Securities Times reporter Tang Wei
On March 11, the Tobacco Monopoly Bureau issued the "Administrative Measures for Electronic Cigarettes", which will be implemented on May 1, marking a new milestone in the development of my country's electronic cigarette industry.
The industry believes that compliance is a good opportunity for the development of the industry, which will force enterprises to upgrade and take on their due social responsibilities.
The National Standard for Electronic Cigarettes (Second Draft for Comments) (hereinafter referred to as the "National Standard for Electronic Cigarettes") issued on the same day as the "Measures for the Administration of Electronic Cigarettes" is in the state of "under review", and the national standard information public service platform shows that the pass rate has exceeded 92%, just one step away from the official introduction.
The industry expects that the national standard for e-cigarettes may come into effect before May, and it will be implemented in conjunction with the management measures to start compliance supervision of the e-cigarette industry.
It is worth noting that compared with the first version in November 2021, the second draft for comments has changed a lot. The main contents include: First, the design of the atomizer should not be inductive to minors, and should not make the product characteristic flavor. Present flavors other than tobacco.
Second, the nebulizer should contain nicotine.
Electronic cigarette devices and cartridges using electronic cigarette liquid should have a closed structure to prevent artificial filling.
Electronic cigarette devices and cartridges using electronic cigarette liquid should have good sealing and should not leak.
The third is that electronic cigarettes should have the function of preventing children from starting and preventing accidental starting.
Fourth, the number of substances that can be added is reduced from 122 to 101, but 2 cooling agents and 1 sweetener are added.
It was released on March 11 and implemented on May 1, with just over a month.
It is not difficult to complete the reconstruction of the industry in such a short period of time.
In this race against time, how should all parties in the e-cigarette industry chain respond?
Industry confusion: what to do?
"I have been communicating with customers for the past few days, asking if there is any change in the order, what are you going to do? As a result, many customers asked me for my suggestion 'what should we do'? At this stage, everyone is quite confused, inquiring about each other, but not clear. thinking." A person in charge of a well-known e-liquid production company revealed to a Securities Times reporter.
As the upstream of the e-cigarette industry chain, e-liquid is also the core material of e-cigarettes. In this new regulation, it is the most affected.
Compared with the consultation draft issued in December 2021, the "Administrative Measures for Electronic Cigarettes" announced on March 11 clearly prohibits the sale of flavored electronic cigarettes other than tobacco flavors. The number of licensed substances has also been reduced from 122 to 101. These two major changes are challenging for e-liquid manufacturers.
Most e-cigarette manufacturers are located in Bao'an District, Shenzhen and Chang'an Town, Dongguan. Affected by the epidemic, the domestic e-cigarette industry chain and supply chain were suspended for a week last week, and some white-listed companies have just resumed work this week.
The person in charge of the aforementioned e-liquid company said that the order volume of fruity e-liquid in their factory has not been notified to change, and will continue to produce and deliver after the start of construction, but it is expected that the next order volume of the brand will decrease. After all, on May 1st After that, only tobacco-flavored pods can be sold.
"Taste in China is indeed a challenge. But we have to believe in our own expertise. It won't take long before we can make some products that are relatively acceptable to the market." He said that they are currently exploring and developing new e-liquids that meet the requirements, but The national standard has not yet been finalized, and whether the additives will be adjusted again, we still have to wait.
How much of the existing e-liquid needs to be stocked, how to develop new products that meet regulatory requirements and can be accepted by the public... These questions trouble him, but the implementation rules and national standards have not been officially issued, and there is no way to start if there is no idea. It will be officially implemented in more than a month. He admitted that he is very confused at the moment, but he can only be anxious.
This is the general feeling of most e-cigarette users today.
Mr. Liu is a senior practitioner in the e-cigarette industry. He told reporters that the confusion faced by all e-cigarette companies now is: how to sell old products?
How are new products produced?
There is not much time left for everyone to think about, and May 1st has become the last time window.
The industry calls for an appropriate extension of the transition period
The reporter learned that although the "Measures for the Administration of Electronic Cigarettes" was officially implemented on May 1, there is still a lack of supporting details, such as the license application process, product inspection and testing process, and the method of switching first-line stores from specialty stores to collection stores, etc.; In addition, front-line retail practitioners are still waiting for guidance and need more time to complete the application process and clear inventory.
On the other hand, after the release of the national standard for "Electronic Cigarettes" (the second draft for comments), it will take time for enterprises to develop and produce products that meet the requirements. Completed within 40 days.
Mr. Liu believes that the new regulations for electronic cigarettes have changed a lot, and core components such as cigarette sticks and pods have to be re-developed. In addition, new approval requirements have been added. From the general rules of electronic consumer products, the launch of a new product should be at least It takes about half a year, which means that if the implementation is strictly carried out according to the time of May 1, it is likely that from May to August, at least one quarter, there will be no electronic cigarette products on the market. A large number of first-line retail store owners and upstream and downstream personnel in the industry may face "no goods to sell" in the second half of 2022.
Chen Zhong, an expert in the electronic cigarette industry and the editor-in-chief of Blue Hole New Consumer, told reporters that the industry welcomes the supervision of relevant departments, so that the industry can have long-term planning and development, and prevent the phenomenon of bad money driving out good money.
"At present, I hope that the relevant departments can issue various implementation rules and guidelines as soon as possible to facilitate the implementation of various links. At the same time, I hope that the industry and shop owners will be given a relatively loose buffer period, so that the inventory will be exhausted and there will be enough time to upgrade the national standard products."
Recently, Blue Hole reported that four e-cigarette brands have been selected for pilot supervision in Huizhou, Guangdong and Xiamen, Fujian, mainly to test the actual implementation rules such as distribution and pricing. The relevant experience after the test will be used for national supervision.
"It is possible. It is a relatively safe practice to wait until the pilot is mature and then roll out to the whole country. Otherwise, it will be implemented nationwide on May 1, which will be a big test for the tolerance of the electronic cigarette industry." One person declined to be named industry sources said.
Under the new regulations, the industry starts a new round of reshuffle
According to the statistics of the Electronic Cigarette Industry Committee, in 2021, there will be more than 1,500 domestic electronic cigarette manufacturing and brand enterprises, more than 190,000 electronic cigarette retail outlets, and nearly 100,000 electronic cigarette supply chain and surrounding service enterprises.
The domestic e-cigarette industry directly employs about 1.5 million people, driving 4 million indirect employment, for a total of about 5.5 million people.
Under the new regulations, first-tier retail store owners felt the changes first. In recent days, sales have exploded, and both volume and price have risen. Some fruit-flavored pods are hard to find even doubling the price, but everyone knows that this is more like " The last madness", because after May 1, 2022, non-tobacco flavored e-cigarettes will not be allowed to be sold.
"Few people will buy tobacco-flavored e-cigarettes." An e-cigarette shop owner said that he was ready to change his career after selling out the stock.
According to Blue Hole's new consumption survey data, most consumers will only choose non-tobacco flavored products when purchasing electronic cigarettes, and the sales of such products often account for more than 90%.
"For shop owners, the first is that they will not be able to sell seasonings that account for more than 90% of sales in the future, and the second is that the details of the license application are still undecided. Many people worry that they will not be able to obtain a license and thus lose their business in this industry. The shop owner must now evaluate There are multiple risks, one is whether only selling tobacco can cover the cost, and the other is the difficulty of handling retail licenses." Chen Zhong said.
Statistics show that flavoring agents make e-cigarettes more attractive to young people to be exposed to nicotine and become addicted, which may be the reason why flavoring agents are strictly prohibited in my country's e-cigarette supervision.
The World Health Organization's 2021 Global Tobacco Epidemic Report shows that since 2011, the proportion of US high school students who use e-cigarettes has increased from 1.5% to 19.6% in 2020, and the proportion of users who use flavored e-cigarettes has increased from 65.1%. to 84.7%.
Among high school students, the most commonly used flavor types were fruit (73%), mint (56%), menthol (37%) and candy, dessert or other sweets (37%).
70% of teens (12-17 years old) e-cigarette users said they use e-cigarettes "because they have the flavor I like".
For brands, after the seasoning restrictions, there may be a situation where shipments plummet.
If the "Administrative Measures for Electronic Cigarettes" are strictly implemented on May 1, the transition time will be too short, and the brand side will not only have a large amount of flavoring inventory left, but also cannot plan the production capacity in the second quarter, and there will also be time constraints in factory stocking.
In addition, the conversion of specialty stores into collection stores and how to obtain business licenses are very practical issues. If the detailed rules are released as soon as possible, and more transition and buffer periods are given, I believe that brands can handle them properly and operate in compliance with regulations.
The main impact on the supply chain is that the production capacity will be reduced. After all, the proportion of flavored pods in the domestic market is very large. If the ban, this part of the production capacity will be vacant, and those with strength can turn to overseas exports, but small and medium-sized supply chains will not be able to bear it. forced to close.
Chen Zhong believes that the new regulations have a great impact on the above three types of entities. Under strong supervision, dangers outweigh opportunities. Under supervision, unqualified players will definitely be eliminated, leaving powerful companies and retailers that can turn around.
Industry experts: Be wary of industrial transfer overseas
The electronic cigarette industry is an advantageous industry in China, especially Shenzhen.
At present, Bao'an District of Shenzhen occupies more than 90% of the world's e-cigarette production capacity, leading the world in technology, products and sales, forming a situation of "demand centers in Europe and America, and manufacturing centers in Shenzhen".
According to the "2021 Blue Book of Electronic Cigarette Industry" released by Volume Think Tank and the Electronic Cigarette Industry Committee of China Electronic Chamber of Commerce, the domestic market size of electronic cigarettes (retail) in 2021 is expected to be 19.7 billion yuan, a year-on-year increase of 36%; the global market size (retail) It is expected to be US$80 billion, a year-on-year increase of 120% and a three-year compound growth rate of 35%.
In 2021, China's total e-cigarette exports will reach 138.3 billion yuan, a year-on-year increase of 180%; the most exported country is the United States, accounting for more than half, followed by the European Union and Russia.
On March 20, Bao'an District issued several measures to promote the high-quality development of advanced manufacturing and modern service industries, which clearly proposed to support the development of regional characteristic advantageous industries, encourage the development of new-type electronic atomization equipment and other advantageous industries and enterprises. Enterprises in characteristic and advantageous industries such as atomization equipment will be encouraged according to the increment of added value.
But at the same time, overseas are also competing for the e-cigarette industry chain.
Indonesia is one of the most important regional markets for Chinese e-cigarettes in Southeast Asia. Indonesia is planning a large-scale e-cigarette industrial park and invites some domestic manufacturers to settle in.
At present, Indonesia is more open to e-cigarettes, taxing e-cigarettes as legal tobacco products, and does not restrict their flavors.
"Many have gone out, and overseas is also very busy now, all of which are our own domestic counterparts." The person in charge of an electronic cigarette company that has been registered and landed in Indonesia said in an interview with reporters.
RELX, Yuzi YOOZ, MOTI Magic Flute, Bode, Ono and other leading companies have fully deployed in overseas markets.
According to Blue Hole's research, there are already Southeast Asian countries throwing olive branches to Shenzhen factories, promising to attract domestic manufacturers to build factories overseas with low-cost factories and low-cost labor.
"This will have an impact on China's leading position in the world of electronic cigarettes. After all, we have been occupying 90% of the production capacity of electronic cigarettes. If there is an outflow due to supervision, it is indeed very regrettable." Chen Zhong said that the electronic cigarette industry is one of the few in my country. In an industry that occupies an absolute leading edge in the world, Chinese companies hold the core of patents, research and development, technology and production.
What will the future hold for moving forward amid controversy?
Electronic cigarettes have been controversial since their inception. Countries have different regulatory policies on electronic cigarettes. Some support and legalize sales, some do not support or oppose it, some completely prohibit sales, and some legislate to prohibit sales.
However, judging from the development trend of regulatory policies in various countries, countries are constantly strengthening the supervision of new tobacco products such as e-cigarettes.
Singapore, Hong Kong, China and other places prohibit the import, sale and use of electronic cigarettes.
On October 21 last year, the Legislative Council of the Hong Kong Special Administrative Region passed the third reading of the "Smoking (Public Health) (Amendment) Bill 2019" (the Bill), which completely banned new tobacco products such as e-cigarettes.
The Secretary for Food and Health of the Hong Kong Special Administrative Region Government, Chen Zhaoshi, said that the new law will take effect 6 months after it is gazetted, which means that new smoking products will not be able to enter Hong Kong from next month.
The United States is the world's largest e-cigarette market, and their attitude towards e-cigarettes is limited supervision. The United States banned flavored e-cigarettes in 2020, but allows open e-cigarettes and disposable e-cigarettes at the same time.
There are also countries that choose to embrace electronic cigarettes, such as the United Kingdom and New Zealand, which strongly support electronic cigarettes.
Of course, support does not mean no matter, the content of nicotine will also be stipulated, and compliant production is required.
Chen Zhong believes that my country's new e-cigarette regulations do not kill e-cigarettes with a single stick, which is not only a progress in my country's supervision over other countries, but also recognizes that e-cigarettes can be an option for adult smokers, and also leaves room for development for the industry.
"As time goes on, I think there may be new changes in the regulation of e-cigarettes."
"In the long run, this year may be the worst year for the e-cigarette industry in the future." Chen Zhong predicts that the entire domestic industry will be in a period of pain this year, and the scale will shrink.
Users need to face choices, companies need to operate in compliance, and the retail side needs to be reshuffled. This year may be the trough of the industry.
However, he believes that China's e-cigarette status in the world will still be the hegemon in the future, and there will be fluctuations in the short term, but because of a mature supply chain and perfect R&D reserves, the center of the world's e-cigarettes will still be China, and supervision is currently encouraging exports. The reduction of export procedures is enough to see that supervision is still relatively open in terms of e-cigarettes.