Flavor tobacco vaping devices falter: crackdowns on the black market fail to shift sales to legitima

Reporters recently met with several e-cigarette consumers, and all of them were using fruit-flavored e-cigarettes. The government’s efforts to crack down on the e-cigarette black market have not turned consumers into tobacco-flavored e-cigarette users, and compliant e-cigarette manufacturers continue to lose users.

Since October 1 last year, fruit-flavored e-cigarettes have been banned nationwide, and the government has ordered the sale of national-standard e-cigarettes, which are tobacco-flavored atomized e-cigarettes. At this point, selling fruit-flavored e-cigarettes through any channel in China is illegal.

But consumers have already become loyal users of fruit-flavored e-cigarettes. It can be said that it was precisely the wide variety of fruit-flavored e-cigarettes that expanded the e-cigarette user base. They follow fruit-flavored products, and once a brand gives up fruit flavors, they give up that brand. They are not native users of tobacco flavor and find it hard to adapt to it.

In addition, the national-standard e-cigarette devices are required to have text such as “smoking is harmful to health” engraved on them, which limits the materials that can be used for the device and makes them less attractive. In the past, some trendy young people would hang the device around their necks, but now these fashion-conscious young people have changed that habit.

The e-cigarette black market emerged naturally, which could have been predicted as soon as the fruit-flavor ban was issued, and this also caused listed e-cigarette companies to fall sharply at the time. However, some people also believed that, for tax revenue, the government would protect national-standard e-cigarettes and crack down on black-market e-cigarettes. National-standard e-cigarettes were indeed difficult to promote at first, but after some time, once the market lacked alternatives, they would gradually win over consumers.

But that has not happened. Taking the domestic e-cigarette leader RELX Technology as an example, sales in the first quarter of this year were lower than in the fourth quarter of last year, and since the fourth quarter of last year, the crackdown on black-market e-cigarettes has never stopped.

This shows that even if black-market manufacturers are targeted and illegal channels are cut off, with cases often involving hundreds of millions of yuan, black-market e-cigarettes have not disappeared, and some people are still willing to take the risk. This is mainly because black-market e-cigarette profits are extremely high.

Before regulation, e-cigarettes were called the era of wild growth. At that time, the government did not regulate e-cigarette flavors, and no consumption tax was imposed. From manufacturers to retail, prices could rise several times. Winning in competition was not easy either: product quality had to be strong, channels had to be developed well, and brand image had to be built. But now, mainstream brands have exited fruit-flavored e-cigarette market competition, and fruit-flavored e-cigarettes have moved into the black market, where there are no well-known brands, no need to invest in branding, and no need to compete on quality with other products. So product quality will only get worse. As long as consumers can buy a fruit-flavored product, they are satisfied and do not care much about quality. In addition, the government taxes legitimate brands, while black-market e-cigarettes effectively evade tax, which also increases profit margins.

In China, refillable pod systems are popular, but globally the market is shifting toward disposable e-cigarettes, and this segment is even more in the hands of black-market manufacturers. Reporters have seen many consumers using fruit-flavored disposable pod devices, and without exception, all of them were obtained through the black market; repeat customers can easily find channels to buy them. Newly added e-cigarette customers also mostly enter the field through fruit-flavored products. Some consumers said that if they cannot get fruit-flavored e-cigarettes, they would rather quit e-cigarettes altogether than use tobacco flavor.

Investors who previously firmly believed in e-cigarettes may have been too optimistic. At this point, there is nothing else to do but continue to hope that the government will intensify its crackdown on black-market e-cigarettes and continue to protect tobacco-flavored e-cigarettes and legitimate channels.