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This article's data comes from interviews with more than 10% of retail terminals in Moscow by two or more workers. The data is compiled from a combination of physical store product displays, consumer feedback, and interviews with store owners. The information presented in this article about brands, products, and market conditions is solely based on objective field research data and does not indicate any particular direction. This article is only intended for internal industry research and communication and cannot be used as a basis for any investment advice or brand recommendations. The final interpretation of the data in this article belongs to the two or more workers who conducted the interviews.
On January 9th, 2023 at 5pm, 2FIRSTS held its second online live streaming event for the "Russia Market Sharing Week". The first part of the live stream was presented by 2FIRSTS' expert in Russian e-cigarette policies and market research, Liang Jiasen, who delved into an analysis of the current state of the e-cigarette market in Russia.
Wholesale Market Status Update: Instability in Brand Consistency of Electronic Cigarettes
At present, wholesale markets are the gathering places for the distribution of various electronic cigarette brands in Russia. Electronic cigarette products are mainly distributed through two distribution models: brand agents and comprehensive wholesalers.
The electronic cigarette market in Russia is characterized by strong brand versatility. Local wholesalers are not solely guided by brand popularity when purchasing products. As long as a product is innovative, of high quality, and well-received by consumers, wholesalers are willing to stock it.
Image source: 2FIRSTS. This is a diagram of the retail scope for Moscow's four major wholesale markets.
Moscow's four major wholesale markets, which include Yulibino, Sadovod, 19 Kilometers, and Fude West, are well-known. Two exclusive visits were made to these markets to investigate 80 electronic cigarette wholesale stores.
The Liu Bulinuo market has the highest concentration of wholesalers selling electronic cigarettes, accounting for about 50% of all wholesalers at the four major wholesale markets. Some of the merchants in this market specialize in representing one to three brands of electronic cigarettes, mainly selling to fixed-brand distributors at wholesale prices. These merchants offer genuine products for sale and have stable customer sources and sales channels. However, they make up a relatively small proportion of the merchants in the Liu Bulinuo market.
Another section of the shops are comprehensive wholesalers, mainly representing 20-50 brands, which basically cover all e-cigarette brands currently available on the market. The well-known brands supplied by these shops have slightly higher prices than the wholesale prices of stable agents. This type of shop has a larger share in the market.
Image source: 2FIRSTS Wholesale shops at Liublinuo market.
The gray market channels have resulted in electronic cigarette products being mixed with dangerous substances and it is difficult to distinguish between safe and unsafe products.
Many of the wholesale markets have a large number of grey channels, through which both authentic and counterfeit products from well-known brands enter the market.
A survey has revealed that there is a much greater quantity of imitation products than authentic ones. Many wholesale stores are able to supply both grey market and white market products based on customer demand.
The price difference between gray market and white market purchases is a major factor contributing to the prevalence of gray market sales. For instance, a well-known brand of disposable electronic cigarettes priced at 4000 rubles has a gray market purchase cost of around 500 rubles (approximately 469 yuan), while the white market purchase cost is around 700 rubles (approximately 65.6 yuan), representing a price differential of 40%.
A recent investigation conducted by 2FIRSTS has found that many wholesale merchants ask customers directly whether they require genuine or fake products when placing orders with customer service. If genuine products are requested, they are able to provide product quality certificates, company documents, and other relevant information. If not, they will not provide any product certification-related information, but the price will be lower.
Retail store terminal survey: Significant differentiation of retail products.
Currently, the market data in Russia is severely opaque. In the past month, two investigators have visited almost 10% of the retail market and conducted a sampling survey.
In a survey conducted by 2FIRSTS, it was found that the old electronic cigarette products are still popular in the Russian market, while new products are also gaining momentum.
Image source: 2FIRSTS Russian E-cigarette store.
Well-established renowned brands are displayed in many stores; at the same time, some new up-and-coming brands are rapidly growing in the Russian market, with their new products seeing a fast increase in retail store displays. There are nearly 2,000 electronic cigarette retail stores in Moscow, and two or more visits were made to a large number of stores in the city center to conduct a comprehensive survey based on the layout of merchandise, consumer feedback, customer engagement, and visitation rates.
Russia's electronic cigarette retail market investigation; image source: 2FIRSTS.
The findings of a survey conducted by a terminal retailer indicate that popular characteristics of electronic cigarette products in the Russian market include a wide range of flavors, a variety of shapes, and unique designs.
According to a survey conducted by 2FIRSTS, the Russian electronic cigarette retail market can be roughly divided into three categories:
The first type of store is brand specialty stores, which might become a retail trend for electronic cigarettes in Russia's future. These types of stores are mostly located in busy areas of the city and have luxurious decoration. They exclusively sell a single brand and offer authentic products. Many of these stores are in the form of a chain, with a loyal customer base and comprehensive after-sales service. They also have an online trading model, resulting in stable profits.
The second type of store commonly found in the retail industry is the hybrid store. These stores typically sell a variety of electronic cigarette brands, including both genuine and imitation products. While the sale of genuine products may increase customer loyalty, selling imitation products can ensure profitability for the store. These stores offer a wide range of popular brands and new products, but typically only focus on high-demand items.
The third type of store is the imitation goods shop, usually found in areas with low purchasing power. The store owners are mostly non-Russians with complex backgrounds, and they sell a variety of imitation products from various brands, as well as unbranded items. They purchase products based on profit margins and offer them at lower prices in their store.
It is noteworthy that the counterfeit rate of Russia's retail stores cannot be ignored. The counterfeit rate of well-known first-line brands can reach 50%, while other brands have counterfeit rates ranging from 20% to 30%. Some stores will deliberately introduce some genuine products of well-known brands, as well as some counterfeit products, and sell them in the store in order to balance profits.
Counterfeit goods are rampant, and the government's crackdown is becoming increasingly stringent. What options do electronic cigarette manufacturers have?
Expert Liang Jiasen stated that currently, the Russian e-cigarette market urgently needs established brands to establish their own brand influence. These brands need to establish absolute dominance in the Russian market through more intuitive means.
The FZ-15 law in Russia clearly prohibits tobacco products from being promoted through advertising on public platforms. Usually, exhibitions are the main platform for brand promotion and advertising, and during discussions with two or more major Russian distributors and compliant retail chains, there have been multiple requests to learn more about Chinese e-cigarette brands. The organizers of the Hookah Club Show also expressed their hope for more Chinese brand enterprises to appear at Russian vaporization industry exhibitions.
During the live sharing session, Xu Minghao, the national manager for 2FIRSTS in Russia, also introduced the 2023 Russian Exhibition of Atomization and Electronic Cigarettes. Stay tuned for further coverage from 2FIRSTS.
For more exciting live content, viewers can visit the 2FIRSTSAPP to watch replays and receive course material from the live broadcast.
Contact information for the Russian trade show. Image source: 2FIRSTS.
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