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The "Sword of Damocles" above the e-cigarette finally fell. ”
The source of this article is "Wired Insight" (ID: lxinsight), which is reprinted by Tencent Venture with permission.
Text/Fei Zhang
Editor/Letter Lee
After many "wolves are coming", the "wolves" finally come.
In March, Shenzhen is full of spring, and contrary to the warm weather, the "cold wave" of the e-cigarette industry is sweeping here. As the "world's e-cigarette production center", Shenzhen has thousands of e-cigarette upstream and downstream enterprises entrenched here, supplying more than 90% of the world's e-cigarette equipment. However, the recent issuance of a new paper regulation has made the e-cigarette industry begin to be in the eyes of the storm.
A week ago, the "Sword of Damocles" above the e-cigarette finally fell.
On March 11, the State Tobacco Monopoly Administration issued the Administrative Measures for Electronic Cigarettes (hereinafter referred to as the Measures), which clearly requires that "the sale of flavored electronic cigarettes other than tobacco flavors and electronic cigarettes that can be added to the atomization by themselves is prohibited". In other words, e-cigarettes will be limited to the taste of tobacco, which makes many e-cigarette practitioners and consumers pessimistic that "the e-cigarette market has collapsed."
Announcement of the "Measures for the Administration of Electronic Cigarettes", the source of the State Tobacco Monopoly Administration
Song Jinmen, the person in charge of an e-cigarette store, directly abandoned the idea of continuing to open a store, and the reduction of the taste of e-cigarettes directly led to a decline in the overall sales volume of the industry. "Fruit-flavored smoke bombs account for 95% of the total sales of smoke bombs, and not allowing the sale of fruit-flavored smoke bombs, even mint flavors, is undoubtedly cutting off the 'lifeblood' of our money." Song Kinmen said.
In addition to the limited taste, the "Measures" also stipulate that e-cigarette stores can not only sell one kind of e-cigarette products, and the listing of enterprises needs to be reviewed and approved by relevant departments...
The promulgation of the "Measures" is not a surprising thing, but it came too quickly.
What caught Song Kinmen and many e-cigarette store owners by surprise was that the "E-cigarette Management Measures" were promulgated in March and came into effect on May 1, nearly half a year earlier than market expectations, and the buffer period was gone.
As a result, in the past week, the upstream and downstream of the e-cigarette industry chain have experienced a magical scene.
The production end is cautious, in order to digest the inventory of smoke bombs as soon as possible, many manufacturers have stopped working on domestic production lines; dealers and agents in order to catch the last handful of gold before the implementation of the new regulations, do not hesitate to buy at a premium from other peers, sell at a high price; in order to avoid the fruitless smoke bombs can be bought, a large number of e-cigarette consumers have opened a crazy hoarding mode, as few as dozens of boxes, as many as hundreds of boxes.
However, under strict control, it does not mean that the entire army is destroyed, and the upstream manufacturers at the top of the pyramid have already opened up the space for U-turn after several major ups and downs.
China, as the world's largest tobacco market, shows that at present, 95% of the world's e-cigarette products are produced in China, of which more than 90% of the products are exported.
Fang Hui, partner and CMO of Boulder E-cigarettes, admitted to Connect Insight, "The Measures mainly focus on the industry norms of the domestic market, although there are some new regulations on exports, but the impact on overseas business is certainly not as large as that of China." At present, some enterprises are ready to abandon the domestic market and focus on overseas markets. ”
But Song Jinmen and other domestic e-cigarette counterparts know that there is little living space for themselves, the implementation date of the new regulations is approaching, and they are very anxious every day, "After closing the store, what can I do in my next job?" ”
From upstream producers to downstream stores, everyone who is wrapped up in it is looking for a way to deal with it. It's just that compared to the previous hesitation and reluctance, now they are more determined to turn around.
1
The countdown begins: users snap up stockpiles, stores transfer stores
"I can't do it anymore."
If the rent had not expired in October this year, Song Jinmen would have closed his e-cigarette shop in May this year. In this small county in this fourth-tier city, although the pressure to open a store is smaller than that of its counterparts in the city, the rent of the four stores, plus staff costs, utilities and other expenses, at the end of each month, Song Jinmen has not much profit.
In fact, since the second half of last year, store sales have declined, and Song Kinmen is a bit overwhelmed. After the Spring Festival, he immediately dismissed all employees and left his wife, brother-in-law and cousin to take care of the remaining three stores.
Song Jinmen clearly remembers that in early December 2021, the Administrative Measures for Electronic Cigarettes (Draft for Solicitation of Comments) were released. He understands that the introduction of the new regulations in 2022 is a foregone conclusion, but e-cigarette practitioners and experts have speculated that before the regulation is implemented, the government department will give a 5-7 month transition period, so that practitioners have time to shrink their business.
But the new regulations were introduced early, like a missile without a signal, suddenly exploded in the e-cigarette industry.
Panic is spreading in the WeChat group. On the day after the promulgation of the "Measures", song Kinmen's regional industry exchange group, more than 300 store leaders, all discussed around the "ban on the sale of fruit-flavored smoke bombs". "Fruit-flavored smoke bombs are not allowed to be sold, what will you rely on to make money in the future?" "What should I do if I can't clear my inventory before May 1?".
The new regulations restrict the taste of e-cigarettes, which is equivalent to cutting off the "cash cow" of retailers. Smoke bombs with high repurchase rates are the bulk of e-cigarette sales.
How many e-cigarette practitioners are involved in the "Measures"? It can refer to a set of data, the "2021 E-cigarette Industry Blue Book" released on December 17, 2021 shows that there are more than 1,500 e-cigarette manufacturing and brand enterprises in China, and there are nearly 100,000 e-cigarette supply chain and peripheral service enterprises. These enterprises have created nearly 1.5 million direct jobs and 4 million indirect employees, for a total of about 5.5 million people.
E-cigarettes create 5.5 million jobs, source "2021 E-cigarette Industry Blue Book"
Song Kinmen also found that in recent days, more and more peers have transferred stores, "Before the WeChat group also had information on the transfer of stores, most of the reasons were loss of money, and now many store owners directly give up and transfer stores in batches." ”
On the one hand, the withdrawal of peers, on the other hand, the customers of Song Jinmen stores are increasing, and the amount of one-time purchases has increased. "In the past, customers mostly bought by one piece, and now most of them place orders in ten boxes. Best-selling flavors such as grapes and lemons have long been out of stock. ”
Song Jinmen also did not intend to buy goods and stockpile goods, and it was the most important thing to sell out the goods in his hand as soon as possible. "First, the manufacturer has no goods to send to us, and second, even if we can buy goods, we can't sell them out on May 1, and the inventory is wasted in my own hands, which is too risky." Song Kinmen said to Connect Insight.
As Song Kinmen said, as soon as the regulations restricting the taste of e-cigarettes came out, manufacturers with names such as grapefruit and magic flute issued notices announcing that after the inventory consumption was over, they would stop flavoring products such as fruits and sell new products developed as soon as possible.
On May 1, this period of life and death, on the one hand, oppressed the nerves of all e-cigarette practitioners, and on the other hand, it also stimulated consumers' enthusiasm for hoarding goods, which is the last window period of the industry for many shop owners and agents. They want to fish for the last handful of gold before the myth of getting rich is over.
When Song Jinmen still insisted on selling cigarette bombs at the original price, 2,000 kilometers away in Beijing, a Yueke store was selling 120 yuan / box of electronic cigarette bombs. If customers want to enjoy the original price discount of 99 yuan / box, they must be equipped with a 159 yuan / cigarette stick. In fact, the Measures do not restrict the sale of cigarette sticks.
ConnectIng Insight to the customer service of Yueke to verify the price increase, the other party informed, "If you see any 'RELX Yueke decided to increase the price' information, it is not officially released by Yueke, and the news released by Yueke officially shall prevail." In addition, customers can also report private price increase stores, and Yueke will deal with it immediately. ”
Yue carved rumors to debunk the announcement, the source of the official public account of Yue carved
Provincial and municipal agents who master a large number of channel resources also want to make a lot of money in the final stage. "Grasp the hoarding, the inventory is urgent!" 7 days a piece, it is recommended to stock 30 boxes; 5 days a piece, it is recommended to stock up on 45 boxes..." For a time, it became the standard circle of friends copywriting of many agents.
Connect Insight found that an Ono agent not only sold Ono smoke bombs, but also sold multiple brands of smoke bombs. But even agents can't get enough resources from manufacturers.
The above-mentioned Ono agent admitted to The Connect Insight, "Any taste of smoke bombs from ono's home can now be transferred to the goods." Other brands need to dynamically check whether the inventory is sufficient according to customer needs. ”
According to another agent, now that the manufacturer has stopped the production of fruit-flavored smoke bombs, the entire market is very out of stock, and they can only buy from other agents at a high price and sell them at a premium. The Yue carved cigarette bomb he sold himself has reached 150 yuan / box, and it is sold from ten boxes.
Even the hidden micro-businessmen have accelerated the speed of rolling up money, trying to cut the last wave of leeks.
A micro-business told the connection Insight: "Yueke has risen from the original 65 yuan / box to 95 yuan / box," after which the price will not be reduced, you do not buy now, and you will not be able to buy it again. ”
Why is the price increase, and there are also a large number of consumers paying for it? A user who has purchased a total of 30 boxes of fruit-flavored cigarette bombs explained to Connect Insight: "E-cigarettes have become the standard in their own social occasions, and fruit flavor is easier to bring comfort to each other. ”
The shock wave generated after the policy was settled, from manufacturers, brands, distributors, to the retail store owners at the end, and even consumers, were not spared, and they seemed to have tacit understanding, which triggered this huge rush to buy storm. But this is just a return to the light.
2
Fateful e-cigarettes
The fate of e-cigarettes in the Chinese market is like a roller coaster, with ups and downs.
Before 2018, the market for e-cigarettes was mainly concentrated overseas. As the world's e-cigarette production base in Shenzhen, foreign customers carry bags of cash to find processing plants here, and orders are like snowflakes smashed into the local e-cigarette factory. E-cigarettes have high gross profits and fast money, so a large number of Shenzhen e-cigarette entrepreneurs at that time achieved financial freedom early.
The secret book of making wealth was completely made public in 2018. In December 2018, the Wall Street Journal reported that Marlboro manufacturers took a stake in e-cigarette company Juul, valuing it at $38 billion.
At the same time, Juul also spent $2 billion in year-end bonuses. Thus, a huge opportunity to make a fortune lies ahead – becoming China's Juul. A whole bunch of Chinese entrepreneurs have entered.
With low threshold, low cost and high gross profit, e-cigarette companies have become the fragrant food of the venture capital circle for a time.
Since 2019, e-cigarettes have moved from the niche market to the public, known as the first year of e-cigarettes.
Luo Yonghao, founder of Hammer Technology, Zhu Xiaomu, the second person of Hammer, Cai Yuedong, founder of "Uncle Tongdao", and He Chang, founder of Pancake Fruit Brand Huang Taiji, and many other Internet "net red players" have turned to the e-cigarette market this year.
A large number of entrepreneurial teams have also entered the market, and Huang Hongpu is one of them. Huang Hongpu, who is engaged in the machinery production industry in Beijing, found that many friends around him used e-cigarettes, and the cigarettes did not leave their hands, and after some research, he felt that this market had a head. So I contacted a few friends and made a start-up fund.
Attracted by the gold rush in the industry, cross-border players like Huang Hongpu are like carp across the river.
According to the data of Tianyancha, between 2016 and 2018, the number of newly registered e-cigarette companies exceeded 1,000 every year. After the outbreak of the e-cigarette track in 2019, more than 2,000 new e-cigarette companies were added, and there were more than 35 investment cases in the e-cigarette industry in the first half of the year alone, with a total investment of at least more than 1 billion yuan.
In the environment that had not yet been strictly controlled at that time, high-traffic places such as movie theaters, KTV, bars, and restaurants became popular channels for e-cigarettes to compete for market share. Whether it is the store signboard or the store shelves, the colorful cigarette poles have become a bright "scenery" on the street for a time.
Low-key e-cigarettes have suddenly become a "paradise" for entrepreneurs, and it is inevitable that they will be noticed by regulators.
The tide rises and falls, always in an instant, and the domestic regulatory wind begins to blow. On October 30, 2019, the State Administration for Market Regulation and the State Tobacco Monopoly Administration jointly issued the Notice on Further Protecting Minors from E-cigarettes, which requires the online ban on the sale of e-cigarettes.
When the online channel was banned, Huang Hongpu's e-cigarette was still in the production workshop of a foundry in Shenzhen. Then at the beginning of 2020, the new crown epidemic swept the country, domestic companies almost all shut down, he and several partners of the e-cigarette dream has not yet begun, and was strangled in the cradle, before and after the loss of hundreds of thousands.
Entrepreneurs like Huang Hongpu, who crossed the border into the e-cigarette industry and were beaten back to the original place by the online ban policy, are the epitome of most small and medium-sized e-cigarette startups.
After the online ban, the brands that are still alive have turned to a large number of offline stores and gained market share. For a time, the e-cigarette offline battlefield, but the fight is extremely fierce, the e-cigarette industry "second spring" began.
The traditional distribution agency system and high subsidies have become the key to the brand's promotion of store expansion plans.
In 2020, Yueke formulated the "361 Plan", that is, to open 10,000 stores through subsidies of 600 million yuan in three years; at the beginning of 2021, YOOZ proposed the "Ten Thousand Stores" plan, with a maximum subsidy of 1.18 million, and in the same year, Ono planned to open 10,000 stores at the end of the year through 1 billion subsidies. In March 2021, Shega also announced the issuance of shares to agents, encouraging agents to open more stores.
It was also during that period that the considerable subsidy for opening a store made Song Jinmen feel moved. He quit his job at a state-owned enterprise in the city and prepared to do a big job in All in.
At that time, a provincial representative of e-cigarettes advised Song Kinmen to open more stores, forming a regional monopoly effect, "Only you are authorized in the county, open 4 stores, and the customers in the entire county are yours." The market effect in the mouth of the provincial representative was too attractive to Song Jinmen, so he signed 4 stores at the end of 2020.
In Song Jinmen's view, there are not many stores opened, and most of the municipal franchisees he knows have opened 6-7 stores, and most of the franchise time is concentrated in the beginning of 2021. At that time, the market share of the first-tier cities of each brand was close to saturation, and in the third- and fourth-tier cities, or even more sinking counties, crazy races were racing.
Sinking markets, everywhere is filled with the atmosphere of making quick money.
However, the enthusiasm of the market was soon swept away by the various opinion drafts that were constantly introduced. In March 2021, the Ministry of Industry and Information Technology and the National Tobacco Monopoly Bureau drafted the Decision on Amending the Regulations on the Implementation of the Tobacco Monopoly Law of the People's Republic of China (Draft for Solicitation of Comments), proposing that "new tobacco products such as electronic cigarettes shall be implemented with reference to the relevant provisions on cigarettes in these Regulations". Three months later, the new version of the Law on the Protection of Minors came into effect, stipulating that "the sale of electronic cigarettes to minors is prohibited."
On November 30 and December 2, 2021, the national standards for e-cigarettes (draft for comment) and the Administrative Measures for e-cigarettes (draft for comment) were successively launched, which stipulate the production, wholesale, retail and export of e-cigarettes.
"Administrative Measures for Electronic Cigarettes (Draft for Solicitation of Comments)", image source State Tobacco Monopoly Administration
In addition, there are also clear indicator requirements for the taste of e-cigarettes and the content of nicotine. The draft opinion adopts a whitelisting system and regards 122 e-cigarette additives as legal products. At that time, in response to the policy, the brands such as Leimi, Bode, and YOOZ were removed from the shelves or discontinued for smoke bombs and fruit mint flavored smoke bombs that were higher than 2% of the nicotine content standard.
The deadline for the Administrative Measures for Electronic Cigarettes (Draft for Comment) is set on December 17, and the national standard for electronic cigarettes (Draft for Comments) clearly states that "it will be formally implemented 3-5 months after its release". Therefore, most e-cigarette practitioners were optimistic at the time that there was a half-year buffer time from the landing of specific policies.
Unexpectedly, the policy situation is changing, and the "Measures" surprised everyone, and they can only sell tobacco-flavored electronic cigarettes.
This made Lin Xiao, an e-cigarette service provider, extremely annoyed, who investigated the market for half a year and made up his mind to enter the industry at the beginning of this year. "First, everyone did not predict that the "Measures" would be launched so quickly; second, I did not expect that e-cigarettes were limited to 'tobacco taste'; third, there was no expected transition period at all." In his view, the ban on the sale of fruit-flavored cigarette bombs will reduce the sales volume of the e-cigarette market by 70%.
Under the new regulations, a reshuffle of the e-cigarette industry is coming, and it also ends the barbaric growth of this industry.
3
The new regulations accelerate the reshuffle of the industry, and last year, major manufacturers have accelerated their going to sea
A lot of people are desperate.
"The rent expires in April this year, do you say I will renew the lease or withdraw the lease?" A friend of Song Kinmen lost sleep on the night after the "Measures" were introduced, and the next day he consulted Song Kinmen about a solution.
After half a day of discussion, the two did not find a safe solution, Song Jinmen said, "I don't know how to deal with my mess, and now the domestic offline store owners should be very anxious." ”
What makes Song Jinmen even more anxious is that he roughly calculated that the four stores have been open for more than a year and have not returned to their original capital. "In our county, the fixed cost of each store in the first year is about 90,000, but my actual total revenue in the first year is less than 100,000." It was only the second year of this year that it began to make real money, and as a result, new regulations were introduced. Although the manufacturer reassures us that we are already looking for a solution, I may wait for the rent to expire and then change careers. ”
After the policy is issued, the biggest impact is undoubtedly the e-cigarette sales channel, especially the retail stores at the end that have no bargaining power. The focus of the business is not how much money they can make in these two months, but what can they do if they don't do e-cigarettes?
He Chang, president of e-cigarette brand Leimi Wudian, further explained to Connect Insight: "The industry has prepared for the introduction of policies, but there is no preparation for landing time, and then superimposed on the recent operating pressure and the recurrence of the epidemic, no matter what psychological preparations have been made before, the landing of this new regulation has caused market panic." ”
Moreover, He Chang found that many industry merchants may interpret the new regulations as "disarming" and have a negative mood. Retail store owners hope to have some buffer periods that allow the stress to be released slowly.
At present, in addition to the serious squeeze on the living space at the sales end, a small number of manufacturers whose funds cannot support the transformation may also disappear.
But compliance is not a dead end. Some manufacturers at the top of the industry pyramid have begun to turn to overseas markets.
At the end of last year, Yueke's parent company, Wuxin Technology, announced that six months after Yueke entered the Southeast Asian market, it occupied the first place in the local e-cigarette market. In addition, Yueke also established a new company responsible for overseas business, "Yueke International", to accelerate the development of globalization again.
Fang Hui revealed to Connect Insight that some companies have recently been ready to abandon the domestic market and focus on overseas markets.
According to Fang Hui, by 2021, Bode has more than 30,000 retail sales points in the United States. In September 2020, Bode submitted a hardware and smoke oil PMTA application to the US FDA, becoming the only Chinese-funded e-cigarette company to submit a smoke oil PMTA application. At present, Platinum continues to expand its business in overseas markets.
He Chang also admitted frankly, "In fact, leimi began to adjust its distribution model and product direction from a year ago, and made some preparations in advance. The implementation of the new regulations has accelerated the advancement of these tasks. Moreover, going to sea is a strategy that every Chinese e-cigarette company must do well. ”
Although the conditions in overseas markets are relaxed, they are not blue oceans. Chinese e-cigarettes started from overseas markets and only later rose in China. Therefore, the e-cigarette brand went to sea and existed several years ago. There are many success stories, and failure stories abound.
However, for e-cigarette manufacturers, transformation and finding new ways out are all things that must be done.
An investor who pays attention to the e-cigarette industry told Insight that after the acceleration of the industry reshuffle, several head brands may occupy 80% of the market share, and the remaining 80% of the players will divide the remaining 20%. ”
The myth of "sudden wealth" is about to end completely, and under the new regulations, e-cigarettes will stop growing barbarically and gradually enter the standardization. In the second half, the industry will have a new way of survival, which also tests the resilience of e-cigarette practitioners.
At the request of the interviewees, Song Jinmen and Huang Hongpu were pseudonyms.
END
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