2019 Vaping Market Analysis
Will the 2019 vaping market grow exponentially? At present, China’s policies on vaping products have not yet been fully implemented, but the issue of policymaking has already attracted attention from relevant authorities. According to China Tobacco, meeti
Will the 2019 electronic cigarette market experience geometric growth? Currently, policies regarding electronic cigarettes in China have yet to be finalized, but the issue of policy formulation has gained attention from relevant departments. According to disclosures from the China Tobacco Administration, the National Tobacco Monopoly Bureau's 2018 work meetings frequently mentioned accelerating the formulation and introduction of policies related to new tobacco products. It is believed that the policy floodgates will open soon. Let's first take a look at the situation in other markets where policies have already been opened.
As the year-end approaches, let’s look at a piece of news regarding year-end bonuses in the electronic cigarette industry:
In December last year, American electronic cigarette company Juul announced year-end bonuses, averaging $1.3 million per employee. According to reports from media such as The Paper, American tobacco giant Altria Group invested $12.8 billion to acquire a 35% stake in the electronic cigarette startup Juul Labs (Juul was valued at $38 billion). The 1,500 employees of Juul Labs collectively received $2 billion in dividend bonuses, averaging about $1.3 million per person. In addition to its investment in Juul, Altria is also the parent company of Philip Morris International (IQOS). Upon seeing this news, one can't help but feel that electronic cigarette companies are indeed very wealthy, able to distribute such year-end bonuses even in an economic downturn!
How did these incredibly wealthy electronic cigarette companies come to be? Let's review the history of IQOS.
The macro environment has put pressure on traditional cigarettes, leading to the emergence of IQOS. IQOS is a heated tobacco product launched by the global tobacco giant Philip Morris International (PMI), belonging to the reduced-risk product (RRP) category. IQOS has led the trend of heated tobacco products through continuous research and updates since its initial development. PMI began the IQOS research project after the World Health Organization passed the Framework Convention on Tobacco Control in 2005, and to date, the research team has grown to over 400 people, with investments exceeding $5 billion.
In 2014, IQOS 1 was launched and trial sold in Japan and Italy. In 2016, IQOS 2 was fully launched in Japan, quickly increasing its market share. In March 2017, the third generation product was released, and in November 2018, the fourth generation IQOS 3 and IQOS 3 Multi were launched, both receiving positive feedback. Each generation of products has been updated and modified based on previous sales performance and user feedback, with the fourth generation featuring shorter charging times and reduced chances of a red light, while IQOS 3 Multi integrates a power bank with the cigarette holder.
The expanding market range has provided momentum for sales growth. Since IQOS achieved good performance in trial sales in Tokyo and Milan in 2014, its market range has continuously expanded. In 2015, IQOS first entered Eastern Europe, the Middle East, and Africa, achieving good results in Russia. In 2016, it fully entered the Japanese market, leading to rapid sales growth in the entire East Asian market and globally. In Q2 2017, it entered the South Korean market, further boosting sales in East Asia and globally. In Q3 of the same year, it expanded into the European market, launching new products in Germany, Poland, Spain, and other countries for the first time in November. By Q3 2018, IQOS had been launched in 43 countries and regions worldwide.
The number of users and market share have been steadily increasing, with sales revenue contributions rising. Over the past year, the number of IQOS users increased from 5.2 million to 8.8 million, achieving nearly 70% growth. The market share of heated tobacco products (HTP) in the global tobacco market rose from 0.2% two years ago to 1.7% now.
RRP products represented by IQOS have maintained over 20% sales revenue growth from Q1 2016 to Q4 2017, with Q2 2016 even seeing a breakthrough growth of over 120%. At the same time, the proportion of RRP products in PMI's cigarette revenue has been steadily increasing, reaching 20% in Q4 2017.
The development of heated tobacco electronic cigarettes can be described as unstoppable, further validating the previous logic of electronic cigarettes as a substitute. Addiction knows no borders, and the world's increasing demand for health is also a common trend. Under continuous environmental pressure, smokers from any country will constantly have thoughts of quitting, yet they are often thwarted by the tyranny of nicotine addiction.
As the number one product in the arsenal for quitting smoking today, electronic cigarettes will continue to be tried and accepted by smokers. This is a universally applicable hard logic and the foundation for the rapid development of electronic cigarettes in foreign markets. It can be anticipated how Chinese electronic cigarette companies will develop once policies are opened.
Who will become the mainstream electronic cigarette?
The outlook for the electronic cigarette industry is promising, but the question arises: currently, there are two main types of electronic cigarettes: heated tobacco electronic cigarettes and vaping electronic cigarettes. Which will become dominant?
1. Heated tobacco electronic cigarettes have advantages in taste and quality
Different working principles lead to heated tobacco electronic cigarettes providing a taste experience closer to traditional cigarettes. Vaping electronic cigarettes vaporize a solution with tobacco flavor by heating it, adding nicotine to mimic the taste of traditional cigarettes, but the taste still differs significantly from traditional cigarettes, leading to lower acceptance among traditional tobacco consumers. In contrast, heated tobacco products represented by IQOS heat tobacco sticks containing "reconstituted tobacco leaves" at low temperatures, allowing the tobacco leaves to be heated just enough to release flavor and tobacco taste, closely replicating the authentic taste and throat hit of traditional cigarettes, making it easier for traditional tobacco consumers to accept.
2. The production difficulty ensures that heated tobacco electronic cigarettes have better quality and reduced harm
Traditional vaping electronic cigarettes are easier to produce and cheaper, leading to poor quality and taste from some small workshops, often resulting in leaking issues that severely impact user experience. The harm reduction effect of e-liquid electronic cigarettes mainly depends on the quality of the e-liquid, but due to the high variability of e-liquids, unscrupulous manufacturers sometimes add harmful substances for specific purposes, especially in China, where relevant standards have yet to be established, leading to a wide disparity in e-liquid quality.
Heated tobacco electronic cigarettes, on the other hand, have a more complex structure, making production more difficult and costly, resulting in a higher entry barrier. Generally, only top-tier tobacco companies can afford to participate in research and production, and the tobacco leaf components of the cartridges are subject to stricter regulations, which helps ensure the quality and harm reduction of these products.
3. Heated tobacco policies are clear, and foreign products cannot enter
Policy settings create entry barriers, as tobacco sticks are classified as special controlled products. Tobacco sticks are made from specific tobacco, and fundamentally remain tobacco products. According to the Tobacco Monopoly Law, tobacco sticks fall under the scope of state control and monopoly. The National Tobacco Administration has issued documents clearly stating its prohibition of imported heated tobacco products. However, on the other hand, the latest issued "2018 Work Points for Comprehensive Deepening Reform by the National Tobacco Monopoly Bureau" encourages the development of China's own new tobacco industry. Based on the current situation, if heated tobacco products are allowed for sale in the future, related products will likely only be produced and sold by domestic companies, presenting a vast potential market. Meanwhile, the state has not explicitly prohibited the import of vaping electronic cigarettes, leaving limited growth space in the existing market.
The achievements of small vapes in 2018 were also beyond expectations, and it is anticipated that small vapes will become the main demand product for smokers looking to quit in 2019. In summary, the 2019 electronic cigarette market analysis indicates that heated tobacco electronic cigarettes will welcome significant opportunities after policy openings, making the electronic cigarette industry worth paying attention to in 2019.
Those interested in investing in the electronic cigarette industry can add WeChat: vapeos. For electronic cigarette sources and OEM inquiries, please call: 17682343645
As the year-end approaches, let’s look at a piece of news regarding year-end bonuses in the electronic cigarette industry:
In December last year, American electronic cigarette company Juul announced year-end bonuses, averaging $1.3 million per employee. According to reports from media such as The Paper, American tobacco giant Altria Group invested $12.8 billion to acquire a 35% stake in the electronic cigarette startup Juul Labs (Juul was valued at $38 billion). The 1,500 employees of Juul Labs collectively received $2 billion in dividend bonuses, averaging about $1.3 million per person. In addition to its investment in Juul, Altria is also the parent company of Philip Morris International (IQOS). Upon seeing this news, one can't help but feel that electronic cigarette companies are indeed very wealthy, able to distribute such year-end bonuses even in an economic downturn!
How did these incredibly wealthy electronic cigarette companies come to be? Let's review the history of IQOS.
The macro environment has put pressure on traditional cigarettes, leading to the emergence of IQOS. IQOS is a heated tobacco product launched by the global tobacco giant Philip Morris International (PMI), belonging to the reduced-risk product (RRP) category. IQOS has led the trend of heated tobacco products through continuous research and updates since its initial development. PMI began the IQOS research project after the World Health Organization passed the Framework Convention on Tobacco Control in 2005, and to date, the research team has grown to over 400 people, with investments exceeding $5 billion.
In 2014, IQOS 1 was launched and trial sold in Japan and Italy. In 2016, IQOS 2 was fully launched in Japan, quickly increasing its market share. In March 2017, the third generation product was released, and in November 2018, the fourth generation IQOS 3 and IQOS 3 Multi were launched, both receiving positive feedback. Each generation of products has been updated and modified based on previous sales performance and user feedback, with the fourth generation featuring shorter charging times and reduced chances of a red light, while IQOS 3 Multi integrates a power bank with the cigarette holder.
The expanding market range has provided momentum for sales growth. Since IQOS achieved good performance in trial sales in Tokyo and Milan in 2014, its market range has continuously expanded. In 2015, IQOS first entered Eastern Europe, the Middle East, and Africa, achieving good results in Russia. In 2016, it fully entered the Japanese market, leading to rapid sales growth in the entire East Asian market and globally. In Q2 2017, it entered the South Korean market, further boosting sales in East Asia and globally. In Q3 of the same year, it expanded into the European market, launching new products in Germany, Poland, Spain, and other countries for the first time in November. By Q3 2018, IQOS had been launched in 43 countries and regions worldwide.
The number of users and market share have been steadily increasing, with sales revenue contributions rising. Over the past year, the number of IQOS users increased from 5.2 million to 8.8 million, achieving nearly 70% growth. The market share of heated tobacco products (HTP) in the global tobacco market rose from 0.2% two years ago to 1.7% now.
RRP products represented by IQOS have maintained over 20% sales revenue growth from Q1 2016 to Q4 2017, with Q2 2016 even seeing a breakthrough growth of over 120%. At the same time, the proportion of RRP products in PMI's cigarette revenue has been steadily increasing, reaching 20% in Q4 2017.
The development of heated tobacco electronic cigarettes can be described as unstoppable, further validating the previous logic of electronic cigarettes as a substitute. Addiction knows no borders, and the world's increasing demand for health is also a common trend. Under continuous environmental pressure, smokers from any country will constantly have thoughts of quitting, yet they are often thwarted by the tyranny of nicotine addiction.
As the number one product in the arsenal for quitting smoking today, electronic cigarettes will continue to be tried and accepted by smokers. This is a universally applicable hard logic and the foundation for the rapid development of electronic cigarettes in foreign markets. It can be anticipated how Chinese electronic cigarette companies will develop once policies are opened.
Who will become the mainstream electronic cigarette?
The outlook for the electronic cigarette industry is promising, but the question arises: currently, there are two main types of electronic cigarettes: heated tobacco electronic cigarettes and vaping electronic cigarettes. Which will become dominant?
1. Heated tobacco electronic cigarettes have advantages in taste and quality
Different working principles lead to heated tobacco electronic cigarettes providing a taste experience closer to traditional cigarettes. Vaping electronic cigarettes vaporize a solution with tobacco flavor by heating it, adding nicotine to mimic the taste of traditional cigarettes, but the taste still differs significantly from traditional cigarettes, leading to lower acceptance among traditional tobacco consumers. In contrast, heated tobacco products represented by IQOS heat tobacco sticks containing "reconstituted tobacco leaves" at low temperatures, allowing the tobacco leaves to be heated just enough to release flavor and tobacco taste, closely replicating the authentic taste and throat hit of traditional cigarettes, making it easier for traditional tobacco consumers to accept.
2. The production difficulty ensures that heated tobacco electronic cigarettes have better quality and reduced harm
Traditional vaping electronic cigarettes are easier to produce and cheaper, leading to poor quality and taste from some small workshops, often resulting in leaking issues that severely impact user experience. The harm reduction effect of e-liquid electronic cigarettes mainly depends on the quality of the e-liquid, but due to the high variability of e-liquids, unscrupulous manufacturers sometimes add harmful substances for specific purposes, especially in China, where relevant standards have yet to be established, leading to a wide disparity in e-liquid quality.
Heated tobacco electronic cigarettes, on the other hand, have a more complex structure, making production more difficult and costly, resulting in a higher entry barrier. Generally, only top-tier tobacco companies can afford to participate in research and production, and the tobacco leaf components of the cartridges are subject to stricter regulations, which helps ensure the quality and harm reduction of these products.
3. Heated tobacco policies are clear, and foreign products cannot enter
Policy settings create entry barriers, as tobacco sticks are classified as special controlled products. Tobacco sticks are made from specific tobacco, and fundamentally remain tobacco products. According to the Tobacco Monopoly Law, tobacco sticks fall under the scope of state control and monopoly. The National Tobacco Administration has issued documents clearly stating its prohibition of imported heated tobacco products. However, on the other hand, the latest issued "2018 Work Points for Comprehensive Deepening Reform by the National Tobacco Monopoly Bureau" encourages the development of China's own new tobacco industry. Based on the current situation, if heated tobacco products are allowed for sale in the future, related products will likely only be produced and sold by domestic companies, presenting a vast potential market. Meanwhile, the state has not explicitly prohibited the import of vaping electronic cigarettes, leaving limited growth space in the existing market.
The achievements of small vapes in 2018 were also beyond expectations, and it is anticipated that small vapes will become the main demand product for smokers looking to quit in 2019. In summary, the 2019 electronic cigarette market analysis indicates that heated tobacco electronic cigarettes will welcome significant opportunities after policy openings, making the electronic cigarette industry worth paying attention to in 2019.
Those interested in investing in the electronic cigarette industry can add WeChat: vapeos. For electronic cigarette sources and OEM inquiries, please call: 17682343645
