Does Vaping Still Have a Future Market?

The Wool Party finally focused on e-cigarettes.

They are active at press conferences, free trial platforms, and promotional WeChat groups. Through the form of free experience, some users receive e-cigarettes in batches.& ldquo; As soon as the drawer at home is opened, almost all brands of e-cigarettes are available. rdquo;

Channel merchants have also resorted to e-cigarettes.

The Thousand Cigarette War has struck, and channels have become hot cakes. Some people like to ignore them, some people sit on the ground and start prices, and some people take advantage of the situation. In the long industrial chain of e-cigarettes, every participant has to come in and get a piece of the action.

Although a price increase rate of four to five times is a common practice in the industry, in offline sales, 80% of the selling price is given to channels through layer-by-layer distribution by dealers; the online situation is also not optimistic, since traditional cigarettes are prohibited Online sales, users have no habit of purchasing e-cigarettes online, and the audience is limited. At present, the focus of e-cigarette brand owners is still offline. In the process of competing for channels, some brand owners have offered discounts below the cost price to stimulate vicious competition.

Some e-cigarette entrepreneurs complain that the C end collects wool and the B end receives subsidies. I think that if e-cigarettes continue like this, they will eventually turn a very profitable industry into a very profitable industry and make it impossible for everyone to make money. rdquo;

Tobacco is a trillion-dollar market. E-cigarettes are regarded by the industry as the next big outlet worth chasing. Cross-border Internet celebrities have joined e-cigarettes one after another, making people feel that this business is profitable.

How profitable are e-cigarettes? Why is an industry that seems to be profiteering? Next, I will disassemble e-cigarettes for you.

1. Real and fake trillion-dollar market

To see how much space there is in the e-cigarette market, we might as well first look at the position of capital.

In June 2018, Yue Ke took the 38 million yuan investment from IDG and source code capital to launch the first shot of the e-cigarette war. A year has passed, and capital's enthusiasm for e-cigarette tracks has not diminished at all.
  In the past year, the financing situation of domestic e-cigarette companies
The special feature of e-cigarettes is that from the perspective of product form, it belongs to electronic consumer goods; from the perspective of functional uses, it belongs to tobacco. In the public's perception, tobacco is a monopoly and profiteering industry.

In 2018, the total annual industrial and commercial tax profits of China's tobacco industry reached 1.1556 billion yuan, of which 1 trillion yuan was handed over to the national finance. This is an extremely large amount, and the total national tax revenue at that time was less than 14 trillion yuan. In addition, the number of smokers in China has exceeded 300 million, and these 300 million people will be potential users of e-cigarettes.

So, how much market space does e-cigarettes with cigarette replacement functions have?
  Data source/Guosheng Securities Research Institute
According to research data from Guosheng Securities, the global tobacco market size is calculated at US$770 billion. When the market penetration rate of e-cigarettes is 1.56%, the market size of e-cigarettes is US$12 billion. When e-cigarettes further eroded the traditional tobacco industry, with a penetration rate of 3%, the market size was US$23.1 billion.

Specifically at home, if the total annual revenue of China Tobacco Corporation is calculated at 1 trillion yuan, when the penetration rate of the e-cigarette market is 1%, the domestic market size of e-cigarettes will be 10 billion yuan. Many industry insiders told Fuel Finance that China's e-cigarette market is still in a very early stage. For a long time in the past, the penetration rate of domestic e-cigarettes was less than 1%.

Penetration rate has become a key indicator determining the size of the e-cigarette market. In the United States on the other side of the ocean, this proportion has reached 13%. This means that there is at least more than 100 billion yuan in domestic market growth space.

Zhao Yangbo, vice president of Qichen Capital Investment, told Ran Finance that the domestic small cigarette market in 2019 will have a market size of at least 10 billion yuan. In the long run, this is at least a market worth more than 100 billion yuan. He believes that the core users of e-cigarettes are not old smokers, but in fact the proportion of young people is very high. In the future, traditional cigarettes will not be able to completely eliminate e-cigarettes, and e-cigarettes will not be able to completely replace cigarettes. These will be two types of products that coexist.

From 1% to 13%, it is possible to create a company with a market value of tens of billions of dollars. In fact, the American e-cigarette company JUUL was valued at US$38 billion in its acquisition at the end of last year. The company was established less than 4 years ago, and its market share in the United States has increased from 2% in 2015 to 76% at the end of 2018.# p#pagination title #e#
  Picture/Vision China
This is an opportunity for China players. Even if it is not a trillion-dollar scale, the goal of 100 billion is not far away.

In addition, judging from the standards of consumer goods, e-cigarettes have almost all the elements of a qualified FMCG: just need, high frequency, repurchase, and high turnover. The mobile phone industry is often used in the industry to compare e-cigarettes. Some e-cigarette entrepreneurs asked, since the mobile phone industry can be Internet-based, why can't we use the Internet to get rid of e-cigarettes?" rdquo;

Therefore, a group of entrepreneurs who came across the border from the Internet, with the blessing and coercion of capital, plunged into the e-cigarette track. What they are betting on is the next real and fake trillion-dollar market.

2. Channel providers that cannot be circumvented

The stereotype of traditional tobacco has also made e-cigarettes labeled as huge profits.

In terms of terminal selling price, the current mainstream e-cigarette sets on the market usually sell for 299 yuan. Liu Huidong, the founder of an e-cigarette brand in Shenzhen, revealed to Ran Finance that most e-cigarette brands are commissioned by OEM factories to produce them through processing and labeling. The ex-factory price of this type of suit is about 60 yuan. A price increase rate of four to five times is a common practice in the industry.

But even so, there is not much profit left in the hands of e-cigarette brands. In fact, at present, the domestic e-cigarette industry is still a little far away from profiteering.

Different from tobacco, the traditional cigarette market is monopolized, eliminating industry competition and creating huge profit margins for products. E-cigarettes are located in a fully competitive market.

Liu Huidong introduced that under normal circumstances, for an e-cigarette with a market price of 299 yuan, the first-level dealer gets 120 yuan, the second-level dealer gets 150 yuan, and the third-level dealer gets 180 yuan. Layer by layer distribution, each link eats up a part of the profits. All profit margins between 120 yuan and 299 yuan were given to channels.

This is still in an ideal state. In the process of brand competition, the actual price given to dealers is lower, and the subsidy can be as low as 30% or even 20% off, resulting in a significant reduction in brand owners 'profits. Some brand dealers sell tobacco rods at a loss, trying to make money by repurchasing tobacco bombs.

Sun Haiming, founder and CEO of Bolan e-cigarette, used 235 to describe the profit sharing model of the e-cigarette industry chain.& ldquo; Brand profit is 20%, trader profit is 30%, and terminal profit is 50%. This is roughly the case in the domestic market.& rdquo; This means that 80% of the profits of e-cigarettes entering circulation are distributed to channels.

But at this stage, brands cannot bypass channels and reach consumers directly online. ldquo; Everyone doesn't buy it, no one buys it. Qiu Yiwu, founder and CEO of Whale Smoke, said to Burning Finance. He found that sales directly to C-end users were not effective, and online traffic costs were high and conversion rates were low.

Channels have become the sword for e-cigarette brands to attack the market at the current stage, occupying the main link in the entire pricing of the e-cigarette industry.
  Picture/Vision China
“The core of this business is terminal sales. Now e-cigarettes need terminal assistance in educating the market.& rdquo; Liu Huilin, co-founder of Yishuang e-cigarette, told Ran Finance.

Taking Whale Qingyan as an example, Qiu Yiwu shifted the focus of distribution from online to offline, and hit the market through wide coverage of channels. He has deployed more than 100 agent distributors at all levels in the pan-3C channel, and Internet cafes cover more than 2000. In addition, night markets, convenience stores, digital markets and other channels are also his focus.

Yu Lei, general manager of e-cigarette brand HIMOP and Beijing Hymanpu Company, believes that in the early years, Meituan made takeout and Didi made taxis, relying on subsidies to burn money to buy traffic. Media advertising for e-cigarettes is restricted, and brand owners can only give up profits to channels in order to gain traffic.& rdquo;

Some people in the e-cigarette industry made a calculation with Ran Finance. In the face of fierce competition from brand owners, at least 50,000 sets of e-cigarettes with a gross profit of 30 yuan must be sold every month to cover after-sales, promotion, personnel and other costs and achieve breakeven. However, there are not many brands that can actually sell 50,000 units a month.& rdquo;

3. Who made all the money?# p#pagination title #e#

High-quality channels seem to have become a hot spot overnight. Are the huge profits in the eyes of the public being earned by channels?

Qiu Yiwu gave an example. He took his team to the mall to talk about a stall. When the other party heard that it was an e-cigarette company, he stuck to the price and refused to give up a penny. ldquo; They think that your e-cigarette companies are all very rich, and if you don't come and do it, other companies will rush to get it. Do you want it or not?" rdquo; This made Qiu Yiwu feel depressed and felt like he had been robbed.

Liu Huidong said that an e-commerce platform has come to his door and invited him to advertise on this year's Double Eleven. ldquo; They said that this year's Double Eleven e-cigarette fight will definitely be very fierce. Anyway, they feel that the whole world thinks that e-cigarette companies are super rich." rdquo;

On the other hand, brands are increasingly poaching agents from each other. Liu Huidong revealed that the general form of poaching talents is to first find someone to inquire, then visit, then find someone to pull strings, and finally give up more discounts and wage price wars to poaching talents. rdquo;

In the process of competing for channels, brand owners offer discounts below cost prices to stimulate vicious competition.

After obtaining financing, some brands cut off all profits and provided terminal subsidies. Users who purchase two boxes of cigarette bombs can get a cigarette rod for free, and the cigarette rod can be replaced for free for half a year. However, the high return rate and high after-sales costs make the brand unbearable.
  Picture/Vision China
In the process of distribution, some brands have introduced a free distribution policy for their agents to get the goods for free and return them if they cannot be sold. This has brought serious consequences. The returned products that cannot be sold will all become the inventory of the brand owner, squeezing out cash flow, and further turning into losses and liabilities. After-sales disputes caused by product quality problems make agents love and hate brand owners.

“Many companies may choose to distribute goods for free like shared bicycles, but if product quality and operational sales do not keep up, they will be like unmanned shelves, with chicken feathers falling on the ground. rdquo; Qiu Yiwu said.

There are also some agents who figured out the routine and went to Shenzhen to entrust a foundry to quickly launch a brand of their own. Finally, when they found that the product could not be sold, they began to reduce prices, sell off, and clear positions at a loss.

Qiu Yiwu is suffering hard to say. The e-cigarette industry seems to be very profitable, but the profits in each link are not as high as imagined. It may eventually become an industry that is not very profitable. Anyway, there is a craze now, and both upstream and downstream are making money from e-cigarette brands." rdquo;

So, how are life in the channel?

According to Andy, chief operating officer of Juemiao e-cigarettes, channel dealers are also in crisis now. He said that nightclubs, Internet cafes and game halls, convenience stores, and digital product stores, the four major e-cigarette terminal retail outlets, currently have insufficient acceptance of e-cigarettes. ldquo; In some second-tier cities, if you visit ten companies, five to six will reject you, and then two to three will tell you that they will consider it." rdquo;

The direct consequence of the terminal market being not rolled out is that the goods taken by channel operators and agents cannot be shipped, resulting in serious pressure on goods.

Zhao Yangbo said that the main task of most brands now is to distribute goods. But the problem is that giving the goods to the agent does not mean that the channel can sell them. Many of the goods that reduce profits or even sell off at a loss are lost in the hands of agents, and agents often do not pay cash, which causes many brands to burn their own cash flow.

A provincial-level general representative of Fulu told Ran Finance that the agent is an old scalper and the profits are very thin. Our general representative is influenced by both sides, inheriting the brand and acting as an agent. If you want lower-level agents to play with you, you have to give up more benefits. rdquo;

Agents and channel operators earn the channel price difference, and there are several groups of people offline who share the money. Agents at all levels and various terminals finally reach the hands of consumers. If sales do not increase, profits in the channel will not be amplified. This means that it is difficult for not only brand owners, but also all aspects of the channel to make money.

In addition, the professional wool party has already targeted e-cigarettes.

Qiu Yiwu found that every time an e-cigarette event is held now, a large group of wool parties will be found, receiving a large number of e-cigarette products through free trials and other forms. ldquo; These people are active on various trial platforms. You will find that when many users open their home drawers, they have almost all brands of e-cigarettes." rdquo;

4. How long will e-cigarettes last?# p#pagination title #e#

An industry that seemed to be making huge profits has been turned into a loss-making business. How long will e-cigarettes that have just embarked on the fast lane of capital be popular?

Oil leakage is currently a headache for almost all e-cigarette brands.& ldquo; A box of sets, four cigarettes, two of which are leaking." rdquo; There is feedback from e-cigarette users. Ensuring that cigarette bombs do not leak oil has also begun to be used as a product promotion point by some e-cigarette brands.

The problem is that the repurchase of cigarette bombs is the key to whether e-cigarette brands can make profits in the future. Liu Huidong revealed that a cigarette bomb costs a few yuan, but the average selling price is more than 20 yuan, which is the highest profit margin.

However, the current market has not formed a high frequency of repurchase. In Zhao Yangbo's view, there are currently three ways for e-cigarette brands to break through. The first is to spend a lot of money on marketing and let users gain awareness of the product through marketing; the second is to compress their profits to a very low level, or even lose money to seize channels first; the third is to focus on making products and brand them through the quality of the product. But most brands are currently taking the second path.

Although Luo Yonghao, Zhu Xiaomu, Cai Yuedong and other Internet celebrities with their own traffic have increased a lot of exposure to e-cigarettes. Leading brands such as Fulu, Magic Flute, and Shanlan have launched a large number of activities such as music festivals. However, the feedback from the domestic market is slow and lengthy.

“The key is quantity. If the quantity is not increased, making money from e-cigarettes is just empty talk.& rdquo; In Yu Lei's view, the core of whether e-cigarettes can be profitable lies in sales volume. If sales are too low, costs cannot be covered and profits cannot be broken even.
  Picture/Vision China
Another unavoidable issue is policy supervision, which depends largely on the position of the regulatory authorities.

On July 22, Mao Qun 'an, director of the Planning Department of the National Health and Construction Commission, said that the supervision of e-cigarettes must be strictly strengthened. He emphasized the health hazards of e-cigarettes and said that the Health Commission is working with relevant departments to carry out research on the supervision of e-cigarettes.

China tobacco is also a mountain in front of e-cigarette companies. Yu Lei believes that the domestic e-cigarette industry is still too early, and China's tobacco has not yet been sold. ldquo; Have you considered how it feels to have a super giant integrating government and enterprise? Now is not the time for colleagues to fight each other and see each other in a desperate situation.& rdquo;

Zhao Yangbo believes that e-cigarettes may have three trends in the future. The first is that the government will implement a licensing system and open up market access. For e-cigarette brands, this is the worst situation. The second is to implement a tax system, regulating e-cigarettes as electronic products, but taxing them based on tobacco standards. The third is that the government controls the upstream of e-cigarettes, such as controlling the core raw material, nicotine salt.

But in any case, an obvious trend is that more and more Internet talents are pouring into this industry. Whether it is Yue Ke Wang Ying, Fu Lu Zhu Xiaomu, Luo Yonghao Ono, and YOOZ Cai Yuedong, they are all experienced Internet people. In addition, Guo Guangdong, former senior vice president of public relations at Pinduo, and Fang Hui, former senior director of public relations at Douyu Market, have joined the e-cigarette industry and used more Internet gameplay in the new round of marketing wars.

How profitable are e-cigarettes? The conclusion that can be drawn is that this is not a lucrative business at present.