Securities Times: Domestic vaping sales rose significantly in Q2, industry says some brands bought f

It is reported that domestic e-cigarette sales saw a significant increase in Q2. Industry insiders analyze that this does not mean the industry is improving; some brands are actively purchasing e-cigarettes from the terminal to maintain their market share, giving them away as gifts to consumers. Additionally, the crackdown on black market e-cigarettes has also led some consumers to return to the market.

In Q1 of this year, domestic e-cigarette sales plummeted sharply, with the leading domestic OEM, Smoore, reporting revenue of only 15.5 million yuan, a year-on-year decrease of 97.7%. Meanwhile, the leading brand Fogcore Technology reported revenue of 189 million yuan, a year-on-year decrease of 88.98% and a quarter-on-quarter decrease of 44.45%.

The year-on-year decline was not unexpected, as e-cigarettes were not yet regulated last year, and fruit-flavored e-cigarettes could still be sold. E-cigarette companies built their own channels and operated flexibly without restrictions. However, starting in October last year, the industry officially entered a regulatory era, with restrictions on channels, market share, and flavors, requiring licensed operations.

Consumers pursued fruit-flavored e-cigarettes, abandoning tobacco-flavored e-cigarettes produced by legitimate companies, leading to a year-on-year decline of over 90% in the industry. The quarter-on-quarter decline was due to the fact that tobacco-flavored e-cigarettes began sales in Q4 of last year, requiring distribution from channels to terminals, which did not translate into actual consumption, resulting in a cold market and a significant reduction in new orders for manufacturers in Q1 this year.

It is reported that domestic sales of e-cigarettes through legitimate channels increased by about 30% in Q2. This seems to indicate an improvement in sales through legitimate channels, but industry insiders analyze that this does not mean that terminal sales have truly been consumed; rather, brands are actively purchasing from terminals to maintain the market share they obtained last year, hoping that sales do not look too bad. It is understood that some brands obtained tens of millions to billions of e-cigarette pods last year, and now, due to poor market conditions, they may not even complete half of that.

Last year, e-cigarette companies actively applied for market share, and at that time, the market believed that obtaining more shares was beneficial, indicating that the company's ceiling was higher and its status was confirmed. Some unknown companies obtained significant shares, causing a stir in the industry, but now it seems that the significance of the approved shares has been overestimated.

Purchasing from terminals is a desperate move by brand owners, meaning they bear the high taxes of the tobacco industry, directly impacting their gross margins. Additionally, to win back customers who have already left, terminals are engaging in price wars, and giving away pods has become common, leaving the entire industry in a very passive position.

From the perspective of companies, the industry's most challenging moment was in January of this year. According to Fogcore Technology's management, March's revenue was nearly double that of January; Smoore's management also stated that revenue in January fell over 95% year-on-year, and in April, it fell 90%, but there are signs of recovery quarter-on-quarter.

The government's efforts to crack down on black market e-cigarettes have also had some effect, as e-cigarettes are relatively easy to produce, and there are signs of the proliferation of counterfeit e-cigarette production sites, which were originally highly concentrated in the Pearl River Delta but have now appeared in different provinces. Some black market e-cigarette operators have been sentenced to prison, which has had a deterrent effect, but many still take risks for profit. The core reason is that fruit-flavored e-cigarettes are too attractive to consumers, making it difficult for them to convert to tobacco-flavored users.