Electronic Cigarettes Surrounding Third and Fourth Tier Cities in China, What’s the Future?

More and more Electronic Cigarettes (Vaping) stores and experience stores are emerging in third and fourth tier cities in China. Mr. Xu from Yichang City, Hubei Province, saw this as a wealth opportunity and wanted to get involved. However, he found that within three months, Electronic Cigarettes stores suddenly increased by more than 60 in the area he visited.

Smoore International Holdings Limited (HKSE:6969.HK)
Country: CN, Currency: HKD

Trade Date: 2021-08-16
Open: $45.15, Close: $42.95, Low: $42.75, High: $45.75, Change: $-2.20

Description: Smoore International Holdings Limited, an investment holding company, engages in the provision of vaping technology solutions in the United States, the People’s Republic of China, Hong Kong, Japan, Switzerland, the United Kingdom, France, and internationally. It offers closed system vaping devices and vaping components for tobacco companies and independent vaping companies. The company also provides open system vaping devices for retail clients under the Vaporesso, Renova, and Revenant Vape brands. Smoore International Holdings Limited was founded in 2009 and is headquartered in Shenzhen, the People’s Republic of China. Official Website: http://www.smooreholdings.com

vaping, Smoore, HKSE:6969.HK, 6969.HK
vaping, Smoore, HKSE:6969.HK, 6969.HK

“In December 2020, there were about 40 Electronic Cigarettes agency stores in the core business district of Yichang City, mainly for the three major brands RLX, YOOZ and Magic Flute, and by March and April 2021, the number of Electronic Cigarettes stores suddenly increased to hundreds. ” In Yichang CBD, there are 10 Electronic Cigarettes stores of different brands in one street.

Electronic Cigarettes, under the banner of technology, grew wildly during the gap in the system, but the policy level was intentionally tightened. on March 22, 2021, China’s Ministry of Industry and Information Technology and the State Tobacco Monopoly Administration studied and drafted the “Decision on Amending the Implementing Regulations of the Tobacco Monopoly Law of the People’s Republic of China (Draft for Comments)”, Electronic Cigarettes and other new tobacco products with reference to the implementation of the Regulations on the implementation of the relevant provisions of the cigarette.

Electronic Cigarettes in the end is referred to the cigarette in the production, wholesale, retail license management, or reference to tobacco taxation, the industry is still waiting for the policy to land, however, the enthusiasm for sinking the market has not been doused.

Brands rush, in the first-tier cities market share tends to saturate the situation, to the third and fourth line or even more down channels in the effort, the interests of others in the chain want to earn fast money before the window closed. Brands, agents and store owners in third and fourth tier cities are chasing consumers in various ways, trying to open up the Electronic Cigarettes sinking market feast.

Electronic Cigarettes surrounds third- and fourth-tier cities

After the end of the epidemic, the offline business in Hubei slowly recovered from the frozen state, and many store owners looked at the Electronic Cigarettes business, and the number of stores surged linearly over time, and Xu Jian and his friends also wanted to seize this business opportunity. Xu Jian is a big fan of Luo Yonghao, and he teases that, to a certain extent, Luo Yonghao, the “industry’s meditation lamp,” is his own business mentor.

The company is a member of the Board of Directors of the United States Department of Justice. Electronic Cigarettes infringement notice”, requiring that Electronic Cigarettes shall not be sold through the Internet, and shall not be published through the Internet Electronic Cigarettes advertising.

Ono, which is fully laid out for online sales, was taken by surprise, and Luo also disappeared from the Electronic Cigarettes industry.

In 2021, the draft of the consultation paper to amend the implementation regulations of the Tobacco Monopoly Law proposed to implement Electronic Cigarettes, etc. with reference to the relevant provisions of cigarettes. The market was again poured a pot of cold water, will Electronic Cigarettes be managed in the channel with reference to the monopoly way of cigarettes? Regional agents and retail store owners were a bit overwhelmed.

But soon the market started to go crazy again, the brand wanted to establish a broader offline channel, the first-tier city market is close to saturation, the third and fourth-tier cities are still unreclaimed land. More people saw Electronic Cigarettes as a shortcut to get rich quick, wanting to make a handful of bucks before the policy fell into place.

After running several offline Electronic Cigarettes exhibitions, Xu Jian signed a contract with a niche brand whose product is defined as “fearless and wild”.

However, what is “wilder” than the product is the speed of Electronic Cigarettes’ store opening, which is called flash opening and viral spreading in the third and fourth tier, and even lower markets. The purpose is to occupy consumers’ minds, reach users, and then build a habit of smoking Electronic Cigarettes.

Jin Yuan, who opened a store in Changsha, Hunan Province, also felt the Electronic Cigarettes craze. Even for the same brand, stores can be opened 800~1000 meters away. An Electronic Cigarettes store owner in Langfang, Hebei told Leopard Change, “Within a few hundred meters of Wanda Square, there are four specialized RLX stores alone.” Leopard Change found that RLX has 100 stores (including authorized stores) in Langfang, Hebei.

To a certain extent, the opening cost determines the speed of store rollout. Xu Jian told Leopard Change that the low cost is the main reason to attract himself to open a store, renting a store of 10-20 square meters, the brand provides free showcases and materials, and the opening cost is only 80,000 yuan.

One Electronic Cigarettes store owner told Leopard Change that it only took 20 days from signing to opening the store, the rent in Changsha, Hunan Province is about 4,600 yuan per month, the electricity cost is 5-8 yuan per day, and the labor cost is about 3,500 yuan per month, so the Electronic Cigarettes store owner can run the store alone.

More and more Electronic Cigarettes stores are emerging in the third and fourth-tier cities, behind the Electronic Cigarettes brand to accelerate the run, trying to increase the market share of occupation. rlx disclosed in the financial report, in the domestic market share of nearly 70%, ranked first.

On July 19, Tianyin Holdings took a stake in Ono, a proposed public company, releasing the signal that Ono might go public. four days later, Electronic Cigarettes brand Aspire was launched. Four days later, Electronic Cigarettes Aspire, the parent company of the brand, updated its U.S. stock prospectus again.

The business of brand harvesting store owners: pushing expansion with high subsidies

It didn’t take long for Xu Jian to find out that he might be “leeked”, and what cut him was the subsidies for opening a store that once made him most excited.

In 2020, Electronic Cigarettes head brand RLX developed a “361 plan” to open 10,000 stores in three years through a subsidy of 600 million yuan, and the number of RLX stores is now nearly 10,000. early 2021 At the beginning of 2021, YOOZ released the “10,000 stores” plan, with a maximum subsidy of 1.18 million for opening stores.

In 2021, Ono plans to invest 1 billion to subsidize the opening of stores and finish opening 10,000 stores by the end of the year. Xuejia even announced that from March, it will issue shares worth hundreds of millions of RMB to its agents to encourage them to open more stores in a more in-depth cooperation.

Electronic Cigarettes brand owners, who are well versed in the Internet set-up, have demonstrated strong capital leverage. Agents at all levels will often “lure” store owners with subsidies to get them to sign up.

Xu Jian told “Leopard Change” that he was really impressed by the subsidies the brand said. The deposit for opening an Electronic Cigarettes store does not require a franchise fee and is not high, RLX’s deposit is 5,000 yuan, Ono’s deposit is around 3,000-6,000 yuan, and the deposit for new brands is often even lower.

Opening a store for 100,000 yuan and subsidizing 300,000 yuan is too attractive an advertisement for store owners. Take Ono for example, the store policy information provided by the provincial agent in Hebei shows that according to the geographical location and the amount invested, Ono stores are divided into four levels, with S being the highest level, and the decoration + rent subsidy is 2,000 yuan per square meter, capped by a 30,000 yuan subsidy. In addition to decoration and rent subsidies, it also provides operating subsidies.

However, the subsidies, which are often in the hundreds of millions, are mostly subsidies for goods, and cash subsidies are particularly small.

“The agent told me that it would be much more cost-effective in the form of goods subsidies.” Electronic Cigarettes is basically a goods subsidy, said Jin Yuan. Yue store owner Lang Yan revealed to “Leopard Change”, the so-called subsidy cash is to replenish the goods, according to the ratio of 1:1, such as this month’s subsidy of 7,000 yuan, the store owner to pay 7,000 yuan to subsidize 14,000 yuan of goods.

And goods subsidies, basically, are sold to store owners at the sales price, not the cost price. It should be noted that the current Electronic Cigarettes brand gross profit are around 40%, which means that the brand can this disguised pressure on goods to the channel, both to clear the inventory to make large sales, but also a quick return of funds.

“The key is no business, you take more subsidies is also time and again ballast, take the goods, and can not sell out, and can not return or exchange.” From late May, Longyan’s business also began to decline significantly, although Electronic Cigarettes high profits, but can not go the volume of his headache. In Jinyuan’s view, Electronic Cigarettes products are more or less the same, and the surge in the number of stores has affected his own clientele.

Although the initial store opening subsidy made Xu Jian heartened, but sales are not good. Xu Jian’s store was opened in the University City shopping district, he is looking at the younger generation, willing to taste the fresh consumers. The new store opened more than a month Xu Jian and about 10,000 profit, to three months after the income fell off a cliff.

In July and August, during the summer holidays, college students were on vacation and Xu Jian’s store had no business at all. In order to save costs, he chose to close the store for 2 months. During the closure period, he heard a lot of Electronic Cigarettes store closures and transfers. In his WeChat circle of friends, many peers began to post news of store transfers, with no one explaining the reasons for the closures, but only one accompanying sentence: Electronic Cigarettes stores operate at no cost, no transfer fees, interested parties please contact.

In order to extend the store opening cycle, brands also think of various ways, even subsidies, will not be issued soon. ono Hebei general agent to provide subsidies policy, decoration + rent subsidies are issued 4 months after the opening of the store, the first batch of operating goods subsidies in the store opening in the seventh month can only be issued, only 50%.

According to the CIC report, approximately 286.7 million adults are users of combustible tobacco products in China in 2019, and China is also the largest potential market for Electronic Cigarettes products. Although there are many smokers in third- and fourth-tier cities, but the customer unit price is higher, the taste is different from cigarettes, and there is little social attribute of Electronic Cigarettes, it is still a question mark how attractive it is in the lower market.

In the third and fourth-tier cities, although the cost of opening a store is low, but the same area traffic, consumption is limited, for the opening of Electronic Cigarettes brand, behind the dark battle of stores is the brand’s competition for consumers.

“In this industry, 30% of the store owners who enter first to earn money.” Jinyuan said that an old smoking gun has at least 6,000 to 10,000 yuan related expenses each year, but a customer is used to smoking a certain brand of Electronic Cigarettes, it is difficult to switch to other Electronic Cigarettes to smoke. Different brands of Electronic Cigarettes have special sticks and cartridges, so how to grab customers has become the most interesting thing for store owners.

Free exchange is a good way to attract consumers. Some Electronic Cigarettes store owners tell consumers to come to the store with used sticks from other brands, they can exchange them for their own brand of sticks. In addition to giving away free sticks, the store owners also give consumers a smoke bomb.

For a street of shopkeepers, selling cigarettes is like an auction, bidding against each other than who sells at a lower price, buy and send is the most common means of promotion. “The other side buy 1 get 1 free, I’ll buy 2 get 2 free,” Jinyuan believes that the in-roll brings the shopkeepers endless competition to lower prices.

Price wars are on the rise, reduce the cost of goods to become the most important thing, store owners often cross-regional purchase of goods, string phenomenon. In addition to string goods, some store owners also sell through-allotment goods, which is Electronic Cigarettes industry cryptic, referring to private factories directly produced counterfeit, unofficial, rubbing the regular brand of goods.

Offline channels are limited and online public domain traffic is prohibited from being sold, but store owners still hit on the idea of private domain traffic. WeChat circle of friends is Electronic Cigarettes priority trafficking channel.

“So tired of work, do not come to a cigarette?” The videos posted in the circle of friends play with erotic rubbish, noble and cool, coolly dressed beauty, gazing deeply into the camera, raising her hand with a seductive pose and taking a deep puff of Electronic Cigarettes, which are marked with the brand logo.

In order to grab consumers who are more interested in Electronic Cigarettes, some small brands of Electronic Cigarettes micro-businesses even sell Electronic Cigarettes to underage students. Minors”, pointing out that Electronic Cigarettes continue to be sold to underage groups.

Regarding how to strictly prohibit the sale to minors, brands have made some attempts, such as requiring verification of ID information on Alipay and confirming that they are 18 years old before providing purchase services. But for store owners, do not do every must check the age, micro business selling and friends circle order to buy, delivery to the home, a variety of services on behalf of the purchase or Electronic Cigarettes flow to the underage.

Xu Jian’s peer exchange WeChat group, three or four lines of Electronic Cigarettes store owners in addition to complaining about the lack of business, is eager to discuss how to improve sales. Some proposed to send more friends and do home delivery business. One store owner proposed to do more ground push, no business when more to other places to set up ground push, low-cost marketing, can sell one is one.

The regulatory sword may fall at any time, the brands want to expand the store plan to build a channel moat, occupy the consumer

The sword of regulation may fall at any time, the brands want to build a moat of channels and occupy the minds of consumers through the expansion plan of stores, and the Electronic Cigarettes stores opened everywhere are just the pieces in this chess game. In the fierce competition in the sinking market, those who want to earn a handful of dollars are often most likely to get lost in the shortcut.

SOURCE: https://tickerinsider.com/technologies/electronic-cigarettes-vaping-in-china/

Jason Quintero
Industry Insights Dept
TickerInsider News Network