Why did the local king of China become acclimatized overseas? How can the road to internationalization deal with the "dilemma of compliance people"? Will capital mergers and acquisitions become a new wave in 2024?

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Global Competitors in "2023 Two Top Global Brands of the Year Series"(Part 2)

Yue Shi International Stall

--Why did the local king of China become acclimatized overseas?

How can the road to internationalization deal with the "dilemma of compliance people"?

Will capital mergers and acquisitions become a new wave in 2024?

Wen| Two supremacy Zhu Lihong

[Two Supremes Originals] On December 5,fog core technology（RLX Technology，“RELX yueshi"Parent company, NYSE code: RLX, common below"yueshiannounced that it has acquired two companies in Southeast Asia and North Asia for a total consideration of US$25 million.e-cigarette companies, both companies are in their respective countriese-cigarette industrymarket leader. Yueshi also announced plans to continue overseas expansion in the future.

Yue Shi's move had a warning. The third-quarter financial report released in November stated that in order to fully seize potential growth opportunities in the international market, the company terminated its cooperation with the company on November 10.RELX Inc. The existing non-competition agreement signed by Relx International on December 16, 2020.

This means that Yueshi may "show its strength" in the international market.

Judging from Yueshi's business layout, its business is mainly divided into two parts: domestic and international. The domestic business is mainly concentrated under the well-known "RELAX" brand, which is fully responsible for the Yuexie start-up team; the international business is mainly based on the two brands "RELAX" and "waka", and is operated independently by the specially established company "RELAX International". However, the reality is that Yue Shi's performance in the international market is not as dazzling as it was in the domestic market.# p#pagination title #e#

 Two brands under Yuexie International: RELX on the left""; waka on the right"| Source: google

This time, after three years of independent operation, Yueshi suddenly terminated its non-competition agreement with Yueshi International and immediately acquired two overseas companies.e-cigarette brands。The industry has speculated about whether Yueshi is preparing to take over international business and enter the global market on a large scale.

Get up early and catch the evening fair

Queen Street, Londone-cigarettesIn the store, other brands of e-cigarettes are displayed on the display cabinets marked with the word "RELX"; while in other stores, Yuexie's display cabinets are simply idle in the corner. This is what 2FIRSTS saw on the streets of the UK before.

"Yueshi's product sales are not ideal." A shop assistant said bluntly.

This may be regarded as a microcosm of the situation of Yuexie products in the European market.

April 2023 UK released by well-known data institution Nielsene-cigarette marketOn the top 10 brand list, both waka and RELX, owned by Yueshi, were absent. From this list, it can be clearly seen that the concentration of leading brands in the British e-cigarette market is extremely high, and leading brands account for the vast majority of the market share. In contrast, brands after the seventh ranking have a relatively limited market share and low brand awareness, let alone brands that fail to make the list.

 In April 2023, Nielsen announced the top 10 brands in the UK disposable e-cigarette market, of which waka and RELX were not listed.| Data source: Nielsen

According to media reports, Yueshi's overseas business has expanded to 52 countries and regions. As mentioned above, in overseas markets, Yuexie International is mainly dominated by RELX and waka brands. Among them, RELX continues to focus on replacement products and maintains its traditional product line. There are also a small number of disposable products, such as RELX MagicGo, while waka focuses on the disposable e-cigarette market.

Therefore, when discussing Yuexie International's business, we need to look at the two markets of disposable and replacement models separately. Many e-cigarette practitioners in different regions have said that in the global e-cigarette market,"RELX" does occupy a leading position in most regions. However, considering that the current global e-cigarette market is mainly disposable products, the replacement version only accounts for a small portion of the market share. Therefore, the performance of waka, which is mainly disposable e-cigarettes, in the global market can better reflect the overall situation of Yueshi International.

So, how is waka performing in overseas markets? 2FIRSTS learned through on-site visits, research and multiple inquiries that waka has not achieved good results in most markets.

 #p#Pagination Title #e#

In fact, waka's situation is similar to that of the United Kingdom in markets such as the Middle East, the European Union, South America, and Australia and New Zealand. Several local e-cigarette practitioners told 2FIRSTS that waka products are rarely seen at market terminals.

Obviously, the disposable e-cigarette business is not so easy for Yueshi International to do.

According to public information, Yuexie was founded in 2018 and has rapidly developed into a leading brand in the domestic e-cigarette market in a short period of time. But Yueshi was not satisfied with this, but set his sights on a global scale.

Yue Shi's overseas exploration began in 2019. In 2021, Yueshi officially established a new company,"Yueshi International", which is responsible for overseas business. A media report on Du Bing, CEO of Yue Shi International in December 2021, showed that Yue Shi International's employees come from 22 countries and regions around the world, and more than 40% of the employees are local employees.

According to data from Aiqichu, the registration of waka trademarks can be traced back to November 30, 2022 at the earliest. However, at the Dortmund Tobacco Show in September 2022, 2FIRSTS already saw waka participating. At that time, waka and RELX shared a booth. On-site staff said that waka will be launched in March 2022 and is a sub-brand of Yuexie International.

 Dortmund in September 2022vape ExpoOn, waka and RELX jointly participated in the exhibition| Source: Two supremacy

Through this information, it can be speculated that Yuexie International had mainly promoted the bullet-changing product RELX in overseas markets, but only began to enter the disposable product market after March 2022.

Disposable e-cigarettes rose rapidly in the European and American markets in 2020, while Yueshi was busy coping with the surge in the domestic tamper-replacement market. However, when the domestic e-cigarette market faces strict supervision in 2022 and Yueshi is forced to turn its attention to overseas markets, the disposable product market has already been dominated by ELFBAR, VUSE and some regional brands such asHQD, IGET, etc. occupy.

Yueshi is two years late, making it even more difficult to compete for the one-time market cake.

International failure of channel king model

Yuexie can rapidly rise and grow into an industry leader in a short period of time in China. So, in overseas markets that are also highly dependent on channels, can it replicate the domestic success model?

Let's first talk about Yuexie's domestic model. An e-cigarette practitioner familiar with Yueshi's situation told 2FIRSTS that Yueshi faced the problem of difficulty in joining domestic sales channels in the early days of its establishment, so it adopted the strategy of building its own channels. The so-called self-built channels means renting stores in shopping malls, building their own counters to sell products, or establishing their own specialty stores in urban streets at all levels.# p#pagination title #e#

Through this method, Yueshi has successfully established exclusive channels and occupied a place in the domestic e-cigarette market. As Yuexie's popularity gradually increased, it attracted a large number of agents to join in order to successfully occupy the domestic market.

Yuexie International has "copied" this model to Southeast Asia and achieved success in the re-loaded e-cigarette market in Malaysia and Indonesia (hereinafter referred to as "Indonesia"), especially Indonesia-in the country's high-end shopping malls and densely populated streets, RELX stores can be seen everywhere.

 In March 2023, in Kuala Lumpur, the capital of Malaysia, Two Supremes saw several RELX stores.| Source: Two supremacy

Some people have analyzed that in addition to self-built channels, Yueshi International's success in some parts of Southeast Asia also benefits from the widespread existence of the Chinese community in the country. Due to its success in the China market, Yueshi has a high reputation in the Chinese community. Therefore, its success seems more logical in markets with relatively large Chinese people.

Dr. Gao Yang, director of the South Asia and Southeast Asia International Communication Research Center for China Brands at Yunnan University of Finance and Economics, told Two Priorities that when a brand succeeds in a specific regional market, its experience and brand potential energy will form a halo effect, providing potential opportunities for transplantation in other target markets.

Obviously, Indonesia has become an ideal target market that can "perfectly replicate" the successful model that has been engraved in the country.

However, the Indonesian market is only an exception. In fact, in Europe and the United States, the main battlefield of e-cigarettes, there are few stores in Yueshi.

Is it true that Yuexie International has no intention of copying this model in European and American markets, or is this method not working?

In response, an analyst who declined to be named told 2FIRSTS that there are significant differences between the European and American markets and the Southeast Asian markets. First of all, self-built sales channels have higher requirements for population density in European and American markets; second, Yueshi lacks brand aura in areas with a low proportion of Chinese; third, store costs and operating expenses in Europe and the United States are relatively high, and Yueshi may not have enough financial support; finally, there are many European and American countries with different policies, coupled with the vigorous competition forces in various places, making it quite difficult to overcome these problems one by one.

Therefore, it is obviously difficult to enter the mainstream e-cigarette market in Europe and America by using self-built channels.

A veteran who has long been engaged in the British e-cigarette market business said that in Europe, self-built channels require a complete set of software and hardware facilities to be successfully implemented. According to his observation, currently in the UK market, only VUSE, a product owned by British American Tobacco (BAT), has set up exclusive counters.

 In an e-cigarette shop in the UK, VUSE set up a dedicated counter| Photo source: Photo provided by interviewees

This person said that when China e-cigarette brands are currently expanding in the global market, they generally choose to cooperate with local channel providers with corresponding conditions to achieve effective expansion of channels.# p#pagination title #e#

It is understood that the cooperation models between e-cigarette brands and channel providers are different. Take ELFBAR, the most well-known e-cigarette brand in the European and American markets, as an example. In the early stage of the market, it chose to adopt the billing method and established a deep bundled relationship with channel merchants through the strategy of large-scale distribution to channels; another well-known brand, HQD, is entering the Russian market, it attracts channel merchants to participate by giving up large profits.

The "dilemma" of compliance people

As we all know, in the global e-cigarette market,"Huiguan products" account for a large market share.

The so-called "gray customs products" refer to illegal products that are smuggled, exceed standards, tax evasion, and prohibited listing. Due to the relatively lax law enforcement in some countries, manye-cigarette enterprisesIt is generally chosen to explore development opportunities in both "grey customs"(non-compliant markets) and "white customs"(compliant markets) markets in these countries.

However, as a subsidiary of the listed company Fog Core Technology, Yuexie International must strictly abide by the relevant constraints and regulations of the listed company. Therefore, it cannot set foot in the "gray customs" market like other companies, and can only seek development in the compliance market.

This means that Yuexie International has lost many potential market opportunities. For example, in countries such as Australia, which bans disposable e-cigarettes and Brazil, which completely bans e-cigarettes; in addition, in the UK market, where illegal large-mouthed products seriously crowd compliance products, Yueshi International can only "see but not move."

While competitors have achieved great success in the "grey customs" field, Yueshi International's "identity background" has instead become a "shackle" that restricts its development in overseas markets.

As far as the U.S. e-cigarette market is concerned, a PMTA application is required for products to be marketed and sold in compliance. However, passing PMTA is an extremely difficult task, and some brands may not succeed even if they invest millions of dollars. Currently, very few companies have adopted PMTA. Reuters has reported that since 2020, Yueshi has invested millions of dollars in applying for PMTA and is still waiting for FDA approval.

However, since the United States does not have much enforcement actions against e-cigarettes, many brands have poured into the U.S. market, turning it into the world's largest e-cigarette market.

While competitors are developing in full swing in the United States, Yueshi International can only worry about it in neighboring Canada.

However, sources familiar with the U.S. e-cigarette market revealed that there are currently a small number of Yuexie products on the Los Angeles market. The person further stated that based on the outer packaging information of the products sold, they seem to be "cross-sourced" from Southeast Asia.

What are the odds of "taking advantage of overtaking"?# p#pagination title #e#

Of course, Yuexie International, which has many "inconveniences", is also participating in international market competition as much as possible.

2FIRSTS found that waka has a number of products with different shapes and styles, but they generally follow the characteristic of "simplicity". Although it was mentioned earlier that WAKA's performance in many overseas markets is not outstanding, WAKA soPro PA10000 is an exception.

WAKA soPro PA10000 is a disposable with 10000 portse-cigarette products, its appearance continues WAKA's classic black and white color scheme, and contains twoheating wire("Dual-engine" technology) Users can freely switch between "single-engine" and "dual-engine" modes.

After the product was launched in Russia, it received good feedback from the market and sales were considerable.

 WAKA soPro PA10000 launched by Yueshi International uses "dual-engine" technology and has received a good response in the Russian market| Photo source: waka official website

Many industry professionals generally believe that the fundamental reason for the success of WAKA soPro PA10000 lies in its unique "dual-engine" technology. In the "dual-emission" mode, users can feel a stronger mist when inhaling it, while releasing a denser and larger amount of smoke; while in the "single-emission" mode, the experience is the same as that of ordinary e-cigarettes.

Some consumer feedback said: "WAKA soPro PA10000 is very powerful. If you get up in the morning and take a puff, you can quickly improve your mind, which is in line with the habits and preferences of Russian consumers."

In fact, the "dual-engine" technology is not the first of Yueshi International. A senior practitioner in the e-cigarette industry pointed out that the "dual-emission" technology originally originated from the e-cigarette foundry American Public Federation, and was promoted in the United States by GEEKBAR PULSE. Subsequently, Yuexie International adopted this technology earlier than other brands in the Russian market and successfully built it into a "hot model" in the market.

However, in the e-cigarette market, strength alone is not enough to make a product a hit. It also requires the support of channel vendors. An e-cigarette practitioner familiar with Yueshi International said that Yueshi International has also encouraged channel dealers to sell their products through large profits in Russia.

Judging from the performance of waka soPro PA10000 in the Russian market, this strategy of Yueshi International has obviously worked.

However, Encore's expansion in overseas markets seems to be not limited to the two brands RELX and Waka.

On July 10 this year, ChinaBoltonAn announcement was issued announcing the successful sale of the Korean e-cigarette brand called "BUBBLEMON". The buyer is a wholly-owned subsidiary of Sunnyheart Inc, a company registered in the Cayman Islands, and the ultimate controlling beneficial owner of Sunnyheart Inc is Ms."Wang Ying".# p#pagination title #e#

There has been speculation in the industry that the acquisition may be related to Yueshi. Because the founder of Yue Shi is named "Wang Ying", the same pronunciation as" Wang Ying ".

In addition, the article first mentioned that on December 5 this year, Yueshi announced that it had acquired two e-cigarette brands in Southeast Asia and North Asia for US$25 million. This is the first move taken by Joy Star after announcing the lifting of the "non-competition agreement" with Joy Star International in this year's third quarterly report.

Some people believe that, except for some world-renowned brands such as ELFBAR, most e-cigarette brands have not yet established enough influence in the international market and lack the lasting appeal of users. Therefore, Yueshi has entered overseas markets by acquiring foreign e-cigarette brands. The strategy may not be smart.

Others believe that the main purpose of Yuke's acquisition of foreign brands may be to use the established channels of the brand to promote its products. After all, it is more convenient to acquire brands than to expand channels on your own.

In this regard, Cai Fangyi, chief analyst of the light industry at Changjiang Securities Research Institute, pointed out that considering the increasingly saturated overseas e-cigarette market and mature brands have emerged in most markets, expanding the market through mergers and acquisitions is a reasonable strategic choice. Given the large amount of cash held by Yueshi, making an acquisition is a natural choice. The lifting of the "non-competition agreement" between Yueshi and Yueshi International may also be in order to use funds more flexibly in the international market.

At the same time, Cai Fangyi also said that Yuke chose to operate two brands at the same time in the international market, and this acquisition also provides a useful supplement to its sub-brands. By acquiring brands in different markets, Joy can more effectively break through global markets one by one.

Editor's Notes:

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 in a higher quality direction.# p#pagination title #e#