

The e-cigarette industry mainly consists of two types of products: heated tobacco and vapor-type e-cigarettes. The largest production base in the world is Shenzhen, China, with products primarily sold overseas. In China, vapor-type e-cigarettes are more popular, while heated tobacco products are classified as traditional tobacco products and are restricted from domestic sales.

The overall e-cigarette market in China is still quite small, with a market size of only $744 million in 2018, compared to the $1.3 trillion sales of traditional tobacco, indicating significant potential for future growth.

The upstream of the e-cigarette market in China mainly consists of e-cigarette accessory manufacturers, while the midstream includes design and manufacturing companies. The downstream channels include online and offline sales, with revenue primarily generated through online sales.

The current industry policies are still unclear, but it is expected that national standards for e-cigarettes will be introduced by the end of this year, which will help the industry develop in a more standardized manner.

Typical Enterprises

Upstream enterprises—Mikewell: Mainly produces and sells atomizer products and ODM business, relying heavily on overseas sales for business development. In 2018, overseas revenue contribution reached 88.1%. By product line, the sales revenue contribution of electronic atomizers reached 72.57%. The company's ODM business contributed about 70% of sales revenue, while its own brand product Vaporesso is part of the company's long-term development strategy, contributing about 30% of sales revenue. Mikewell has strong research capabilities, with rapidly growing R&D expenses and research outcomes, but in the future, it will need to recruit more researchers to maintain its R&D capabilities.

Midstream enterprises—Sigelei: Mainly produces and sells e-cigarettes and their accessories, with a dedicated international trading company. Sales revenue is primarily contributed by overseas sales, reaching 91.79% in 2018. However, due to an increase in market participants and the impact of the China-U.S. trade war, the company has been lowering prices, resulting in a continuous decline in gross profit margins. Sigelei's offline experience stores are mainly located in the southeastern coastal, central, and southwestern regions, with at least 41 offline experience stores. Online, they have flagship stores on JD and Tmall, with relatively high satisfaction in delivery and logistics services. Both stores sell core products of e-cigarette kits, but they offer different types of e-liquids and accessory products.

User Research

Currently, consumer awareness of e-cigarettes has significantly increased, with both understanding and usage among e-cigarette users growing. Most purchases are made through online channels. The current age range of e-cigarette users is mainly between 26-35 years old, consisting of young people with a certain income who pursue fashion, as well as middle-aged individuals aged 36-45 who prioritize health. Among them, males account for 68%, remaining the primary consumer group for e-cigarettes.

Future Outlook

The risks in the e-cigarette industry mainly include policy risks, an excess of industry participants, low social awareness, and health risks associated with products.

Opportunities in the e-cigarette industry mainly stem from being in the early market stage, with no fixed market structure; younger users are more open to new things; the tobacco product industry has high profit margins; and e-cigarettes currently attract significant capital attention, making it easier for companies to secure financing and expand.