HQD Reloaded

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This article is for internal research and communication within the industry only and does not recommend any brands, products, or investments.

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Editor's Note:

In 2023, the global e-cigarette industry underwent profound changes.

With disposable e-cigarettes penetrating the global market over the past two years, leveraging their "convenience" as a trump card, traditional low-barrier e-cigarette markets such as the United States, the United Kingdom, the European Union, and Russia approached saturation in 2023. The market entered a phase of competition for existing market share, forcing some brands to seek development in high-barrier markets like the Middle East, South Africa, and South America. On the other hand, regulatory authorities in major markets have clearly expressed their determination to strengthen regulations, with some policies already in the process of legislation or taking effect. Changes in the regulatory environment further raised the threshold for market competition.

Against this backdrop, a "Matthew effect" appeared among global e-cigarette brands: some brands grew increasingly influential, gradually showing the embryonic form of global big brands and major products similar to traditional tobacco; while others struggled to survive in the competition, relying on credit sales to maintain market share.

Based on brand competitiveness, 2FIRSTS categorizes global e-cigarette brands into three types: "Global Giants," "Global Competitors," and "Regional Hidden Champions." Through the "2023 Global Annual Brand Series Report," 2FIRSTS will analyze the transformation paths and business logic of these brands.

As the proverb goes, "If you want to know the future, just look to the past." 2FIRSTS believes that reporting on the 2023 e-cigarette brand cases will provide insights for the future development of the industry and promote the global industry to move towards higher quality.

We welcome your views or feedback on the article. Please contact: alan@2firsts.com

2FIRSTS Editorial Dept.

December 2023

Global Annual Brand Article Series 2023

HQD Reloaded

-- From single-market unicorn to global marketer, what challenges does HQD face?

Leona Zhu

In September 2023, in Dortmund, Germany, InterTabac, one of the world's oldest tobacco exhibitions, InterTabac, was underway. With the rise of e-cigarettes in recent years, this tobacco show, which originated in the 1970s, has attracted an increasing number of e-cigarette companies to participate. Outside the exhibition halls, another "sight" on the streets of Dortmund is also eye-catching - outdoor advertisements from several international e-cigarette brands stand on the streets of the bustling city areas, including HQD.

On one of the billboards, there is an advertisement for HQD's latest pink interchangeable pod e-cigarette, the "CIRAK". The copy reads "Whäle deinen style, wechsle deinen Geschmack — austauschbare Pods" (Choose your style, change your taste — interchangeable pods).

Not only in Germany, but in other markets as well, HQD has been very active. In October 2023, HQD launched the EOS e-cigarette (colored version) tailored for the UK market at the Birmingham E-cigarette Exhibition in the UK. At the same time, a range of new products was introduced at the e-cigarette exhibition in Greece.

This emerging brand from China is gradually growing into an international giant.

Looking back at the history of HQD, its first peak was reached in the Russian market. However, HQD was not content with just one market and started to move towards global competition.

A Unicorn in Russia

According to Tianyancha, a Chinese yellow page website, HQD is a subsidiary of Shenzhen Hanqingda Technology Co., Ltd. (hereinafter referred to as "Hanqingda"). Hanqingda was registered in December 2014 and is currently 100% owned by Hou Shoushan. The HQD brand was first registered in April 2017.

Although HQD e-cigarettes may not be well-known in many parts of the world, they have become synonymous with e-cigarettes for consumers in Russia. It's hard for outsiders to imagine the popularity of HQD in Russia without experiencing it firsthand.

In October 2022, 2FIRSTS found during a street visit in Moscow that every e-cigarette store had HQD products on display. Some stores even used the "HQD" logo on their signs to attract customers. According to the store owners, HQD was even more popular in Russia before it encountered a "compliance crisis" in the first half of 2022.

As an "invisible champion" in the field of e-cigarettes, HQD once firmly held the top position in the Russian e-cigarette market, with a market share believed to exceed 70%.

Russia, a major consumer of nicotine products, has a smoking rate of nearly 30%. According to the latest trade data released by China Customs, in October 2022, China exported e-cigarettes worth $28.98 million to Russia.

In such a vast e-cigarette market, many companies aspire to get a piece of the action. However, many find themselves "eager but unable," only able to carve out a small niche under the shadow of HQD.

So, how did HQD become the "unicorn" in the Russian market?

Perhaps, we can glean some insight into the brand's trajectory in the Russian market from the experience of an HQD distributor in Russia.

According to the Russian media outlet MYSLO, at the end of 2020, a distributor, introduced by a friend, purchased a batch of HQD products at an extremely low price. At that time, the cost price for an 800-puff HQD disposable e-cigarette was only 150 rubles (about 12 yuan), and the distributor only needed to pick up the goods from a warehouse in the Moscow region, without being responsible for any other customs clearance procedures.

By February 2021, HQD began to make its mark in the Russian market, winning over consumers. The aforementioned distributor's batch of HQD products, valued at 500,000 rubles (about 40,000 yuan), sold out rapidly within just 10 days. At that time, the retail price for each HQD was 500-600 rubles (about 40-48 yuan), bringing the distributor a profit margin of around 300%.

However, it was at this time that HQD's supplier changed the supply process, requiring the aforementioned distributor to handle all issues related to delivery, while the supplier only provided shipping services. Nevertheless, the distributor could get an additional 20% discount for this.

Faced with high profits and a high degree of market acceptance, the distributor accepted this condition and purchased 10,000 HQD products for 1.2 million rubles (about 96,000 yuan), and has been distributing for HQD ever since.

From the above situation, it can be seen that one of HQD's main strategies for entering the Russian market was to actively pass most of the profits to the distributors and initially assist the distributors in customs clearance to attract them to join. Subsequently, more and more distributors began to distribute HQD products.

At the Moscow E-cigarette Exhibition on June 20, 2023, an HQD distributor in Russia shared with 2FIRSTS another part of HQD's success in Russia.

The distributor believes that the e-cigarette industry fell into a slump in 2019, with declining sales and uncertain market prospects, leaving practitioners generally pessimistic about the future of the industry. However, at this critical moment, HQD keenly observed the potential of disposable e-cigarettes and became one of the first brands to introduce this product in the Russian market.

Due to the most competitive commercial conditions, excellent service level, and high-quality products provided by HQD distributors in the market, they have always been strongly supported by professional retailers. It is because of these advantages that today in Russia, all e-cigarettes are commonly referred to as "Ashka" or "Ashkudishka" (both transliterations of HQD in Russian).

Compliance Crisis

Success and failure go hand in hand. During the years when HQD was advancing rapidly in Russia, the distribution network that had laid the foundation for its success also buried many hidden dangers.

According to a report by the Russian media TASS on July 14, 2022, Moscow police seized 150,000 illegal e-cigarettes in an operation. These e-cigarettes did not carry compliance markings, came with forged documents and quality certificates, and entered the Russian market under the guise of "small household appliances" for customs purposes. Although the media did not specifically disclose the brand names of these products, some packages marked with "HQD" can be seen in the provided video.

Subsequently, according to Russian media reports on July 25, the general manager of Evergreen, the distributor of HQD in Russia, was arrested. The report stated that the distributor was the only official importer of the HQD brand in Russia. At the same time, local police also seized over 200,000 items related to e-cigarettes. Upon inspection, the seized HQD products were found to contain excess nicotine (Note: the nicotine content stipulated in Russia is 2%).

Eventually, Russian police suspended the sale of HQD products in the Russian market, citing "violations by HQD’s distributor in Russia of multiple regulations including tax evasion and exceeding the nicotine content limit."

In August 2022, the official account of HQD on the Russian social platform VK.com issued a statement claiming that the HQD products imported and sold by its distributor Evergreen LLC were safe and legal. All products supplied to Russia passed through customs and paid all required fees. The product met all standards of Russian law: product quality regulations, safety requirements, and complete necessary customs permits.

This statement seemed to be a response to the turmoil HQD experienced in Russia.

Subsequently, HQD made a low-key return to the Russian market.

However, during HQD's absence, the Russian e-cigarette market underwent a significant reshuffle, with HQD falling from its position as market leader.

In its place rose the globally renowned brand ELFBAR. Insiders familiar with the Russian e-cigarette market revealed that after the suspension of HQD’s sales, ELFBAR quickly filled the market gap. When 2FIRSTS visited the Russian market in October 2022, they also found that in many e-cigarette retail stores, ELFBAR products occupied the shelves.

After HQD's return to the Russian market, its market share plummeted significantly. Despite the drastic change in fortunes, HQD still managed to retain a portion of its foothold in the Russian market.

The Journey of Transformation

Perhaps due to the setbacks in the Russian market, HQD now places greater emphasis on the compliance of its products and operations.

2FIRSTS spoke with an individual involved in e-cigarette logistics, who mentioned that HQD is very standardized in its logistics approach, requiring export customs declaration even for products as light as 1KG. “It’s rare to see a company adhere to such standards.”

“HQD has transformed from a 'guerrilla team' to a 'regular army'," commented a veteran in the e-cigarette industry.

Several other aspects also confirm HQD’s move towards regularization.

In September 2023, during a visit to Germany, 2FIRSTS observed that HQD’s products in the local market were all affixed with tax labels. In fact, due to high e-liquid taxes in Germany, many brands tend to opt for 'grey channel' operations; however, in the 'grey market' saturated Dubai, 2FIRSTS noticed that HQD is one of the few brands that had undergone compliance certification.

Recently, on a domestic job recruitment website, 2FIRSTS found that HQD was hiring for the position of "Senior Compliance Officer". The job description required the candidate to develop and implement compliance work plans according to the company's overall strategic planning, interpret domestic and international laws, regulations, policies, and legislative trends related to the company, train and promote internal compliance policies, update processes, and systems, and supervise the implementation of compliance work across departments.

There are also proofs from HQD's products that demonstrate its transformation.

A senior industry insider, who chose to remain anonymous, told 2FIRSTS that HQD's early products were mainly imitations of other products. However, nowadays, HQD has made significant improvements in product quality and innovation, which are highly appreciated by consumers.

Currently, HQD has made its presence felt in Europe, the Americas, Southeast Asia, Australia and New Zealand, and some parts of Africa.

HQD has achieved certain success in several global markets. For instance, in Germany, Spain, Miami, Florida, and other regions, HQD is either a leading or well-known brand.

In terms of brand marketing, HQD is actively putting in efforts.

Besides the aforementioned outdoor advertising in the streets of Germany, HQD has also promoted its products on buses in the UK and sponsored a boxing event in the USA in June 2023.

Challenges Persist

HQD's process of internationalization has not been without its "growing pains":

In May 2023, HQD's product promotions on TikTok were investigated by the UK's Advertising Standards Authority (ASA) for violating British advertising regulations.

In June, HQD products in Australia were found to contain prohibited ingredients. The Therapeutic Goods Administration (TGA) in Australia pointed out in a response to 2FIRSTS that HQD's disposable e-cigarettes were detected with benzaldehyde, cinnamaldehyde, and ethylene glycol – all explicitly banned substances in Australia.

In July, Kazakhstan customs seized e-cigarettes worth 100 million RMB, some of which bore the HQD brand.

In August, the Western Australian Health Department seized 300,000 e-cigarettes, some of which bore the HQD brand.

It should be recognized that in the process of evolving from a regional brand to a global brand, HQD has realized the importance of compliance. However, compliance is not a simple multiple-choice question in today’s global market.

Imperfections in policies, prevalence of gray markets, local operators' profit-driven behavior, and fierce competition in supply chains... all these factors make the decision of compliance extraordinarily difficult. Moreover, beyond the threshold of compliance, HQD also faces intense competition from global brands in product, distribution, marketing, and other business aspects. The future is full of unknowns.

But all possibilities start with the first flap of the wings. 

HQD is going through its "metamorphosis".