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How should the 100 billion Jianghu of e-cigarettes continue after the whole system is incorporated?

2021/08/05|Knowledge

It seems that we have been doing our best to fight for the "biggest weight" of the electronic system sooner or later.

According to the survey of AI media consulting, the scale of China's e-cigarettes market was 550 million yuan in 2013, and by 2020, the scale of China's e-cigarette market will increase to 8.33 billion yuan, with an eight-year compound annual growth rate of 72.5%. It is estimated that the market scale is expected to exceed 10 billion yuan in 2021. In addition, according to the enterprise survey data, as of recently, there have been more than 83200 "e-cigarette" related enterprises in China, with an increase of 21700 in 2020.

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Although compared with the overall big data of "the total industrial and commercial tax profit of the national tobacco industry in 2020 is 1280.3 billion yuan", the current sales volume and profit and tax contribution of e-cigarettes are hardly worth mentioning, its development momentum in recent ten years is very rapid. However, at the time of its rapid development, the upcoming "Incorporation Order" has made the whole e-cigarette industry shiver.

So why is e-cigarette developing so rapidly? Why is it so favored by capital? How will we deal with the fate of being incorporated?

Fifteen years of ups and downs

As an innovative thing, e-cigarette has a different general experience since its birth.

A pharmacist named Han Li, like many smokers, became more and more addicted to smoking with the increasing pressure of work. Later, seeing his father suffering from lung cancer due to perennial smoking, Han Li made up his mind to quit smoking. In 2002, Han Li began to develop new smoking cessation products. The reason for smoking addiction lies in nicotine, but the biggest harm to human body is tar and other combustion products. If these harmful substances can be removed and only nicotine is retained, the harm of smoking will be greatly reduced.

After numerous experiments, in 2004, the world's first electronic cigarette, Ruyan, was successfully invented and began industrial production. Ruyan went on the market in 2005. At that time, the cheapest product such as tobacco was 599 yuan, and the most expensive pipe type product was as high as 16800 yuan, while the price of the same type of smoking cessation products on the market was about 200 or 300 yuan. However, the price of this product is not friendly. After listing, it quickly opened the domestic and foreign markets by relying on bombing advertising marketing. It took only seven and a half months to collect 230 million yuan, and the turnover in the first year reached 200 million yuan. In the peak period from 2007 to 2008, the sales volume was nearly 1 billion yuan. The company claims to have sold more than 300000 e-cigarettes in 2008. Subsequently, Ruyan landed on the Hong Kong stock exchange, with a market value of more than HK $100 billion.

But soon, the advertising words of "healthy smoking" and "quit smoking" were falsified by the authoritative media, giving a fatal blow to the smoke. Coupled with the impact of unstable product quality, poor taste and regulatory factors, Yiyan failed to recover, and finally sold to Imperial Tobacco, the world's fourth largest tobacco company, at a low price of US $75 million in 2013.

Despite the ups and downs of the past decade, more and more enterprises have found business opportunities: broad market space and huge profits... However, the new e-cigarette "gold diggers" must continue to move forward on the shoulders of giants.

After learning from the failure experience of Ruyan in product quality and taste, these underachievers merged smoke bombs and atomizers through research and development, and greatly increased the amount of smoke by increasing the power of smoking sets. However, because the machine is large, it belongs to the "old gun" of large smoke, which is mainly used by players and has not entered the world of the real main force of consumption (i.e. young people).

How to make e-cigarettes enter the world of young people still requires hard work in quality, younger and more fashionable in appearance and shape. Until around 2016, Juul, the size of a USB flash disk, has brought e-cigarettes to a new stage with fashionable appearance and fresh taste. This is a closed electronic cigarette, which uses nicotine salt to greatly increase nicotine transmission efficiency, small volume, reduce the power limit of atomizer, form the mainstream of the market, and gradually attract Chinese smokers in the following years.

At this stage, e-cigarettes have distinctive labels, such as flower smoke ring, steam culture, street punk, personality and fashion; E-cigarette consumers shouted to abandon the titles of "old smokers" and "old cigarette poles" and advertised themselves as new "players"; Major e-cigarette brands actively bundle their products with personalized trends, and successfully break into the circle of young people by means of social activities and media.

Gather in groups and make full use of the advantageous resources of e-commerce

As a new industry, after more than ten years of exploration, the e-cigarette brand has basically opened the brand awareness and found its own market development path. However, in order to solve the worries at home, we have to solve the problems of upstream and downstream supply chain procurement and production end. In this regard, it seems that the whole e-cigarette industry led by the head e-cigarette brand has a general consensus - Bao'an District, Shenzhen.

It is understood that China is the birthplace of e-cigarettes and the world's largest producer and exporter of e-cigarettes. 95% of its products are exported to more than 200 countries such as Europe and the United States. From the perspective of global e-cigarette manufacturing, China's e-cigarette manufacturing is in Bao'an, Shenzhen. More than 90% of e-cigarettes are produced here and go global. According to the data of tianyancha professional edition, there are nearly 8000 e-cigarette related enterprises in Shenzhen alone, accounting for about 16.8% of the total number of related enterprises in China.

Why do e-cigarette brands gather in Bao'an District, Shenzhen? In this regard, Yang Haibo, a comprehensive researcher of Shenzhen Bao'an District Development Research Center, said in an interview that the global e-cigarette production is mainly concentrated in Bao'an for three reasons:

First, Bao'an is a large electronic industry area and a strong real economy area. The materials and equipment required for e-cigarette production can be easily found in Bao'an, which reduces the search cost of enterprises, such as lithium batteries, control chips, sensors and LED indicators.

Second, from the perspective of innovation, e-cigarette is an integrated innovation similar to Apple mobile phone, that is, it reorganizes and matches existing products or knowledge to form new products or things, and can realize new functions and functions, which is inseparable from the excellent business environment in Bao'an District, especially the support for innovation.

Third, from a market perspective, the export of Shenzhen ranks first among large and medium-sized cities in China for 28 consecutive years, indicating that Shenzhen has deeply participated in the "double cycle" construction. The continuous improvement of the demand for e-cigarettes in the international market is one of the main driving forces for the rapid growth of e-cigarettes in Bao'an District. Bao'an District has natural advantages such as airport and port, and has strong competitiveness in export.

According to the securities times, most of these e-cigarette factories are scattered around Fuyong street and Shajing street in Bao'an District, Shenzhen. There is no centralized e-cigarette Industrial Park, no centralized e-cigarette Industrial Park, and no eye-catching signs. Most small and medium-sized factories rent one or two floors in the park. Even the head factory is very ordinary from the appearance, They usually divide several factories into different parks.

Take the central road of Shajing as an example. This road, which is about 5.5km long, has been called "e-cigarette Street" by the industry. You can buy all the accessories required for e-cigarettes on this road. However, if you are a layman walking on this street, you won't feel any elements about e-cigarettes at all. There are restaurants, convenience stores, supermarkets, electric city and hotels in this street, but there is no store name with e-cigarette signs. Only experts walk into the roadside office buildings. In those large and small lattices, the signboard says so and so technology, so and so electronics and so and so trade. It is basically a hidden e-cigarette company.

However, it is worth mentioning that due to the lack of domestic policy environment and industry standards, and the development stage of the domestic market, the scale is still small. Therefore, the early e-cigarette brands without exception chose the export route, only in the overseas market, not domestic sales. If they want to buy at home, they can only entrust people to buy from overseas.

"The acceptance of e-cigarettes in Europe, America, Japan and South Korea is earlier than ours, and the penetration rate has reached 20% - 50%, while less than 1% in China. For example, in the United States, cigarettes are expensive and e-cigarettes are relatively cheap. In addition, there are many roads in the United States, so you need to smoke to relieve fatigue after long-distance driving. E-cigarettes can be used at any time if you want to smoke, and cigarettes still need to be ignited. Therefore, since the launch of e-cigarettes, the United States has always been the largest market, accounting for about 50% of the world's share, followed by Europe, accounting for about 35%. A market like China is not worth layout at all. " The salesperson of a brand e-cigarette factory in Fuyong said in an interview with the media.

According to the statistics of some institutions, by the end of 2017, the global sales volume of e-cigarettes was 547 million sets, and the output value reached US $4.7 billion.

Capital surged into the bureau to achieve multiple myths of rapid listing and wealth creation

The development of electronic cigarette industry is more and more mature, the momentum is more and more fierce, and the profit space is huge. This makes the capital market smell the "money way" and rush into the Bureau. The representative event is that at the end of 2018, Altria group, the parent company of Marlboro, announced the acquisition of 35% of the shares of Juul, an electronic cigarette brand, with a post investment valuation of up to $38 billion! This wealth creation myth has caused a sensation in the domestic venture capital circle, and investors dream of making a "Chinese version of Juul". As a result, the major capital investors have successively entered the market, and e-cigarette has suddenly become one of the most popular venture capital fields. Therefore, the third round of development of e-cigarette driven by capital began.

Some media reported that due to the large market space, low threshold and amazing profits, Baoan District enterprises that used to make fake mobile phones, speakers, electronic gifts, beauty instruments and balance cars have changed to electronic cigarettes“ Take the transformation of Shanzhai mobile phones into e-cigarettes as an example. Compared with Shanzhai mobile phones, e-cigarettes need fewer components. These people are familiar with the road, buy a pile of spare parts, recruit some workers to assemble them, and then quickly sell them all over the world with the radiation capacity of Huaqiangbei wholesale market. " Insiders said in an interview with the media.

As long as you have money, you can easily create your own e-cigarette brand in Shenzhen. It has been reported that in Huaqiangbei's electronic stall, as long as 3000 electronic cigarettes are purchased at one time, they can be completed in 10 days from tobacco oil, design, packaging and production, with a total cost of no more than 90000 yuan. Even if only 80 yuan / piece, 3000 pieces can be sold for 240000 yuan.

It is reported that in this context, there are 1000 newly registered e-cigarette brands in the first half of 2019 alone, which is known as the "thousand cigarette war". Fierce industry competition often means a rapid reshuffle in the industry: the head e-cigarette brand becomes stronger with the help of capital, and the brand with the lowest comprehensive strength can only be out of the game. This is also in line with the law of the market. In this process, the head e-cigarette brand represented by smore international and fog core technology quickly came to the fore, and quickly went public with excellent performance.

Take Smallville international as an example. On July 10, 2020, Smallville international, an e-cigarette manufacturer, was listed on the Hong Kong stock exchange, thus becoming the first share of China's e-cigarette. At present, smore's income mainly comes from overseas. According to the prospectus of SIMORE international, the revenue of SIMORE in 2016, 2017, 2018 and 2019 were 707 million, 1565 million, 3434 million and 761 million respectively. The annual profits of SIMORE in 2016, 2017, 2018 and 2019 were 100 million, 188 million, 730 million and 2.17 billion respectively; The profit margins during the year were 15%, 12.1%, 21.4% and 28.6% respectively.

On the evening of March 31, 2021, the performance report for 2020 released by SIMORE International showed that the annual revenue of SIMORE international in 2020 was 10 billion yuan, a year-on-year increase of 31.5%; The adjusted net profit was RMB 3.893 billion, a year-on-year increase of 71.9%.

As a result, smore international continues to maintain its position as the world's largest electronic atomization equipment manufacturer. According to Sullivan report, the market share of smore international in the field of global electronic atomization manufacturers increased from 16.5% in 2019 to about 18.9% in 2020.

Taking fog core technology as an example, on January 22, 2021, the e-cigarette enterprise fog core technology (Yueke) officially landed on the New York Stock Exchange with the stock code of "RLX". According to the prospectus, the revenue of fog core technology in the first three quarters of 2018, 2019 and 2020 was 133 million yuan, 1.549 billion yuan and 2.201 billion yuan respectively; The net profit was about - 287000 yuan, 47.748 million yuan and 109 million yuan respectively.

On March 26, 2021, the 2020 financial report released by fogcore technology showed that the net revenue of fogcore technology in 2020 was 3.82 billion yuan (US $590 million), a year-on-year increase of 146.5% over last year's revenue of 1.55 billion yuan. The adjusted net profit is 800 million yuan (120 million US dollars) not calculated in accordance with US GAAP. In the financial report, fog core technology attributed the growth to the sales of offline dealers. According to the prospectus, as of September 2020, fogcore technology has cooperated with 110 authorized distributors and has more than 5000 stores.

During this period, grapefruit, Magic Flute, Baide, Ono, Xiwu, Xuejia, Feiwo, weita, Bolan, Hengxin, yijiate (Lingdong), Blizzard, Keyi, XISU, Weike, fog maker, vtv, wanplatinum, magic box, Shiwu, Xinyikang, klepeng, Yihai, meishenwei, Aipu, fog, Jimo, caffreison, Ouxi, GuZi, tesiyi Chinese herbal medicine and other e-cigarette brands have made rapid development.

Boosted by capital, comprehensive data show that the global e-cigarette market has reached US $36.7 billion in 2019; In 2020, the global sales of new tobacco, including heating non combustion and electronic atomization, reached US $42.4 billion, with a year-on-year increase of 15.6%.

The sword of Damocles hangs high

Some observers pointed out that with the strong assistance of the capital market, the head brand focuses on building brand awareness and rapidly improving market share through the following ways: first, improve brand awareness through crowdfunding, building film IP and developing star customers. Second, through the recommendation of celebrities, the recommendation of bloggers in xiaohongshu, the promotion of high-value CEOs, and the coverage of wechat mall, tmall, jd.com, pinduoduo and other platforms on Yueke line. Third, set up flash stores, enhance consumers' offline interaction and popularize the use of e-cigarettes. At the same time, the exhibition includes electronic cigarette equipment and various flavors of cigarette bomb series products, and is equipped with cigarette rod art device, LED screen background wall, cigarette bomb doll machine, laser beam evaluation table lamp, handheld KT board and other props to attract consumers to take photos and punch in and improve the attention of brand social media.

These relatively Internet-based and fresh measures have not only made positive contributions to the "opening up and expansion" of the head e-cigarette brand, but also attracted the attention of many minors. Driven by huge profits, more and more e-cigarette brands began to break through the bottom line and start the business of minors.

Some businesses have opened physical stores selling cigarettes to areas where minors are concentrated, such as primary and secondary schools and kindergartens, which increases the convenience for minors to contact and buy cigarettes; Some businesses are attracted to sell and sell cigarettes by means of self built websites, official account numbers and small programs. Some e-cigarette businesses issue false advertisements of "cool", "health" and "fashion" to lure minors to buy and smoke; Some businesses did not post warning signs and implement the provisions on the verification of identity documents, and there were acts of selling cigarettes to minors.

According to the China Center for Disease Control and prevention, about 10 million people aged 15 and over use e-cigarettes in China. The people who use e-cigarettes are mainly young people, and the use rate of the age group aged 15-24 is the highest. The way to obtain e-cigarettes is mainly the Internet, accounting for 45.4%.

"In recent years, the hospital has treated many minors who have many physical problems due to smoking e-cigarettes. These events have aroused widespread heated discussion in the society, and there are many complaints from parents to relevant departments. These situations have aroused great concern of relevant departments. " A person in the e-cigarette industry who asked not to be named said that it was expected to standardize and rectify the industry.

On August 28, 2018, the State Administration of market supervision and the State Tobacco Monopoly Administration issued the notice on banning the sale of e-cigarettes to minors, urging e-cigarette production and sales enterprises or individuals to close e-cigarette Internet sales websites or clients in time; Urge the e-commerce platform to close e-cigarette stores in time and remove e-cigarette products from the shelves in time.

Since the announcement, the phenomenon of e-cigarette brands directly promoting and selling e-cigarettes to minors has improved. However, it is also found that minors still know, buy and smoke e-cigarettes through the Internet. Some e-cigarette enterprises even publicize, promote and sell e-cigarettes through the Internet in order to blindly pursue economic interests.

On November 1, 2019, the state tobacco monopoly administration and the State Administration of market supervision jointly issued the notice on further protecting minors from e-cigarettes, again urging e-cigarette production and sales enterprises or individuals to close e-cigarette Internet sales websites or customers in time; Urge the e-commerce platform to close e-cigarette stores in time and remove e-cigarette products from the shelves in time; Urge e-cigarette production and sales enterprises or individuals to withdraw e-cigarette advertisements published through the Internet.

"It can be found that in the two circulars of relevant departments, the part restricting the online sale of e-cigarettes is mostly expressed as' urging '. Therefore, there is a lack of clear definition and legal provisions on e-cigarettes, which is seriously restricting the control of e-cigarette sales by competent departments." The above industry people, who declined to be named, said.

According to the investigation of Xinhua news agency, e-cigarettes are still sold online after a change. Buyers can buy them without providing identity information, and the age limit is in vain. There are two main methods:

First, the e-commerce platform "changes the soup without changing the medicine". On some e-commerce platforms, search for "e-cigarette" without displaying results, but search for keywords such as "electronic inhalation", "electronic atomizer" and "electronic atomizing rod", and store information for selling e-cigarette and related accessories will appear. Among them, an online store that sells well has a monthly sales volume of "1000 +".

Second, social platform black box operation. The reporter saw on some social platforms that many businesses advertised in pictures and short videos, "new taste, full sense of security" and "energy bar on the fingertips"... Some businesses will leave mobile phone numbers or QQ and wechat in the comments to induce netizens to further contact and buy one-on-one online.

In order to comprehensively and strictly supervise the operation of e-cigarettes and prevent the "resurgence" of chaos in the e-cigarette market, on June 18, 2021, the state tobacco monopoly administration and the State Administration of market supervision jointly formulated the special action plan for "guarding growth" to protect minors from tobacco abuse, comprehensively clean up the Internet transformation, disguised sales of e-cigarettes and false and illegal advertisements. Local tobacco monopoly administrative departments should interview e-cigarette enterprises and Internet enterprises, consolidate the main responsibility, and prevent the infringement of e-cigarettes on minors in the Internet field.

"Incorporated" has entered the schedule

"If only 'urging' rectification, judging from the results in recent years, it has achieved some results in rectifying the chaos of the e-cigarette market, but it has not achieved substantive objectives. In order to completely standardize and promote the healthy development of the e-cigarette industry and completely protect the physical and mental health of minors, the most important thing is to start from the level of laws and regulations, so as to have a deterrent effect. " The above industry people, who declined to be named, said.

In fact, relevant departments have already made preparations in this regard. On March 22, 2021, the Ministry of industry and information technology and the state tobacco monopoly administration studied and drafted the decision on Amending the regulations for the implementation of the tobacco monopoly law of the people's Republic of China (Draft for comments), and one article will be added to the supplementary provisions as Article 65: "new tobacco products such as electronic cigarettes shall be implemented with reference to the relevant provisions on cigarettes in these regulations."

Why should the regulations be revised? The official explanation pointed out that in view of the homogeneity between new tobacco products such as e-cigarettes and traditional cigarettes in terms of core components, product functions and consumption modes, new tobacco products such as e-cigarettes should be implemented with reference to the relevant provisions on cigarettes in the implementation regulations. This is the main basis for the implementation of the State Council's legal regulation on the quality of new tobacco and electronic products, which is also consistent with the effective implementation of the State Council's legal regulation on the quality of new tobacco and electronic products False advertising and other issues to effectively protect the legitimate rights and interests of consumers.

The draft of the above "e-cigarette implementation with reference to cigarettes" triggered a shock in the e-cigarette industry, and the share prices of listed companies related to the industrial chain fell sharply. Fog core technology, the parent company of Yueke, a leading e-cigarette brand in China, fell sharply and nearly halved. As of the closing on March 22, 2021, the share price fell 47.84% to US $10.15/share. On behalf of the manufacturer, the share price of smore international once fell by more than 35%. As of the closing on March 23, 2021, the share price fell by 7.22% to close at HK $48 / share. The domestic listed e-cigarette concept stock Yiwei lithium energy closed down by 15.85%, aiside fell by the limit, and Yinghe technology fell by 7.76%.

While many investors and securities institutions are still analyzing the possibility of "being incorporated" of e-cigarettes, another action of relevant departments makes the e-cigarette industry see the inevitability of "being incorporated".

On April 29, 2021, the Ministry of industry and information technology replied to netizens' comments in the minister's mailbox on its official website. In order to strengthen the supervision of new tobacco products such as e-cigarettes, the Ministry and the state tobacco monopoly administration drafted the decision on Amending the tobacco monopoly law of the people's Republic of China (Draft for comments). At present, the public consultation has been completed. The supervision of e-cigarettes will be carried out in accordance with the revised regulations for the implementation of the tobacco monopoly law of the people's Republic of China.

"It can be seen that the revised regulations for the implementation of the tobacco monopoly law of the people's Republic of China are basically established and will be released at an appropriate time after the relevant processes are completed." Some industry experts said.

In addition, the new version of the law on the protection of minors, which was officially implemented on June 1, 2021, also specifically emphasizes the prohibition of abetting and laissez faire minors to smoke (including e-cigarettes), as well as the prohibition of selling cigarettes, e-cigarettes and other products to minors, with a maximum penalty of 500000.

The last struggle? Or to get a good price after being incorporated?

As usual, in order to make the follow-up promotion of relevant policies more smooth, relevant departments will give a briefing in advance before the release of relevant policies.

On May 26, 2021, the planning department of the National Health Commission and the representative office of the World Health Organization in China jointly issued the report 2020 on the health hazards of smoking in China (hereinafter referred to as report 2020), which pointed out that nicotine, as the main component of e-cigarette, not only makes users dependent, but also has adverse effects on the development of fetus during pregnancy and may lead to cardiovascular disease. Exposure of fetuses and adolescents to nicotine may cause long-term adverse consequences for brain development, which may lead to learning disabilities and anxiety disorders.

Although the research on the harm of e-cigarette to human health is still in-depth, studies have fully shown that the use of e-cigarette can increase the risk of cardiovascular and pulmonary diseases and have a definite impact on fetal development.

The report 2020 also pointed out that the use of electronic cigarettes makes it easier for people to use cigarettes, resulting in strong dependence, which is particularly obvious among teenagers. A meta-analysis of 91051 adolescents showed that the risk of becoming a cigarette user after using e-cigarettes was 2.21 times higher than that of never using e-cigarettes.

Coincidentally, more than one month after the publication of report 2020, that is, on July 3, 2021, Sun Yat sen University and relx Yueke published a paper in the SCI journal ecotoxicology and environmental safety. The conclusion shows that under the condition of acute exposure for 24 hours, The effect of e-cigarette smoke agglutinate on human lung epithelial cell line (BEAS-2B) was much less than that of cigarette smoke agglutinate, which verified the relative harm reduction potential of e-cigarette at the cell level.

The paper shows that this study takes "the same nicotine concentration" as the standard for the first time, and uses a certain e-cigarette and a common cigarette of fog core technology as the experimental object to prepare e-cigarette and cigarette smoke agglutinate to detect their different effects on human lung BEAS-2B. The data after a series of experiments such as cell viability, inflammatory response, apoptosis, cell cycle and transcriptome sequencing showed that after 24 hours of exposure to the agglutinate with the same nicotine concentration, the cells in the e-cigarette group had no significant changes in morphology, apoptosis related indicators and inflammatory factors, and did not show obvious cytotoxic reaction.

At the same time, this study also conducted an influential comparison at the gene level. After sequencing the experimental cells and comparing with 16881 genes in the reference group, it was found that a total of 8477 genes in the traditional cigarette group changed, mainly in multiple pathways such as cell cycle, cell division, DNA repair, proteasome and phosphorylation regulation, metabolism and cancer, while only 25 genes in the e-cigarette group changed, It mainly focuses on ribosomal regulation signal pathway.

"Perhaps this is a coincidence, but looking at this issue in the context of being 'incorporated', it may have other flavors. But in any case, "being incorporated" is the general trend. It is understandable that major e-cigarette brands have actively taken a number of measures to seek better arrangements after being incorporated. " The above observers said, however, regardless of the results, the focus of the current e-cigarette brand is to continue to strengthen scientific research, improve product quality and make the e-cigarette truly realize its "original intention". Only in this way can the market continue, growth continue and profits continue.

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