On October 1st, the mandatory national standard for electronic cigarettes (referred to as "national standard") will come into full effect. At that time, all participants in the electronic cigarette market will be required to have a license to operate, and electronic cigarette shops will no longer be able to sell fruit-flavored and other flavored electronic cigarettes. On September 23rd, reporters visited some electronic cigarette shops in Jinan City and found that fruit-flavored products were being cleared out in the remaining time. Compliance products with the national standard are quietly being shelved, but the response has been mediocre. In terms of production, although many top companies have already obtained licenses, they still face pressure from lower shipping volumes and industry restructuring in the future.
As October 1st approaches, it is time for fruit-flavored e-cigarettes to bid farewell. However, before the complete ban on sales takes effect, they are making a final push to boost sales and seize the remaining opportunity.
Since September, e-cigarette operators have been posting notices in their personal social media circles, advertising that e-cigarettes will be required to meet national standards and encouraging consumers who want to stock up on fruit-flavored products to act quickly.
On the morning of September 23rd, a journalist observed at an electronic cigarette store on Yaotou Road in Lixia District that a prominent sign at the entrance announced that fruit-flavored e-cigarettes would no longer be sold after September 30th. On the other side of the wall, the store had posted its tobacco retail license, allowing it to sell electronic cigarette products.
The fruit-flavored pods are being cleared out of shops at an accelerated pace. Pods that were previously available for consumers to try have been mostly removed, and only some popular flavors are still being sold. Store owners tell reporters that as the mandatory national standard for electronic cigarettes is about to be implemented, there has been a noticeable increase in consumers who are stocking up on fruit-flavored pods. The storeowners don't need to deliberately clear out their inventory as it will likely sell out by October 1st. The most a consumer has bought at one time is two boxes of 240 pods each, costing them 8,400 yuan.
Another branded electronic cigarette store, not far from this one, also has customers coming in and out. The store owner said that most customers are now buying at least three packs, and there is limited stock left in the store.
It is noteworthy that despite the imminent ban on fruit-flavored e-cigarettes, some second-tier brands have launched last-minute disposable products with large capacities. For example, the Weike Xiaonaigai product has a capacity of 15ml, which is 7.5 times that of regular pods. Some retailers view these products as short-lived but capable of maximizing sales in a short period of time.
Starting on October 1st of this year, in accordance with the regulations of the e-cigarette supervision transition period, the mandatory national standard for e-cigarettes will come into full effect and e-cigarette regulation will be fully implemented. As a result, all fruit-flavored e-cigarettes will be taken off the shelves, and the national unified e-cigarette trading management platform will only provide e-cigarettes with tobacco flavors that comply with national standards and e-cigarette devices with child locks.
During the course of the investigation, the reporter observed that products conforming to the new national standard have quietly been put on the shelves. Take RELX YUEKE for example, in terms of the cigarette holder, they have launched the national standard product Phantom "Galactic Dream" vaporizer, and in terms of the pod, they have launched the Phantom "Wang Jiangyou Jing Shan Roast 25" and Phantom "Forest Renaissance Shan Roast 53" vaporizer cartridges.
According to reports, the new cigarette product has undergone some changes in appearance and now bears prominent messages that discourage young people from using e-cigarettes, as well as warning against smoking e-cigarettes in areas where smoking is prohibited due to potential health hazards. However, the most significant addition is the inclusion of a child-lock feature.
The shop owner stated that the vaporizer can only be unlocked by rapidly inserting and removing the atomizer three times within two seconds. Repeating the same action can lock it again. When in the locked state, the vaporizer will vibrate to remind the user and prevent minors from misusing it.
The electronic cigarette pod that meets national standards is primarily focused on reducing nicotine content to 2%, along with additional warnings. This is in contrast to fruit-flavored pods currently on the market, which often contain between 3% and 5% nicotine. Some consumers who have tried the standardized product have reported little difference in taste compared to other products, and have speculated that if they can no longer enjoy tobacco-flavored pods, they may truly quit smoking altogether.
Many A-share listed companies have obtained certification as the national standard comes into effect, and the speed of adoption among these enterprises in production is accelerating.
On September 20th, two A-share listed companies announced their latest updates on their electronic cigarette related businesses. Xiaozong Corporation's subsidiary obtained a Tobacco Monopoly Production Enterprise License (Electronic Cigarette OEM), while Aipu Corporation plans to increase its stake in a licensed enterprise through cash injection as a way to enter the electronic cigarette industry.
According to incomplete statistics, at least seven A-share listed companies have obtained tobacco monopoly production licenses, including BYD, Jinko Share, Shunhao Share, Dongfeng Share, Xiaosong Share, Jinlong Electromechanical, and Jincheng Medicine. These companies are involved in various aspects of electronic cigarette production, sales, import and export.
The largest Chinese electronic cigarette vaporizer manufacturer, Smoore International, which is listed on the Hong Kong stock exchange, and the parent company of the Yooz vaping brand, Vaporesso, which is listed on the US stock exchange, have both obtained licenses.
It should be noted that obtaining a license may only be a new beginning. The new national standards have made restrictions on product flavors, additives, and designs more explicit and strict, resulting in a reduction in differentiation between products. For electronic cigarette companies, standing out in a market saturated with homogeneous products becomes the difficult challenge they must face next.
Industry experts still optimistic about top companies benefiting from new national standards in the electronic cigarette market. Previously, some insiders predicted that a return to tobacco flavors was inevitable following the implementation of new standards, which would decrease the appeal of flavored electronic cigarettes for adult users, potentially resulting in a 60-90% drop in retail sales and over 50-70% decrease in shipments. However, at the same time, some organizations remain optimistic about the positive impact a restructured market could have on leading brands.
Several e-cigarette stores have closed down. According to a research report by Galaxy Securities, the new policy of raising the bar for entry into the e-cigarette industry will lead to consolidation among the leading companies. The policy directly sets standards for various parameters of electronic cigarette products, increasing the difficulty of research and development and production and phasing out outdated companies. On the other hand, the policy limits the user experience to a certain extent through measures such as limiting flavors and nicotine and emission levels. Whether or not companies possess enough research and development technology and strength will determine their ability to maximize user experience under the policy's restrictions.
Moreover, policies have raised entry barriers for the industry, requiring companies engaged in the electronic cigarette business to obtain approval from the administrative authority responsible for tobacco sales. As the electronic cigarette industry enters a stage of standardized development, the domestic market is expected to steadily expand. Furthermore, in the context of increased industry concentration, leading companies are set to benefit significantly.
Caitong Securities believes that electronic cigarettes have a clear long-term market demand due to their harm reduction function. Regulatory advantages will increase the market share of advantaged enterprises at various stages of the industry, encourage technological innovation and digital development in the industry, and create broad development opportunities for top enterprises both domestically and overseas. With increased R&D investment and product upgrades, these enterprises will further strengthen their competitive barriers and enhance their profitability.
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