“Electronic cigarette is a new type of electronic product, which is essentially a portable electronic cigarette. It mainly imitates the form of traditional cigarettes and uses parts such as e-liquid, heating system, power supply, and filter to heat and atomize, thereby producing aerosols with specific odors.”
1. Overview, classification, and characteristics of the electronic cigarette industry
Electronic cigarette is a new type of electronic product, which is essentially a portable electronic cigarette. It mainly imitates the form of traditional cigarettes and uses parts such as e-liquid, heating system, power supply, and filter to heat and atomize, thereby producing aerosols with specific odors.
According to the “Analysis of the Development Situation and Investment Strategy Research Report on China’s Electronic Cigarette Market (2023-2030)” released by Guanyan Report.com, electronic cigarettes are divided into atomized electronic cigarettes and heated non combustible tobacco products (HNB) based on their working principles. Electronic Cigarette (EC), also known as Electronic Nicotine Delivery Systems (ENDS), is a new type of tobacco product that produces gas through atomized oil for human consumption. Electronic atomized cigarette is a small device used to simulate or replace cigarette smoking. Its basic principle is to use heating, ultrasound and other methods to atomize glycerol or propylene glycol solutions containing nicotine and essence components, to produce fog similar to cigarette combustion for people to smoke. At present, the available atomized e-cigarettes on the market are mainly divided into closed e-cigarettes and open e-cigarettes. Heating Non Burning (HNB) does not detach from tobacco, and its working principle is to produce aerosols containing nicotine after heating tobacco flakes to 200-300 ℃. Due to the significantly lower working temperature compared to traditional cigarettes (600 ℃) and the complex processing of tobacco leaves, it has strong harm reduction properties.
From the perspective of industry characteristics, the production mode of the electronic cigarette industry is not yet mature, with high product and market complexity. Changes in user demand have put significant pressure on the research and development end; From the perspective of industry status, electronic cigarettes, as a representative product of the new economy, new formats, and new consumption, have become an important supplement to traditional cigarettes.
2. From barbaric growth to orderly development, the industry has entered a standardized era
The rise of China’s electronic cigarette industry can be traced back to 2003, when a pharmacist named Han Li created the world’s first electronic cigarette under the brand name Ruyan. Due to low entry barriers and lack of national standards, the production cost of the electronic cigarette industry is extremely low, but the profit margin of the entire industry is not low compared to traditional tobacco, resulting in the entire electronic cigarette industry standing in the dividend of “high profits and low taxes”. This has also led more and more people to dive into the ocean of electronic cigarette industry under the trend of interest. Data shows that in 2019 alone, there were over 40 investment cases in the electronic cigarette industry. According to the disclosed investment amount statistics, the total investment should at least exceed 1 billion. Among them, MITO Magic Flute e-cigarettes won the annual highest score with a score of 50 million US dollars on September 18th. At that time, the top electronic cigarette brands in the market, such as RELX, TAKI, BINK, WEL, etc., received investments, while the new internet famous brands, Ono Electronic Cigarette, FOLW, and LINX, which emerged in the 6.18 World War, received investments of tens of millions, and even many well-known brands had investors.
Behind the rapid development of the industry, there is a hidden logic of “rough and crazy” operation and “barbaric growth” of electronic cigarette manufacturers. More and more untrue products and unsafe incidents occur. In November 2019, two departments issued a document prohibiting online sales of electronic cigarettes, causing a major shock in the electronic cigarette industry. For the vast majority of e-cigarette companies that have been online for a long time, this is undoubtedly a fatal blow. Since then, the once online dominated business model has entered a dead end, and the only way out is to return to the offline model. Subsequently, the Guiding Opinions on the Issuance of Tobacco Monopoly Production Enterprise Licenses for Electronic Cigarette Related Production Enterprises, Several Policy Measures for Promoting the Rule of Law and Standardization of the Electronic Cigarette Industry (Trial), and the Electronic Cigarette Transaction Management Rules (Trial) were successively introduced, and the uncertainty of the industrial chain was gradually addressed.
3. Under national tobacco control, manufacturer promotion, mature consumer awareness, and product iteration, the industry scale continues to expand
The fourth special action of the 15 major actions of the Healthy China Action (2019-2030) is smoking control, which clarifies the serious harm of smoking to people’s health and proposes specific action goals such as “by 2022 and 2030, the proportion of people protected by comprehensive smoke-free regulations will reach 30% and 80% and above, respectively” and “by 2030, the adult smoking rate will be reduced to below 20%”. Under the guidance of national policies to encourage people to consciously control smoking, the awareness of civilized and healthy living among the general public continues to increase, and the adult smoking rate is gradually decreasing. Taking Beijing as an example, since the implementation of the Beijing Smoking Control Regulations for over 6 years, the smoking rate among the population aged 15 and above in the city has gradually decreased. The data shows that the smoking rate among people aged 15 and above has dropped to 19.9%, and the goal set by the Healthy Beijing Action to achieve a smoking rate of less than 20% among people aged 15 and above by 2022 has been achieved ahead of schedule. Under the future national smoking control situation, the number of smokers will continue to decrease. Given that most smokers need a transitional period when quitting smoking, electronic cigarettes have shown its advantages: allowing them to replace the pleasure of lighting cigarettes with electronic cigarettes, while not inhaling a large amount of nicotine, gradually reducing their dependence on cigarettes. Therefore, many consumers choose electronic cigarettes as a transitional period for quitting smoking.
4. Product upgrade iteration is the key to industry development, and the future iteration rate may determine the industry landscape and path
From the moment of invention, electronic cigarettes have not stopped iterating. Each iteration will create a group of companies, and the characteristics of fast-moving consumer goods are becoming more and more obvious. Products with obvious attributes of fast-moving consumer goods will update and iterate quickly. Especially disposable e-cigarettes have the characteristics of fast-moving consumer goods, and the usage cycle of cigarette sets is often only a few days. In addition to taste, the variable appearance, etc., are all means to attract consumers. Therefore, product upgrading and iteration are the key to promoting the development of the e-cigarette industry.
At present, top enterprises are constantly upgrading and breaking through in product research and development. For example, the leading brand of electronic cigarettes, MOTI Magic Flute, has obtained national high-tech industry certification through continuous efforts in innovation and scientific research. As of now, MOTI Magic Flute has nearly 200 invention patents, covering various aspects such as product appearance and structure, and has been applied to products, truly achieving continuous upgrading and iteration of product functions; TOFRE Furui has established its own international R&D innovation center and a 2019 laboratory that complies with CANS standards in order to develop better products. It has also established research projects with several well-known university laboratories and continues to increase R&D investment; As of now, TOFRE Furui has nearly 200 invention patents, covering various aspects such as product appearance and structure, and has all been applied to products, truly achieving continuous upgrading and iteration of product functions. In addition, other related enterprises in the industry have also invested heavily in research and development innovation and produced considerable results, supporting the sustainable development of the entire industry. Considering the contradiction between workload and time, human resources, and patent group limitations in atomization core and e-liquid technology, whether the R&D and production efficiency of supply chain enterprises based on their own endowments can meet the iteration rate of end products will become a key factor in the future competitive evolution of the industry landscape.
5. The brand side has a relatively concentrated pattern, while the manufacturing side presents a pattern of constant strength
At present, the pattern of Chinese e-cigarette brands is relatively concentrated, with only the main company of the top electronic cigarette brand Yueke (RLX), Wuxin Technology, having a market share of nearly 65.9%. SMOK, which positioned itself as an entry-level product in the early stages, has made good progress in recent years in terms of Bluetooth links for e-cigarette devices, development and operation of apps (Steam Time), and establishment of e-cigarette social media. It can be said that it is no longer limited to the production of electronic cigarette products themselves, but there are also actions being taken in the service and cultural cultivation of electronic cigarettes. Overall, it has achieved tremendous success in the European and American markets, gradually freeing Chinese e-cigarette companies from the positioning of contract factories.
6. Numerous manufacturers are betting on overseas markets, and targeted vertical expansion may be an effective way to open up channels for overseas expansion
Compared to the increasingly strict regulatory policies in the domestic market, the overseas market has a broader user base and future prospects. According to the “2022 Electronic Cigarette Industry Export Blue Book” report, the global electronic cigarette market size will exceed 108 billion US dollars in 2022. It is expected that the overseas electronic cigarette market size will maintain a growth rate of 35% in 2022, with a total size exceeding 100 billion US dollars.
Currently, the vast majority of brands and manufacturers are starting to focus on overseas markets, and leading companies such as Yueke and MOTI Magic Flute have already begun to bet on overseas markets. For example, Yueke attempted to explore overseas as early as 2019. After its establishment in 2021, Yueke International, responsible for overseas business, has accumulated millions of consumers in more than 40 countries worldwide. Another brand, MOTI Magic Flute, now has business coverage in 35 countries and regions worldwide, with over 100000 various branches worldwide, and even established a leading independent e-commerce platform in the North American industry. The current map of electronic cigarettes going global extends from North America, Western Europe, Japan and South Korea, the Middle East, Southeast Asia to a wider market in Latin America and even Africa, and the pace of sweeping the world is accelerating.
Obtaining high-quality users for e-cigarettes overseas is crucial. From the global market perspective, men aged 25-34 are the main group of electronic cigarette products, but the female group is on the rise based on the development of the small cigarette category, accounting for 38%, and this number is constantly increasing. In addition, specifically speaking, the majority of e-cigarette users are gaming esports enthusiasts, basketball enthusiasts, and fashion influencers, with some specific labels. Therefore, directional vertical expansion may be an effective path to open up sea channels.
Post time: Dec-14-2023