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The prohibition of “fruit flavor” e-cigarettes is the tip of the iceberg for the legalization and standardization of the industry.

For a long time, taste has been the gold mine of electronic cigarettes. The market share of flavoring products is nearly 90%. At present, there are about 16000 kinds of electronic cigarette products on the market, including fruit flavor, candy flavor, various dessert flavors, etc.

Today, China’s e-cigarettes will officially bid farewell to the flavor era. The state tobacco monopoly administration has issued the national standard for electronic cigarettes and the measures for the administration of electronic cigarettes, which stipulate that it is prohibited to sell flavored electronic cigarettes other than tobacco flavor and electronic cigarettes that can add aerosols by themselves.

Although the state has extended the transition period of five months for the implementation of the new regulations, the lives of tobacco and oil manufacturers, brands and retailers will be subversive.

1. Taste failure, brand still needs to seek differentiation

2. Laws and regulations shrink, and the industrial chain needs to be rebuilt

3. Policy first, great health or the best destination for electronic cigarettes

A new regulation has broken the dreams of countless electronic people and smokers. E-cigarette flavoring agents including plum extract, rose oil, fragrant lemon oil, orange oil, sweet orange oil and other mainstream ingredients are prohibited to be added.

After the e-cigarette takes off its magic icing, how will the differentiation innovation be completed, whether consumers will pay for it, and whether the original operation mode will take effect? These are the concerns of manufacturers in the upstream, middle and downstream production and marketing chains of e-cigarettes.

How to prepare for the connection with the new national regulations? There is still a lot to be done by businesses.

Taste failure, brand still needs to seek differentiation

In the past, about 6 tons of watermelon juice, grape juice and menthol were transported to an electronic cigarette and oil factory in Shajing every month. After the blending, mixing and testing by the seasoner, the raw materials were poured into 5-50kg food grade plastic barrels and transported away by trucks.

These condiments stimulate the taste buds of consumers, and also stimulate a flavor electronic cigarette market. From 2017 to 2021, the compound growth rate of the domestic market scale of China’s e-cigarette industry was 37.9%. It is estimated that the year-on-year growth rate in 2022 will be 76.0%, and the market scale will reach 25.52 billion yuan.

At a time when everything was booming, the new regulations issued by the state dealt a heavy blow to the market. On March 11, when the new regulations were issued, fogcore technology released a brilliant financial report last year: the company’s net revenue in 2021 was 8.521 billion yuan, a year-on-year increase of 123.1%. However, this good result was completely beaten in the waves of the new regulations. On the same day, the share price of fogcore technology fell by about 36%, hitting a new low in the listing.

Electronic cigarette manufacturers are aware that the elimination of flavor cigarettes may be a widespread and fatal blow to the industry.

E-cigarettes, which once swept the market with the concepts of “smoking cessation artifact”, “health harmlessness”, “fashion personality” and “numerous tastes”, will lose some of their core differences with ordinary tobacco after losing the core competitiveness of “taste” and the selling point of “personality”, and the expansion mode of relying on taste will no longer work.

The restriction of taste makes product update unnecessary. This can be seen from the earlier prohibition of flavored e-cigarettes in the U.S. market. In April, 2020, the US FDA proposed to control flavored e-cigarettes, only retaining the tobacco flavor and mint flavor. According to the data of the first quarter of 2022, the sales of e-cigarettes in the U.S. market have grown at a growth rate of 31.7% for three consecutive months, but the brand has made little action in product updating.

The road of product renewal has become impassable, which has almost blocked the differentiation of electronic cigarette manufacturers. This is because there is no high technical barrier in the e-cigarette industry, and the logic of competition depends on the innovation of tastes. When the taste differentiation is no longer significant, e-cigarette manufacturers have to look for selling points again in order to win in the increasingly homogeneous e-cigarette share competition.

The failure of taste will surely make the e-cigarette brand enter a confused period of development. Next, whoever can take the lead in mastering the password of differentiated competition can survive in this game focusing on the head.

Through science and technology or technology enabling differentiation is put on the agenda. In 2017, Kerui technology began to cooperate with Juul labs, an electronic cigarette brand, to exclusively supply electronic cigarette cartridge case assembly equipment. The choice of overseas electronic cigarette oligarchs has provided feasible experience for Chinese brands.

Kerui technology provides high-speed automatic assembly equipment for heating incompletely burned tobacco. At present, it has cooperated with China tobacco on many projects, providing ideas for the innovation field of electronic cigarettes in China. Yueke won the first specialized and innovative e-cigarette in Guangdong Province, but it won the first national high-tech enterprise in the e-cigarette field in Beijing and merged into the torch program of the Ministry of science and technology. Xiwu has developed an exclusive nicotine y technology specifically for tobacco flavor products.

Technology has become the core direction for electronic cigarette manufacturers to innovate, upgrade and create differences in the next step.

Laws and regulations shrink, and the industrial chain needs to be rebuilt

With the approach of the implementation day of the new regulations, the industry has entered a busy transition period: fruit flavored e-cigarettes have been discontinued, the market is in the stage of clearing and dumping inventory, and consumers are entering the stock up mode at the speed of dozens of boxes. The original industrial chain built by cigarette factory, brand and retail has been broken, and a new balance needs to be built.

As the heart of manufacturing, China delivers 90% of electronic cigarette products to smokers all over the world every year. The tobacco oil manufacturers in the upstream of the e-cigarette industry can sell an average of about 15 tons of tobacco oil per month. Due to the large number of overseas businesses, China’s tobacco and oil factories have long learned to evacuate from the place where laws and regulations are shrinking and transfer military power to the place where policies are loose.

Even if there are overseas businesses with a high proportion, the new regulations of China’s e-cigarettes still have a great impact on these manufacturers. The monthly sales volume of cigarette oil has dropped sharply to 5 tons, and the domestic business volume has decreased by 70%.

Fortunately, the oil and tobacco factories have experienced the release of new regulations in the United States and can adjust their production lines as soon as possible to ensure uninterrupted supply. The sales volume of cartridge change e-cigarettes in the United States rose from 22.8% to 37.1%, and most of the suppliers came from China, which shows that the primary products in the upper reaches of the industry have strong toughness and rapid adjustment, providing a strong guarantee for the smooth transition of China’s market after the new regulations.

Smoke oil manufacturers who have tried water in advance know what “tobacco” flavor e-cigarettes should be and how to produce them. For example, fanhuo Technology Co., Ltd. has up to 250 flavors that meet the requirements of FDA, including Yuxi and Huanghelou tobacco oil, which are the classic flavors of Chinese tobacco. It is a supplier of nearly 1/5 of the world’s e-cigarette brands.

The tobacco and oil factories that feel the stones of other countries across the river provide an initial guarantee for the upgrading of the industrial chain.

Compared with the leading role of the production reform of the tobacco and oil plant, the impact of the new regulations on the brand side can be said to be traumatic.

First of all, compared with the tobacco and oil plants that have been established for more than 10 years and have a relatively deep industry accumulation, most of the active e-cigarette brands in the current market were established around 2017.

They entered the market during the tuyere period and still maintained the operation mode of start-ups, relying on traffic to obtain customers and market prospects for financing. Now, the state has clearly shown an attitude of clearing the flow. It is unlikely that capital will be generous to the market as it was in the past. The restriction of marketing after clearing will also hinder customer acquisition.

Secondly, the new regulations permanently invalidate the store mode. The “e-cigarette management measures” states that enterprises or individuals at the sales end need to be qualified to engage in e-cigarette retail business. So far, the offline opening of e-cigarette brands is not a natural expansion in the process of brand development, but a difficult survival under policy supervision.

The state clearly shows an attitude of clearing the flow, which is not good news for the e-cigarette head brands that have received several rounds of financing in previous years. The loss of capital hot money and offline traffic is a step further from the long-term strategic goal of “big market, big enterprise and big brand”. The decline in sales caused by taste restrictions will also make their short-term operation difficult.

For small e-cigarette brands, the emergence of new regulations is both an opportunity and a challenge. The e-cigarette retail end is not allowed to set up brand stores, only collection stores can be opened, and exclusive operation is prohibited, so that small brands that were unable to open their own offline stores before have the opportunity to settle down offline.

However, the tightening of supervision also means the intensification of challenges. Small brands may break their cash flow and go bankrupt completely in this round of impact, and the market share may continue to concentrate on the head.

Policy first, great health or the best destination for electronic cigarettes

To return to the new regulations, we need to find out the direction of supervision and clarify the purpose of supervision.

The restriction on taste in the measures for the administration of electronic cigarettes is to reduce the attraction of new tobacco to young people and the risk of unknown aerosols to human body. Stricter supervision does not mean that the market shrinks. On the contrary, e-cigarettes can only be tilted by policy resources if they can promote health.

The new regulations indicate that the supervision of China’s e-cigarette industry has been tightened again, and the industry has further developed towards standardization. The top-level design and bottom-level rules reflect each other, and jointly plan a feasible development path for e-cigarette that has experienced short-term pain and long-term steady development. As early as 2016, several head tobacco oil manufacturers in Shenzhen initiated and participated in the formulation of China’s first general technical standard for electronic smoke chemical liquid products, establishing sensory and physicochemical indicators for tobacco oil raw materials. This is the wisdom and determination of the enterprise, which reflects the inevitable path of the standardized development of e-cigarettes.

After the new regulations, similar interactions will be deepened between policies and enterprises: enterprises provide opinions for regulatory design, and regulation creates a benign competitive environment.

At the same time, the industry has long sniffed out the inevitable positive contact between e-cigarettes and public health in the future.

In 2021, the international e-cigarette Industry Summit Forum emphasized that the health physiotherapy products taking herbal atomization as an example may become a new circuit for e-cigarettes. The combination of e-cigarettes and great health has become a possible development direction. If industry players want to deepen their business, they must keep up with this mainstream of sustainable development.

In recent years, e-cigarette brands have launched herbal atomization products without nicotine. The shape of the herbal atomizing stick is similar to that of the electronic cigarette. The raw materials in the cigarette cartridge use Chinese herbal medicine, mainly focusing on the concept of “traditional Chinese medicine”.

For example, laimi, an electronic cigarette brand under wuyeshen group, has launched a herbal atomization product with raw materials such as pangdahai, which is said to have the effect of moistening the throat. Yueke also launched the “vegetation Valley” product, claiming that it uses traditional vegetation raw materials and does not contain nicotine.

Regulation can not be achieved in one step, and not all businesses can consciously abide by rules and regulations. However, more and more standardized industry standards, more and more in line with the healthy development direction, are not only the result of policy enforcement, but also the inevitable path for the continuous professional and refined development of the industry.

The prohibition of “fruit flavor” e-cigarettes is the tip of the iceberg for the legalization and standardization of the industry.

For companies with real technology and brand power, the new e-cigarette regulations have opened up a new sea for possible industries, leading leading leading enterprises to move forward in the direction of upgrading their technical strength and product layout.