Exclusive with Brusko: What's the Impact of the Russian Regulation?

In recent times, the Russian government has been introducing a series of policies regarding e-cigarettes, with the most noteworthy ones being the forthcoming ban on flavor additives and the upcoming licensing system. The implementation of these policies will bring significant changes to the e-cigarette market in Russia. The flavor ban will restrict the diversity of product flavors, potentially leading to certain flavors being limited or prohibited, which will impact the variety of products available and consumer preferences. Furthermore, companies that fail to obtain an e-cigarette license will face the risk of being forced to withdraw from the Russian market.

What significant changes will these policies bring to the e-cigarette market in Russia? How should e-cigarette companies respond to this change?

On July 31st, 2FIRSTS conducted an exclusive interview with BRUSKO, a well-known e-cigarette brand in Russia. During the interview, Anton Mikhailov, the Marketing Director, and Ilya Nikitin, the Digital Marketing Manager, discussed the current state of BRUSKO's development, their views on policy, and their response strategies. This interview aimed to provide Chinese e-cigarette companies with a better understanding of the operational situation in the Russian e-cigarette industry, particularly in light of the new policy environment.

Deeply cultivating the Russian market, now preparing to enter emerging markets.

Anton Mikhaylov, Marketing Director of BRUSKO, has revealed that the company was established in 2020 and primarily deals in products such as open system, disposable e-cigarettes, and e-liquids. According to data from Fedorov, a Russian tobacco consulting company, BRUSKO's open system products accounted for a 20% share in the Russian market in 2022. In July 2023, BRUSKO held a 50% share of compliant open system products imported. Additionally, BRUSKO features among the top three most frequently mentioned brands in the open system category by consumers.

When discussing BRUSKO's primary market, Anton Mikhailov stated that currently the company primarily focuses on the domestic market in Russia, selling their products in over 20,000 retail points offline. However, they are also actively expanding into international markets. This year, BRUSKO has already participated in e-cigarette exhibitions in Germany, Dubai, and Jakarta, with the hope of achieving further progress in the international market.

Meanwhile, BRUSKO is also actively developing new products in order to meet consumer demands for price, appearance, taste, and other factors, ensuring high rates of repeat purchases.

Anton Mikhaylov also mentioned that in order to expand its business scope, BRUSKO recently entered the beverage industry and launched a lemon soda flavor.

The price of disposable products may see an increase, leading consumers to shift towards reusable alternatives.

Several practitioners in the Russian e-cigarette market believe that the mainstream category of e-cigarettes in Russia has shifted from disposable to open system this year. In response to this trend, Ilya Nikiyin, the digital marketing director of BRUSKO, stated that because there are not many types of e-cigarettes available, consumers have limited options when it comes to choosing. Therefore, both disposable and open system e-cigarettes are popular among consumers. However, due to the convenience, ease of use, and affordability of disposable products, they are preferred by consumers.

In regards to whether the mainstream category of e-cigarettes will shift from disposable to open-system, Ilya Nykytenko suggests that consumers who have just started using e-cigarettes may initially try disposable e-cigarettes and then gradually transition to open-system products. Therefore, from this perspective, both disposable and open-system products are expected to develop in tandem.

However, as Russia continues to implement a comprehensive set of policies, the availability of illegal e-cigarette products is expected to greatly decrease. This move towards standardization will also lead to an increase in prices for disposable e-cigarettes. Consequently, the price gap between disposable and refillable e-cigarette products will narrow, potentially causing some consumers to shift towards refillable options.

New regulations will lead to the closure of many businesses, licenses becoming a "necessity".

During the interview, the two interviewees repeatedly emphasized the importance of "compliance in business operations". According to Anton Mikhaylov, the Russian e-cigarette market is set to undergo a "major transformation" after December, as the licensing system will be implemented and the law will crack down heavily on the illegal sale of products. This will result in the closure of a significant number of sales networks, including e-cigarette specialty stores.

The widespread closure of online sales will pose a significant challenge to e-cigarette companies. In response, Anton Mikhaylov stated that BRUSKO has already taken measures by collaborating with large state-owned chain supermarkets such as Pyaterochka and Lenta. He stated, "With the implementation of the licensing system, 25%-30% of e-cigarette stores may not be able to bear the cost increase and will have to exit the market. In this situation, state-owned retail outlets have a great advantage, and we have long been prepared for this.

Anton Mikhaylov further stated that BRUSKO has already begun preparing its application for a license and firmly believes it will be approved.

Furthermore, in response to Russia's upcoming announcement of a ban list on e-cigarette flavors (scheduled to be released on September 1st), Anton Mikhaylov of BRUSKO stated that all of their business operations are in compliance, therefore they are not afraid of government regulatory measures.

Finally, we reached out to BRUSKO, a well-known Russian e-cigarette brand, to verify the rumors of their involvement in tax evasion and fraud, which led to substantial fines. In response, Anton Mikhaylov, a representative from BRUSKO, stated that these rumors are baseless and do not align with reality. He assured us that all of BRUSKO's operations are conducted in full compliance with the law, with no instances of tax evasion or fraud. Furthermore, Mikhaylov emphasized that the Federal Tax Service's investigation did not reveal any violations committed by BRUSKO.