Written by Cheng Liang wei yining of the weekly magazine "Finance and Economics World"
Editor/ Yang Jie
Hoarding, price increases, "harvesting" the last wave
Li Lin, an e-cigarette consumer, still remembers that she saw the news released by the new regulations on e-cigarettes on the crowded subway after work on Friday, March 11: After May 1, e-cigarette flavors are prohibited from showing other flavors other than tobacco flavors.
The news was like five thunderbolts, Li Lin almost screamed out on the subway, for her, tea or fruity e-cigarettes are the source of happiness at work. After more than two years of work, inhaling a sweet smoke when she is tired in the afternoon and evening is her most comfortable enjoyment. However, this means that after more than a month, her happiness will no longer exist.
Li Lin's first reaction was to hoard goods. However, she learned at the Yueke e-cigarette store before that a few days before the introduction of the new regulations, the store began to raise prices, and her favorite cold-brewed green tea, rose morning dew and other flavors rose from the original 99 yuan to 120 yuan. At that time, the reason given by the clerk was that some micro-merchants sold some of the flavor smoke bombs of Yueke at a high price, so Yueke took the initiative to raise the price.
"According to my consumption of a cigarette bomb in two days, even if I spend five thousand yuan to stock up on goods, at the current price, I can only buy less than fifty boxes, which is not enough to smoke for half a year." Li Lin said.
According to the observation of "Finance and Economics" Weekly, in several Yueke stores and e-cigarette collection stores in Beijing's Tongzhou District, most of the Yueke e-cigarettes have risen to 110 yuan, and some flavors have risen to 120 yuan. Some stores have not yet increased the price, it is still 99 yuan a box, but the shortage is serious, many flavors only have the last box; even some are less than one box, only two smoke bombs, the owner said that they can be combined with other flavors of smoke bombs for sale.
Shen Yi, who opened a Yueke store in Beijing's Guomao Underground Mall, said that not long ago he was still selling with it, but as soon as the new regulations were announced, the price of most flavored e-cigarettes rose to 120 yuan. "There was no way, I had to raise the price. In the past, I could sell more than 30,000 yuan a day, hundreds of boxes of sales, and then (inventory) could not last for a few days, and there was no goods to sell in the next month. ”
In another large e-cigarette collection store, the owner Cheng Zhi also told the "Finance and Economics" weekly that the current best-selling flavors of Yueke have not yet increased in price, but the supply is not much, "at this price, you can only buy one or two boxes, can not hoard too much."
Cheng Zhi explained that a few days before the introduction of the new regulations, Yueke stores and collection store agents have begun to increase prices, due to changes in the relationship between supply and demand, because most of the factories producing electronic cigarettes are in Shenzhen, affected by the epidemic, production and logistics have certain difficulties.
But dramatically, the official WeChat public account of Yueke responded that the official decision to increase the price is a rumor, if the store price increase, consumers can feedback to the company to complain.
"In fact, feedback is not useful, collection stores like ours are from provincial agents or factories to take goods, everyone according to the current purchase and sales situation to increase prices, Yueke and there is no binding force." Cheng Zhi said.
Shen Yi also said that the original price of 99 yuan was only an official guidance price, and retailers have the right to adjust. "Everyone is caught off guard by the new rules, and when there is no proper solution, the price adjustment penalty does not matter at all, no one cares."
Stores have raised prices in an attempt to harvest the last wave of consumers. But in Shen Yi's view, "now it is more like a collective 'drinking and quenching thirst'."
According to the new regulations, retail stores are not allowed to operate e-cigarette products exclusively. For the collection store, as long as it obtains sales qualifications, it can still order on the unified platform managed by the state and continue to sell e-cigarettes, but it will inevitably lose some consumers.
A collection store owner told the "Finance and Economics" Weekly that due to the excessive density of e-cigarette collection stores and fierce competition, it has closed down a lot, before, there were more than a dozen collection stores in the most densely populated places in Beijing's Nanluoguxiang tourists, and now they are "gone". A few months ago, there was another e-cigarette collection store opposite her store, but in February this year, the store closed down. "Finance and Economics" Weekly saw that the words "Yueke, YOOZ, Mizuno, Shafen, VTV, Lemei Supply Center" on the glass door of the store have not yet been removed, but the goods in the store have been emptied and posted with rental information.
(Photo: Finance & Economics Weekly/ Photo)
E-cigarette full chain "pain"
On March 17, the final feedback of the national standard for "electronic cigarettes" (the second draft for comment) was officially closed. This means that the national standard for electronic cigarettes has entered a new stage.
A week ago, on March 11, the State Tobacco Monopoly Administration issued an announcement on the "E-cigarette Management Measures" while publicly soliciting opinions on the national standard (second draft for comment) of the "Electronic Cigarette", and said that it would be officially implemented from May 1, 2022.
The "Administrative Measures" make provisions on domestic e-cigarette production and quality management, sales management, import and export trade and supervision and inspection, etc., a total of 45 articles. Compared with the "Administrative Measures for Electronic Cigarettes (Draft for Comment)" released on December 2, 2021, 9 new content, 4 deleted content, and 27 adjusted expressions are added to the full text.
Among them, the licensed production and marketing and the limitation of "tobacco taste" can be described as a "heavy blow" for the e-cigarette industry.
According to Article 8 of the Administrative Measures, the e-cigarette market will implement a very strict licensed sales system, and enterprises related to the production, processing, brand holding and other enterprises of e-cigarettes must be examined and approved by the competent administrative department of tobacco monopoly under the State Council, obtain a tobacco monopoly production enterprise license, and be approved and registered by the market supervision and management department. Article 26, on the other hand, indicates that the sale of flavored e-cigarettes other than tobacco flavors and e-cigarettes that can add atomizations by themselves is prohibited.
Chen Zhong, an observer of the e-cigarette industry, said that the formal introduction of the "management measures" means that the dealer channel is basically not feasible, and the national, provincial and municipal generations of major brands cannot be wholesaled, and dealers will have to transform, open stores or do brand service providers. Banning the taste of fruit, for brands and shop owners, is basically to "start over".
"Previously, 70%-80% of the shipments of brands in the industry were fruity, and if the tobacco flavor was replaced, it was not easy to re-cultivate user habits." And it is foreseeable that because of the lack of income, many stores will usher in closure. In the past, a store revenue may reach 100,000 yuan, if you do not sell fruit flavor, it may be reduced to only 10,000 yuan, which will inevitably be unable to support operating costs such as labor and rent. Chen Zhong said.
Banning the sale of flavored e-cigarettes can be said to have cut off the "financial road" of e-cigarette retailers.
E-cigarette products come in a variety of flavors, among which fruit is the most popular among consumers and is also the best-selling product in retail stores. E-cigarette sales are often played with the banner of "for cigarettes", many users also recognize this concept, for them, fruit flavor e-cigarette irritation is lighter, avoid the smoke taste, it is easier to enhance the social favorability of smokers. For manufacturers, different tastes are also conducive to avoiding product homogenization, and target consumer groups are differentiated according to the tastes of different brand products.
It is understood that as early as last autumn and winter, Yueke had laid out the tobacco-flavored "One Creek Cloud" and "Little Golden Branch" series of smoke bombs in advance. The "Yixi Cloud" series simulates different cigarette flavors, such as mint rhyme, blueberry rhyme, guang citrus rhyme tobacco, etc., while the "Little Golden Branch" series uses atomization bomb + original extraction stick, which provides coolness, and the original extraction stick provides four cigarette flavors: original flavor, mint, coffee and tea.
(Photo: Yueke "One Creek Cloud" series "Finance and Economics" Weekly / Photo)
But for most e-cigarette consumers, the flavor of tobacco is not as good as that of fruity e-cigarettes. The owner of a large e-cigarette collection store in Beijing told Caijing Tianxia Weekly that the current sales of tobacco-flavored cigarette bombs in the store are far less than the taste, and the purchase is also small. "Moreover, the vast majority of tobacco-flavored e-cigarettes do not meet the new standards for nicotine and spices, and further adjustments will inevitably be made in the future."
The data shows that as early as November 30 last year, when the national standard of e-cigarettes was first solicited for comments, it was stipulated that the concentration of nicotinoid (nicotine) in the atomization should not be higher than 20mg/g, that is, 2%, and at present, most of the fruit-flavored e-cigarettes in Yueke have a concentration of 3% and tobacco-flavored nicotine to 5%.
It is worth mentioning that on the day of the second draft of the e-cigarette opinion and the announcement, the parent company of the domestic e-cigarette leader Yueke, Wuxin Technology, announced the fourth quarter and annual financial report of 2021. According to the financial report, Wuxin Technology achieved a double increase in revenue and net profit in the fourth quarter of 2021, and the company's revenue for the whole year last year was 8.521 billion yuan, an increase of 123.1% year-on-year; the net profit was 2.028 billion yuan, compared with a net loss of 128 million yuan in the previous year.
It is reported that Shenzhen Wuxin Technology Co., Ltd. was established in 2018, the main RELX Yueke brand electronic atomization cigarette research and development, design and sales, and with the domestic e-cigarette business has repeatedly entered the Hurun global unicorn list. However, under the shock of the new regulations, most of the e-cigarette concept stocks have been voted by the foot and ended tragically, and the leader Wuxin Technology has not been spared.
On the night of March 11, Wuxin Technology plunged 43.35%, and finally closed at $1.49 / share, and even fell to the lowest point of the year at $1.16 / share the next day. Subsequently, affected by the retracement of the Chinese stocks, the stock price rebounded again. As of the close of trading on March 18, Wuxin Technology closed at $2.39 per share, up 16.75%, with a total market capitalization of $3.742 billion. However, it fell by 92% compared with the closing price of $29.54 per share on the day of listing in early 2021, and the total market value also evaporated by more than $42 billion.
In this regard, Wang Ying, founder of Wuxin Technology, said on the earnings conference call, "The company supports the new national standard opinion, and the new regulations clarify the direction of the company's future business development, eliminating the uncertainty of time and transaction mode." We believe that new standards and measures can significantly increase the acceptance of the harmful nature of reduced products among adult smokers, and that restrictions on taste will not affect the core needs of millions of traditional smokers for harm reduction. ”
"Finance and Economics" Weekly noted that in the "Administrative Measures for Electronic Cigarettes" promulgated this time, it is also mentioned that the initial public offering of shares by electronic cigarette enterprises and their listing should be reported to the competent administrative department of tobacco monopoly under the State Council for review and approval. This did not appear in the previous exposure draft.
Capital access management is becoming stricter, and e-cigarettes that once stood on the cusp have also come to a crossroads.
Jiang Han, a senior researcher at Pangu Think Tank, believes that "the impact on e-cigarette companies that have already been listed is still relatively small, but for quasi-listed companies or companies with listing ideas, the cost of compliance has further increased." Under such circumstances, the development of e-cigarette companies may face more uncertainty. ”
In addition, Chen Zhong told the "Finance and Economics" weekly that the tightening of IPO supervision of e-cigarette companies has largely controlled the disorderly expansion of previous capital, but it will inevitably be accompanied by "pain", and there will be a sharp decline in companies such as the already listed giants Yueke and Simmer. "However, leading enterprises have a high market share, and in the long run, after the regulatory stabilization, valuations will naturally return or climb."
"Short-term bearish, long-term positive"
According to the statistics of the Prospective Research Institute, from August 2018 to March 2022, a total of 11 regulatory policies were promulgated from the Notice on Prohibiting the Sale of E-cigarettes to Minors to the Administrative Measures for E-cigarettes. Among them, the protection of minors has become a key factor in the revision of the regulations.
In recent years, due to the existence of regulatory gaps, the disorderly development of the e-cigarette industry, some products have unclear content of nicotine (i.e., nicotine), unclear added ingredients, smoke oil leakage and other issues, especially some operators publicize and mislead consumers, induce minors to smoke, and infringe on the physical and mental health of minors, so in November 2021, the policy is clear, and new tobacco products such as electronic cigarettes are implemented with reference to the relevant provisions of the "Regulations on the Implementation of the Tobacco Monopoly Law of the People's Republic of China" cigarettes.
Meng Bo, a lawyer at Beijing Jingshi Law Firm, told Caijing Tianxia Weekly that in the "Administrative Measures" issued this time, it is stipulated that "electronic cigarette product sales outlets shall not be set up around ordinary primary and secondary schools, special education schools, secondary vocational schools, specialized schools, and kindergartens" and "it is forbidden to sell electronic cigarette products to minors; e-cigarette operators should set up signs in a conspicuous position not to sell e-cigarettes to minors; for those who are difficult to determine whether they are minors, they should be required to show their identity documents". It is linked to the Law on the Protection of Minors, which can effectively prevent the spread of tobacco to minors and strengthen the legal protection of minors.
"The ban on fruity e-cigarettes is largely intended to prevent smokers from becoming addicted to them, and fruity flavors are more likely to attract minors than tobacco flavors." Many people in the industry stressed.
Shen Yi also pointed out to the "Finance and Economics World" weekly that the second draft of the national standard opinion on electronic cigarettes has obvious differences in taste regulations compared with the first draft. "When the first draft came out, there was a whitelist of flavor additives, and 121 flavors were drawn up, of which some fruit-flavored products were allowed to be produced. By the second draft, the taste had been reduced to 101, and all fruit-oriented flavors, essential oils, etc. had been eliminated. ”
With the "E-cigarette Management Measures" about to land on May 1, the domestic e-cigarette industry will also officially enter the era of strong supervision.
"The new regulations' strict control of the e-cigarette market is a bearish news in the short term, but in the long run, it is more conducive to the benign development of the industry." Big waves of sand and sand are inevitable, but after the entire industry ushers in a major reshuffle, a group of compliant and innovative head enterprises will also be screened. Wang Peng, associate professor of Chinese Min University, said.
According to the Ai Media Consulting report, the domestic sales market size of China's e-cigarette industry continues to grow, and the growth rate is expected to be 76.0% in 2022; the export market size continues to grow, and the growth rate is expected to be 63.4% in 2022. In 2021, China's e-cigarette industry will directly and indirectly drive employment of about 5.5 million people. Ai Media Consulting analysts believe that it is expected that in the future, under the condition of gradual improvement of domestic e-cigarette regulatory policies, the e-cigarette industry can bring certain promotional significance to domestic economic and social benefits.
In this regard, Chen Zhong also pointed out that under the current supervision, the e-cigarette industry will usher in the whole process of production, circulation and consumption, and the establishment of a national transaction management platform will make the whole process of e-cigarette trading more controllable, each link can be traced, and will also solve the problem of inferior products such as fake goods and shoddy manufacturing from the source.
Previously, as early as the end of October 2019, the State Administration of Market Regulation and the State Tobacco Monopoly Administration jointly issued the Notice on Further Protecting Minors from Electronic Cigarettes, requiring an online ban on the sale of electronic cigarettes.
After the online channel ban, a large number of e-cigarette brands began to turn to offline stores. Offline store competition, a time to play hot.
Yueke will take offline new retail as the focus of the company's efforts in 2020, and plans to invest a total of 600 million yuan in the next three years and open up 10,000 stores. Bode e-cigarette also launched the "thousands of cities and ten thousand stores" strategy, saying that it would take out 300 million yuan to subsidize offline franchise stores, and promised to "7 working days to subsidize in place". At that time, franchise stores were exempt from franchise fees, and brand subsidies for store decoration, gift subsidies and promotional materials became the "standard action" for offline stores.
In this "make quick money" atmosphere, a large number of e-cigarette retail stores have also blossomed everywhere. But now, with the slowdown of brand "staking" and the continuous strengthening of supervision, the enthusiasm of the market is gradually dissipating, replaced by worries and doubts about the future.
"In the current remaining 40 days or so, most companies do not have enough time to switch, and stores can only passively ship or hoard goods buffer." However, after the standardization of the entire market, the leading effect will be obvious, and small and medium-sized enterprises will be more sad. However, any industry is basically provided by large and medium-sized companies to provide better services, so it is difficult for brands without strength to go down, especially during this year's shock period. Chen Zhong said.
At present, no one knows how many consumers will be lost and how many stores will close. An employee in Cheng Zhi's shop said: "It's really not okay, just change places to work." ”
Li Lin is still running on the road of "hoarding goods". One by one, she searched for specialty stores and collection stores to see which one had not yet increased in price, and she hoped to buy as many fruity e-cigarettes as possible at low prices. "Although the taste of tobacco is not unacceptable, the fruity taste is out of print after all, and it is not too much to hoard now."
(At the request of the interviewees, Li Lin, Shen Yi and Cheng Zhi are pseudonyms)