As of the first three quarters of 2020, Yueji has accounted for more than half of the closed electronic cigarette market in China, reaching 62.6%, and its revenue is 2.22 billion yuan. (Southern Weekend reporter Mai Quan / picture)

On January 23, 2021, Hyatt parent company fog core technology（ NYSE:RLX ）Listed on the NYSE, it became the "first share" of Chinese e-cigarettes, with a market value of 45.8 billion dollars.

According to the prospectus of Wuxin technology, as of the first three quarters of 2020, Yueke accounted for more than half of China's closed e-cigarette market, reaching 62.6%, with a year-on-year growth of 14.6%. During the same period, Yueke's revenue was 2.22 billion yuan, up 93% year on year.

Not only is Yueji, the scale of domestic e-cigarette industry is also expanding rapidly. According to a report provided by aoweino, Secretary General of the electronic tobacco industry committee of China Electronic Commerce to reporters at the weekend of the south, the export and domestic sales of e-cigarettes in 2021 are expected to be 81.3 billion yuan, with a CAGR of 28%.

15 months ago, the State Tobacco Monopoly Bureau and the State Administration of Market Supervision issued an online ban on e-cigarettes, and the e-cigarette industry was crying. At that time, the topic of media discussion was "how long can electronic smoke live".

But now, why not only did electronic smoke survive, but also become the air outlet for investors to pursue?

Occupy the market ahead of time

After Yueji listed, Wang Ying, 39 year old founder and CEO, and his team owned 54.3% of Yueji shares. Wang Ying's family has soared to about 58.9 billion yuan, Forbes magazine reported.

The prospectus shows that after graduation, Wang Ying turns to three companies, namely P & G, Bain consulting and Uber. In 2016, after didi acquired Uber China, Wang Ying served as general manager of Uber China.

In January, 2018, Wang Ying officially left didi to start his business, founded Shenzhen fog core technology Co., Ltd., and launched the electronic cigarette brand "relx".

According to the information presented by aoweino, Secretary General of the electronic tobacco industry committee of China Electronic Commerce, to reporters at the South Weekend, e-cigarettes appeared in 2004 as the first generation of e-cigarettes products for cigarettes, such as tobacco, which was listed in China. Because of the rough heating device and poor absorption, it failed to develop.

After a few years, open type big smoke products appeared, with large smoke volume, which effectively enhanced nicotine intake, but it was large in volume and complicated in operation.

The transfer took place in 2015, the U. In december2017, the market share of Juul rose to 46.8 percent, according to the Winston sallum.

Many industry participants interviewed said that electronic smoke products have been popular in small circles and "enthusiasts" and have not been promoted to the mass market. The appearance of Juul has made the whole industry structure from the traditional era of big smoke to the era of small smoke, and the Chinese market has begun to follow suit.

Li Ling, who is in charge of market work in an e-cigarette enterprise, recalled to reporters at the weekend in the south that from the end of 2018 to the first three quarters of 2019, many people rushed in to do e-cigarettes, lined up to go to the factory and chose an existing template, with the lowest cost of only a few yuan. "E-commerce platforms, e-cigarettes that sell five yuan and 10 yuan are everywhere."

The attention of the capital market to the e-cigarette industry has attracted more and more new players to cross-border into the field of electronic smoke. In january2019, caiyuedong, founder of Uncle Tong Dao, founded the brand grapefruit of electronic smoke; in April 2019, LuoYongHao released the first electronic cigarette product Xiaoye.

"Yueji is about a year ahead of most similar products, and has gained the advantage of first-hand development, and quickly occupied the market by more than a year." Li Ling told reporters at the South Weekend, "at the beginning of Yueji's development, investors told them not to accept media interviews, do it in a low-key way and do it quickly."

Three months after its establishment, Hyatt released its first product in April 2018.

Shiming is the first group of offline retailers of Yueji. In may2018, he opened a Yueji franchise store in Guangzhou, which has been operating for more than RMB 100000 per month.

He recalled to reporters at the southern weekend that the e-cigarette market was in a stage of disorderly competition at low prices. Electronic cigarette easy to label, any logo, and then can be produced on behalf of the industry.

"Yueengrave can change the atomization core for free within one year, which is very important for the retail end." Said Shiming.

In August, 2019, Euromonitor International data, a market research company, showed that Yueji accounted for 44% of China's e-cigarette market share, exceeding the total of 2-10.

The electronic smoke of all kinds displayed by the office of the electronic tobacco industry committee of China Electronic Chamber of Commerce, the top layer is open type large smoke electronic smoke, and the lower two layers are all kinds of closed electronic smoke. (WuChao / picture of Southern Weekend reporter)

"90 percent of e-cigarettes brand disappeared"

Before e-cigarettes can expand in China, a ban will silence the whole market.

On October 30, 2019, the state tobacco monopoly administration and the State Administration of market supervision jointly issued a notice saying that minors should not buy and smoke e-cigarettes through the Internet. Since the date of the announcement, the e-cigarette brand was urged to close the website and app sales channels and lower the e-cigarettes on the e-commerce platform.

However, the announcement did not stipulate the offline sales channels. Jiangxi tobacco bureau staff told reporters in the South weekend that after banning online sales of electronic cigarettes, it is difficult for relevant departments to supervise offline shops. "Evidence collection is trivial, the case value is not large, there is no specific legal basis, and there is no law enforcement standard."

After the announcement was issued a week later, Taobao, Jingdong, Suning and other e-commerce platforms were off shelves of electronic smoke products.

Near the double eleven, most of the e-cigarettes brands are ready for stock, ready to wait for this round of sales peak season. The arrival of the ban has given many enterprises a deadly blow.

A leading electronic cigarette enterprise mainly engaged in export told the South on the weekend, on the eve of the double 11th, they specially customized a batch of goods for the Chinese market. The power supply providers sold through channels. The online sales ban was imposed. The company lost up to 20 million yuan.

Li Ling felt that many brands had put the goods in their hands, and there were no offline stores. In order to ship, many of the peers yelled out in various industry groups and sold their own electronic cigarettes at low prices. "The price changes from how much to a kilo."

Closing online sales channels also makes yueengrave experience pain.

The prospectus shows that for the first time, Hyatt's fourth quarter of 2019 revenue fell on a month basis, with a loss of more than 50million yuan. The online ban and the shift to offline distribution channels also led to a decline in yueengraver's profitability, with gross margin falling from 44.7 per cent in 2018 to 40.3 per cent in the first three quarters of 2020.

Shi Ming admitted that online ban on e-cigarettes, coupled with offline shops, was also affected. "Because it is difficult to change the consumption habits in a short time, and there are not many offline shops at that time, and customers are in trouble to find. But the overall e-cigarette market is expanding, and sales have been down for about half a year and they begin to recover. "

Offline stores have high investment cost and need to operate the dealer network. Many brands have not invested heavily in offline channels before the ban. According to the prospectus, the sales revenue of Yueji's overall online channel accounted for 31.1% in the first three quarters of 2019 and 68.7% of offline channels.

Offline sales account for nearly 70% of the total, which makes Yueji survive this crisis. However, most brands in the industry that rely on online channel sales have been severely damaged.

Aoweino told reporters at the southern weekend that under the double pressure of online ban and epidemic, more than 90 percent of e-cigarettes brands disappeared. Many businesses find associations for help.

Li Ling analyzes that most of the main sales channels of e-cigarettes online, in the marketing have spent a lot of effort, the purpose is to guide e-commerce. But online ban orders appear, which makes these brands greatly hurt, invisible for the joy of carved up a "moat.".

After sales is prohibited in e-cigarettes online channels, Yueji has begun to expand offline stores.

According to the prospectus, at the end of September 2019, the number of authorized dealers of yueengrave was 41, which increased to 110 in a year. The number of Yueji stores also increased rapidly, from more than 700 in october2019 to 4000 in july2020.

Li Ling told reporters at the South weekend that online sales ban, e-cigarette brands rushed to offline shops, but the speed is fast, but also need to pay. "We had a good price with a mall and signed the next day. When signing the contract, the mall said that the competition products also came. If you want to take the shop, you need to add 100000 yuan. "

Most of the global electronic smoke is produced in Shajing street, Bao'an District, Shenzhen. It is also known as "global fog Valley". The picture shows the Yueji shop in a shopping mall in Shajing street. (WuChao / picture of Southern Weekend reporter)

Cooperation with China Tobacco

In September 2019, Tencent "Shenzhen net" interviewed Wang Ying. If the state-owned enterprises want to enter Yueji, would you like to accept it? Wang Ying said that when they visited Hunan tobacco, she saw "national interests first, consumer interests first" when they entered the investigation, which shocked her very much. "These two words will become the first judgment criterion to guide all possibilities".

In recent years, Hubei Zhongyan, Sichuan Zhongyan, Yunnan Zhongyan and other enterprises have started to develop their own heating non burning electronic smoke products, and appear in the electronic smoke exhibition in the last two years.

Li said their company is also working with China Tobacco in technical cooperation. "At present, I don't worry that the cigarette in my heart will occupy the market of e-cigarettes brand in turn, because this market is very large and can survive many enterprises."

The public information shows that Henan Zhongyan has cooperated with an electronic cigarette enterprise, and Henan Zhongyan only produces smoke bombs, and the rest are completed by the partners.

"In addition to heating non burning products, the company is still developing closed atomized electronic smoke, but the overall technical strength is weak, and the R & D card is in the atomizer," a staff member of Yunnan Zhongyan system told Southern Weekend reporter

The staff also said that in the near future, Yueji high salary from Yunnan Zhongyan research and development post has been a staff.

Recently, a document of minutes of the meeting of Yue engravers was circulated online, and many industry insiders confirmed its authenticity to Southern Weekend reporters. Yueji and China tobacco have a cooperative relationship and will develop heating non combustion products together, the document said.

In addition, driven by interests, e-cigarettes also began to penetrate the traditional tobacco sales channels. Hyatt has entered some chain stores, and traditional cigarettes appear at the same counter, according to the associated press.

"It is not appropriate for e-cigarettes to enter the traditional tobacco sales channels, and the State Tobacco Monopoly Bureau is more disgusted by such behaviors and can easily further lead to the control of e-cigarettes," the chairman of a large e-cigarette raw material manufacturing enterprise told reporters at the South Weekend.

The national standard has not been put into effect

All electronic cigarette companies, including Yueji, face a tough problem - compliance.

The key point of compliance is the national standard for electronic smoke, which has not yet been implemented. Without national standards, there is no compulsory industry standard.

In 2017, relevant units such as Shanghai new tobacco products research institute drafted draft national compulsory standards for electronic tobacco. After the draft is reviewed, it should be officially released in 2019 according to the project schedule, but it is not found below.

Aoweino recalled to reporters at the South weekend that the electronic tobacco industry association once organized member units to learn the compulsory draft of e-cigarettes state, and some enterprises have already produced according to the draft standards. "The national standard has not been promulgated as scheduled, and enterprises are currently urged to carry out production in accordance with the group standards issued by the electronic cigarette Association."

The chairman of the board of directors analyzed to reporters at the South weekend that if the national standard is put into operation in a short period, a large number of Internet companies may join the e-cigarette market and form a squeeze on the traditional tobacco industry. "There may be a rule for the future to regulate the e-cigarette industry, but the national standard may still need to wait a long time."

After the online sales channel is closed, the compliance problem of offline stores also needs to be solved. In july2020, a Yueke electronic cigarette store was fined 2000 yuan by Shenzhen market supervision and Administration for not posting relevant smoke control signs.

Shi Ming told reporters at the South weekend that yueengrave is very careful about compliance. When selecting offline shops, it is necessary to avoid approaching primary and secondary schools and avoid the risk of selling tobacco to minors. "There are few shops under Yueji line in Zhujiang New City area of Guangzhou, not because the price of the shop can not afford, mainly because there are a lot of schools around the area, which makes no one dare to open there."

Another problem facing the e-cigarette industry is what kind of goods it is taxed. The nicotine content of tobacco is contained in the tobacco oil of electronic cigarette, which is possible to be classified as tobacco category for tax payment.

Although there is artificial nicotine technology, it is expensive to produce and is facing the problem of compliance.

Xingchenyue, chief scientist of xifog and inventor of nicotine salt patent, told Southern Weekend: "synthetic nicotine is not included in tobacco control, but nicotine is a dangerous chemical itself, and it is likely to be controlled by dangerous chemicals if it is not in tobacco control category."

The food and Drug Administration of the United States (FDA) stipulates that synthetic nicotine is not tobacco products and is not under the control of the tobacco Department, but the FDA regional office can handle and control synthetic nicotine at its own discretion.

Li Ling told reporters at the South Weekend: "at present, the e-cigarette industry is paying taxes on electronic products at a rate of 13%, and the tax rate of tobacco products is 60%." If the future electronic tobacco products are classified into tobacco categories, the relevant companies will need to pay extra tax on tobacco industry.

South Weekend reporter to Yue engrave about the interview, but yueengrave public relations department for the company is in silence period, declined to interview.