HQDHow to achieve absolute dominance of the Russian market? What challenges does HQD face from moving from a single market to a global market?

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Editor's note:

In 2023, the global e-cigarette industry has undergone profound changes.

As disposable e-cigarettes have penetrated into the global market in the past two years thanks to the "king explosion" of "convenience", in 2023, the traditional "low-barrier markets" of e-cigarettes in the United States, the United Kingdom, the European Union, and Russia are close to saturation, and the market has entered a stage of stock competition. Some brands have to seek development in "high-barrier markets" such as the Middle East, South Africa, and South America. On the other hand, regulators in major markets have clearly expressed their determination to strengthen supervision, and some policies have entered the process of legislation or regulations taking effect. Changes in the regulatory environment have further raised the threshold for market competition.

Against this background, global e-cigarette brands have experienced a "Matthew Effect"-style differentiation: some brands are becoming more and more influential, gradually showing the rudiment of global big brands and large single products similar to traditional tobacco; while some brands are increasingly difficult to survive in competition and can only rely on credit sales to maintain market share.

Based on brand competitiveness, the two supremacy divides global e-cigarette brands into three categories: "global giants","global competitors" and "regional invisible champions". Through the "2023 Global Annual Brand Series Report", Two Priorities will sort out the transformation paths and business logic of these brands.

The proverb goes,"If you want to know the future, just look back." The two supremacy believe that reporting on e-cigarette brand cases in 2023 will provide inspiration for the future development of the industry and promote the global industry to move forward in a higher quality direction.

Welcome to express your opinions or give us feedback about the article. Please contact: alan@2firsts.com

Two Supreme Editorial Departments
December 2023

Global Competitors in "2023 Two Top Global Brands of the Year Series"(Part 1)

HQD "Butterfly Transformation"

--How did HQD achieve absolute dominance of the Russian market?
What challenges does HQD face from moving from a single market to a global market?

Wen| Two supremacy Zhu Lihong

[Two First Originals] In September 2023, in Dortmund, Germany, InterTabac, one of the oldest tobacco exhibitions in the world, is underway. recent years, withe-cigarettesThe rise of this tobacco exhibition, originally born in the 1970s, has attracted more and moree-cigarette enterprisesParticipate. Outside the exhibition hall, another "scenery" on the streets of Dortmund is also eye-catching-multiple internationale-cigarette brandsOutdoor advertisements are set up on the streets of the bustling Urban area. Among them is HQD.

 During the Tobacco Show in Dortmund, Germany in September 2023, HQD's large outdoor advertisements were erected on the streets of the local city| Source: Two supremacy  

One of the billboards displays HQD's latest pink tamper-changing e-cigarette-"CIRAK". Written by "W?" hle deinen style, wechsle deinen Geschmack--austauschbare Pods "(Choose your style, change your taste--changeable #p#pagination title #e#the cartridge）。

Not only in Germany, but also in other markets, HQD is also active-in October 2023, HQD is in Birmingham, UKE-cigarette exhibitionLaunched e-cigarette EOS (color version) specially built for the British market; at the same time, in Greecevape ExpoA series of new products were also launched at the meeting.

This cutting-edge brand from China is gradually growing into an international giant.

Looking back at the growth history of HQD, it first reached its peak in the Russian market. However, HQD is not willing to "live in a corner" and has begun to move from a single market to global competition.

"Sweeping" Russia

According to Tianyan, HQD belongs to Shenzhen CityHan QingdaTechnology Co., Ltd.(hereinafter referred to as "Han Qingda"). Han Qingda was registered in December 2014 and is currently 100% owned by Hou Shoushan. The HQD brand was first registered in April 2017.

Although HQD e-cigarettes may not be well known in many parts of the world, HQD has long become synonymous with e-cigarettes for Russian consumers. Without personal experience, it would be difficult for the outside world to imagine the popularity of HQD in Russia.

In October 2022, Two Supremes visited the streets of Moscow and found that every e-cigarette store had a display of HQD products. There are even store signboards that use the word "HQD" to attract customers. According to the shop owner, HQD became more popular in Russia before encountering a "compliance crisis" in the first half of 2022.

 On the streets of Moscow, there are e-cigarette shops hanging "HQD" signs to attract customers| Source: Two supremacy  

As the "invisible champion" in the field of e-cigarettes, HQD once sat firmly in Russiae-cigarette marketIn its leading position, its market share was once considered to exceed 70%.

As a major consumer of nicotine products, Russia has a smoking rate of close to 30%. According to the latest trade data released by the General Administration of Customs of China,In October 2022, the value of e-cigarettes exported by China to Russia reached US$28.98 million。

 In October 2022, China's exports of e-cigarettes to Russia reached US$28.98 million| Source: Two supremacy (Jiang Mingxi's drawing)  

For such a huge e-cigarette market, many companies want to get a piece of it. However, many companies are "willing but unable" and can only get a small piece of cake under the "shadow" of HQD.

So, how did HQD become the "hegemon" in the Russian market?

Perhaps we can see the development trajectory of this brand in the Russian market from the experience of a Russian distributor.

According to Russian media "MYSLO", at the end of 2020, a dealer, introduced by a friend, purchased a batch of HQD products at an ultra-low price. At that time, the purchase price of each 800-cigarette HQD disposable e-cigarette was only 150 rubles (about 12 yuan), and dealers only needed to pick up the goods at warehouses in the Moscow area, without having to be responsible for other customs clearance procedures.

In February 2021, HQD began to emerge in the Russian market and was favored by consumers. A batch of HQD products worth 500,000 rubles (about 40,000 yuan) from the above-mentioned dealers quickly sold out in just 10 days. At that time, the retail price of each HQD was 500-600 rubles (approximately RMB 40-48), which brought about 300% of profits to the dealer.

 The display of HQD products in terminal retail stores in the Russian market is very conspicuous and fills retail counters.| Source: Two supremacy  

However, at this time, HQD's supplier changed the supply procedures and required the above-mentioned distributor to be responsible for all delivery-related issues, while the supplier was only responsible for delivery services. However, dealers can get another 20% discount for this.# p#pagination title #e#

Faced with high profits and high market popularity, the dealer accepted this condition and purchased 10,000 HQD products for 1.2 million rubles (approximately RMB 96,000), and has been distributing HQD products since then.

It can be seen from the above situation that one of HQD's main strategies for entering the Russian market is to proactively cede most of its profits to dealers and assist dealers in customs clearance in the early stage to attract franchises. Since then, more and more distributors have begun to distribute HQD products.

On June 20, 2023Moscow Electronic Cigarette ShowGo,A Russian distributor of HQD shares HQD's success in Russia with Two SupremesAnother part of the reason.

The dealer believes that in 2019e-cigarette industryFalling into a downturn, sales falling, market prospects unclear, practitioners are generally pessimistic about the future of the industry. However, at this critical moment, HQD keenly observed the potential of disposable e-cigarettes and became one of the first brands to launch this product in the Russian market.

Since HQD dealers provide the most competitive business conditions, excellent service levels and high-quality products in the market, they have always received strong support from professional retailers. It is because of these advantages that in Russia today, all e-cigarettes are commonly called Ashka or Ashkudishka (both are transliteration of HQD in Russian).""""

Compliance crisis

Success is also Xiao He, failure is Xiao He. In the years when HQD has made great progress in Russia, the distribution network that once made it a success has also laid many hidden dangers.

According to a report by the Russian media "TASS" on July 14, 2022, Moscow police seized 150,000 illegal e-cigarettes in an operation. These e-cigarettes do not carry compliance marks, carry forged documents and quality certificates, and engage in customs declaration activities in the name of "small appliances" and enter the Russian market. Although the media did not specifically disclose the brand names of these products, it can be seen from the videos provided that the packaging of some products is marked with the word "HQD".

 According to Russian media mvdmedia, Moscow police successfully seized 150,000 illegal disposable e-cigarettes. Some of the outer packaging of these seized products were marked with the word "HQD".| Source: mvdmedia  

Subsequently, according to Russian media reports on July 25, the general manager of Evergreen, a distributor of HQD in Russia, was arrested. According to reports, the dealer is the only official importer of the Russian HQD brand. At the same time, local police also seized more than 200,000 e-cigarette-related products. After inspection, the nicotine content of these seized HQD products exceeded the standard (Note: Russia stipulates that the nicotine content is 2%).

Finally, Russian police suspended sales of HQD on the Russian market on the grounds that "dealers of HQD violated multiple regulations in Russia such as tax evasion and excessive nicotine content."

In August 2022, HQD's official account issued a statement on Russian social platform VK.com stating that the HQD products imported and sold by its distributor Evergreen LLC are safe and legal. All products supplied to Russia go through customs and all necessary fees are paid. The product complies with all standards of Russian law: product quality regulations, safety requirements and possession of complete necessary customs licenses.

 In August 2022, HQD issued a statement on Russia's largest social media platform, saying its products comply with all standards under Russian law.| Photo source: VK.com  

This statement appears to be a response to the turmoil HQD has experienced in Russia.

Subsequently, HQD returned to the Russian market in a low-key manner.

However, during the absence of HQD, the Russian e-cigarette market experienced a "reshuffle" and HQD fell from the first position in the market.

It was replaced by the world-renowned brand ELFBAR. According to people familiar with the Russian e-cigarette market, after sales of HQD were suspended, ELFBAR quickly filled the gap in its market. When Two Supremes visited the Russian market in October 2022, they also found that in many e-cigarette retail stores, ELFBAR products were filled with shelves.# p#pagination title #e#

 In October 2022, Two Supremes saw ELFBAR products filling the shelves at an e-cigarette retail store in Moscow.| Source: Two supremacy  

After HQD returned to the Russian market, its share dropped sharply. Although things were worse than before, HQD still retained part of its position in the Russian market.

Journey of transformation

Perhaps due to the impact on the Russian market, today's HQD pays more attention to product and operational compliance.

When Two Supremes communicated with a person engaged in e-cigarette logistics, he mentioned that HQD is very standardized in terms of logistics, and even a 1kg product requires export declaration. "It is rare to see a company that can achieve such standards."

"The current HQD has transformed from a 'guerrillas' to a 'regular army'." A senior practitioner in the e-cigarette industry commented this.

There are also many aspects that confirm the "formalization" of HQD.

In September 2023, when Two Supremes visited and conducted a survey in Germany, they found that all HQD's local products were labeled with tax labels. In fact, due to the German marketsmoke oilWith high taxes, many brands tend to choose "grey customs" to operate; and in the Dubai market where "grey customs products" are rampant, the two supremacy also observed that HQD is one of the few brands that has passed compliance certification.

Recently, on a domestic recruitment website, Two Supreme Discovery HQD was recruiting for the position of "Senior Compliance Officer". This position requires the formulation and implementation of compliance work plans based on the company's overall strategic plan. At the same time, it is necessary to interpret domestic and foreign laws, regulations, policies, and legislative trends related to the company, conduct training, publicize internal compliance policies, update procedures and other relevant information and systems, and supervise the development and implementation of compliance work in each department.

 Information on recruiting compliance officers posted by HQD on a domestic recruitment website| Source: Boss  

Some people have also provided evidence from HQD's products to prove the "transformation" of HQD.

A senior practitioner in the e-cigarette industry who declined to be named told two supremacy that HQD's early products were mainly based on imitations of other products. However, today HQD has made significant progress in product quality and innovation, and is deeply loved by consumers.

Currently, HQD has been deployed in Europe, America, Southeast Asia, Australia and New Zealand, and parts of Africa.

HQD has achieved certain results in some global markets. For example, in Germany, Spain, Miami, Florida and other places, HQD is a leading or well-known brand.

In terms of brand marketing, HQD is actively making efforts.

In addition to placing outdoor advertisements on the streets of Germany as mentioned above, HQD has also promoted products on British buses and sponsored boxing events in the United States in June 2023.

The test remains

HQD has also encountered "growth troubles" in the internationalization process:

In May 2023, HQD was investigated by the British Advertising Standards Agency (ASA) for product promotion on TikTok and was accused of violating British advertising rules;

In June, HQD products were tested to contain prohibited ingredients in Australia. The Australia Therapeutic Goods Agency (TGA) pointed out in a related reply to Two Supremes that HQD disposable e-cigarettes were detected to contain three ingredients that are explicitly banned in Australia: benzaldehyde, cinnamaldehyde and ethylene glycol;

In July, Kazakhstan customs seized 100 million yuan worth of e-cigarettes, some of which were printed with the HQD brand logo;

In August, the Western Australian Health Department of Australia seized 300,000 e-cigarettes, some of which bore the HQD brand logo.

It should be noted that HQD has realized the importance of compliance in the process of upgrading from a regional brand to a global brand. However, compliance is not a simple choice in today's global market.

Imperfection of policies, the prevalence of gray markets, profit-seeking behavior of local operators, and fierce competition in the supply chain... these will all make compliance decisions extremely difficult. Crossing the threshold of compliance, we are also facing fierce competition from major global brands at the commercial levels such as products, channels, and marketing. The future is full of unknown.# p#pagination title #e#

However, all possibilities begin with the first flapping of wings.

This is the meaning of the butterfly transformation. nbsp;