Is the US Disposable E-cigarette Market in a Bubble?

Perhaps there are already some bubbles in the American market," said Li Ming (pseudonym), the general manager of a disposable cigarette butt manufacturer, in an interview with "2FIRSTS." He clearly feels that production pace is slowing down after 2022.

Last year, it was difficult to see logistics companies as they were all busy with shipments, but this year they are much easier to schedule with," said Li Ming. "Additionally, logistics prices have decreased by half compared to last year's peak.

As the world's largest consumer market of electronic cigarettes, has the United States already experienced a bubble just one year after the boom? To explore this issue, "2FIRSTS" interviewed multiple participants in the disposable cigarette supply chain.

Market demand is steadily increasing and there is currently no evidence of overproduction capacity.

In 2021, it can be said that the e-cigarette industry has boomed, particularly with the popularity of disposable e-cigarettes in the American market.

According to the "2021 Electronic Cigarette Industry Blue Book," the global retail scale of electronic cigarettes reached $80 billion in 2021, a year-on-year increase of 120%; domestic electronic cigarette exports reached 138.3 billion yuan, a year-on-year increase of 180%; Among them, the proportion of exports to the United States exceeds 50%, and the proportion of disposable cigarettes is 65%, reaching 89.9 billion yuan.

If a real bubble were to occur, it would undoubtedly be due to oversupply and an excessive increase in the social inventory of disposable cigarettes.

Looking at the demand side, all parties interviewed by "2FIRSTS" agree that the demand in the US market will continue to grow this year.

According to Shi Ming, the overseas business executive at Yijiate, the shipment volume of disposable cigarettes this year has continued to experience a relatively rapid growth compared to last year, with an increase of approximately 30%.

Shi Ming also stated, "Currently, the penetration rate of electronic cigarettes in the United States is over 30%, and it has a characteristic of being popular among young people. As these young people grow up, there is still a significant potential for growth in the future.

Lisa, who has been deeply involved in the American e-cigarette market for many years and has managed multiple brands, believes that "at least this year, there will be no decline in demand for disposable e-cigarettes in the US market.

Huang, who has been involved in the electronic cigarette logistics industry for many years, is confident that "the sales volume of disposable e-cigarettes from January to March has not decreased, and the electronic cigarette market in the United States will definitely continue to grow this year.

Looking at the supply side, according to a previous interview with Li Ming, the current monthly production capacity of disposable cigarettes in Shenzhen is approximately 30 million to 50 million.

According to Shi Ming's estimation, a single-use cigarette consumer in the United States currently consumes about 4 million units per day, averaging one every three days, with a monthly consumption of 40 million units.

By comparing the two, it can be concluded that they are basically in a state of supply and demand equilibrium.

Moreover, the prices have increased compared to last year, which contradicts the characteristics of a market bubble.

Shi Ming stated that, "On one hand, the price of a design model will be higher than a basic model; on the other hand, as demand increases, the price naturally becomes higher.

Lisa provided another perspective, stating that the development of new energy vehicle projects in China has led to a severe shortage in the supply of lithium batteries, causing prices to continue rising, which may have an impact on shipment quantities to some extent. In the next three months at least, there will be a certain increase in product prices. The tight supply of lithium batteries also implies that there is basically no increase in social inventory.

Huang emphasized that "logistics costs still make up a significant percentage, possibly as much as 20%. The reason for the drop in logistics prices this year is mainly due to insufficient capacity last year, which led to high prices.

Overall, it can be concluded that there is currently no bubble in the US market.

. The homogenization of products is severe, and the survival conditions of manufacturers vary.

While it cannot be said that there is a bubble in the market, the feelings of Li Ming are not unfounded. Both Shi Ming and Lisa mentioned that the phenomenon of homogenization among domestic manufacturers is serious.

Due to the low entry barriers for the production of disposable cigarettes, there has been little technological innovation in this industry. Currently, major manufacturers can only focus on the design of the cigarette's appearance.

According to Lisa, "The phenomenon of over-indulgence is particularly evident among domestic brand merchants. After last year, the number of competitors increased significantly and more and more investors entered the electronic cigarette industry, leading to an increasing competition among manufacturers.

Shi Ming also mentioned that "homogenization is very serious, whether it is the basic model or the design model. The competition for the basic model has reached a white-hot stage, and the design model also faces the same problem. When a one-time cigarette of a certain design becomes popular, it will soon be imitated by other manufacturers.

At the same time, the gap between large and small factories is narrowing. Shi Ming stated that "in the early days, there was a difference in suction between products from large and small factories. However, after several years of development, everyone has improved in this area, and the gap is getting smaller.

The severe homogenization of products and intense competition has resulted in varying levels of survival among different manufacturers.

Currently, there are two main modes of operation for domestic disposable cigarette manufacturers in China - one is to serve as an original equipment manufacturer for foreign brands, while the other is to create their own brand. The former can be further broken down into producing for well-known foreign brands or providing manufacturing services for smaller clients.

Shi Ming stated that "manufacturers who work for strong foreign brands can obtain continuous and stable orders, but those who work for small clients may face an unstable situation in terms of orders and can only continuously develop new products for new clients.

Regarding companies that establish their own brand, Lisa stated that "consumers tend to buy familiar brands, and unless Chinese brands are highly linked to American customers, it is difficult for them to enter the American market.

Shi Ming also agrees that the association between a brand and its dealers can affect sales, but he has a different perspective on Chinese brands. He believes that "since their inception, they have intentionally downplayed their image as Chinese brands, and foreign consumers cannot distinguish whether or not they are Chinese brands. Currently, there are several Chinese brands that are selling well.

In addition, with the penetration of single-use cigarettes into the fast-moving consumer goods channels, there are more and more dominant distributors. Although the 30-day payment period for goods has not changed, there are increasing numbers of distributors requesting this payment period. The market is gradually shifting towards a buyer's market.

In addition, the shortage of lithium battery supply and the requirement for manufacturers to purchase goods in cash have put higher demands on the cash flow of both small and large factories.

Therefore, it is not difficult to understand Li Ming's feelings about the slowdown in pace. However, regardless, all of the interviewees believed that blindly pursuing growth in scale is not a sustainable strategy.

Li Ming stated, "In order to achieve high-quality development, we must shift our focus from seeking growth through the past to seeking transformation.

Shi Ming stated, "In the absence of technological innovation, we can only make products with a more industrial design on the outside.

Lisa believes that in order to succeed, one must create more competitive products that stand out from the crowd, streamline the supply chain to obtain more competitive prices and delivery times, and establish a strong brand identity through effective marketing. Once a reputation for quality has been established in the marketplace, obtaining orders and customers will be much easier.

Disclaimer: This article is for reference only and does not constitute any investment advice. Enterprises should use the information and views in this article with caution and seek advice from authoritative departments or legal institutions when necessary.

Reference: "2021 E-cigarette Industry Blue Book" by the E-cigarette Industry Committee of the China Electronic Commerce Association and the Juju Think Tank.