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Entrepreneurs who make money at the start of business grab the electronic smoke outlet for supervision or "splash cold water"

Liang Chen

08:46, February 21, 2019 Source: Beijing News

Two years ago, e-cigarette was still a foreign exchange "money printing machine" for several unknown Guangdong manufacturing plants. However, in December 2018, after the huge acquisition of US tobacco giant of 10 billion dollars and the safety verification of the British Health Protection Agency, e-cigarette became a new outlet for Chinese entrepreneurs.

In January 2019, Hammer Technology Luo Yonghao was the e-commerce platform for former executives to start their own businesses. It is understood that at present, more than a dozen start-ups are entering the e-commerce field. The industry even reported that Xiaomi would set foot in electronic cigarettes, but Xiaomi later denied it.

According to the Beijing News reporter, some of the above entrepreneurs have no time to register their companies and will change the industrial and commercial registration of the shell companies that have been established for two years; Some office decoration taste has not dissipated before they start painting and calligraphy on the whiteboard in the future; Some started a new business in their circle of friends with the help of their reputation accumulated in the past. Almost all the entrepreneurs interviewed told the reporter without any hesitation that this is a business that makes money when it starts.

Local governments are strengthening supervision in relevant fields. Hong Kong, Hangzhou, Shenzhen and other places are taking measures to "ban smoking". Zhang Jinyuan, founder of the electronic cigarette brand "Lingxi LINX", told reporters that "the core risk is government regulation. If it is completely prohibited, no one can do it". Some people in the tobacco industry told reporters that the government may consider directly including electronic cigarettes into the monopoly category, which will lead to "one size fits all".

Entrepreneurs pour into the new outlet of electronic cigarette

On December 26, 2018, Altria Group, an American tobacco giant and Marlboro cigarette manufacturer, acquired 35% of the equity of JUUL Labs, an electronic cigarette start-up company, at a price of US $12.8 billion. The latter's valuation rose to US $38 billion, even equivalent to the market value of Delta Airlines and Ford Motor. In January 2019, Altria announced that the sales of JUUL in 2018 exceeded $1 billion, five times that of 2017.

Zhu Xiaomu, employee 001 who left the company from Hammer, told the Beijing News that he did two things when investors found him, including the observation of JUUL. The electronic cigarette industry "has exaggerated figures and is growing too fast". It is understood that electronic smoke mainly includes atomized smoke and heated non burning tobacco. The former is to atomize the tobacco oil containing nicotine and other components and ingest nicotine by smoking, while the latter is to further process the traditional cigarettes and ingest them by heating them without burning. Both claim to have avoided the tar, carbon monoxide and other substances harmful to human health produced by the burning of traditional cigarettes.

The difference is that heating and non combustion are still included in the monopoly category in China because they contain tobacco products, and they cannot be produced, sold, imported or exported without obtaining relevant qualifications. Therefore, at present, the tuyeres where entrepreneurs gather are mainly atomized smoke, also known as steam electronic smoke. The first generation of electronic cigarette inventor recognized by the market is a Chinese pharmacist named Han Li. He invented the first nicotine based electronic cigarette in 2003, and quantified the production and sales of the device the next year, named it "Ruyan".

In September 2018, Xingke Electronics, the manufacturer of Hammer mobile phones, approached Luo Yonghao to enter the electronic cigarette market. However, Luo Yonghao refused, and Zhu Xiaomu, a senior manager of Hammer, thought that this market would copy the logic of smart phones after seeing that multiple product managers of Hammer began to use electronic cigarettes. Therefore, Zhu Xiaomu founded Feathercoat Technology to make electronic cigarettes, and almost all the employees of the company come from Hammer Technology.

"Everyone is driven by interests. I also want to make money. This is a good business," Zhu Xiaomu told the Beijing News. Compared with other competitors, he believes that he has many years of mobile phone experience and hardware brand channels, and will have more advantages in the electronic cigarette market. Zhu Xiaomu was previously responsible for user experience and marketing at Hammer Technology.

"Starting from scratch only requires a few million yuan of capital investment". In Zhu Xiaomu's opinion, the market is developing too fast. As long as the product is sold, profits can be generated, and the re purchase of cigarette bombs will accelerate the income. Usually, each user consumes 5 to 10 cigarette bombs per month.

The other one who entered this industry is Zhang Jinyuan. Before that, he was the chairman of the board of directors of the same uncle. Different from his previous entrepreneurial experience, Zhang Jinyuan started his business together with Li Yan, chairman of WeMedia, Zeng Hang, founder of Junwu Subplane and other new media founders.

In order to seize time, Zhang Jinyuan even had no time to register a new company, but transformed a shell company. According to the industrial and commercial data, in February 2019, the industrial and commercial registration data of a company called "Beijing Dakou Food and Drink Culture Media Co., Ltd." was changed to "Beijing New Lingxi Technology Co., Ltd.", and the legal representative and investors were also changed.

Interestingly, Cai Yuedong, the founder of the same uncle, and Hechang, the founder of the former fast food brand Huang Taiji, also entered the electronic cigarette market together. Recently, it announced in the circle of friends that its products will be available for sale. Within 24 hours, the sales reached 5 million yuan.

China has become the world's largest producer of electronic cigarettes

Electronic cigarette is composed of atomizer, battery box and smoke oil. By means of atomization and other means, the tobacco oil containing nicotine is turned into steam for users to smoke.

Zhang Jinyuan told reporters that the battery box and mouthpiece (a sensing system in the atomizer) in the electronic cigarette are common accessories in the whole industry. They are provided by a few suppliers, and there is little difference between them. The real competition lies in the overall industrial design, atomization core and the deployment of tobacco oil.

Several industry insiders interviewed said that the e-cigarette factory has a high profit, with a gross profit of 50% - 80%. Although it is also trying independent brands, it is far better to make money as a OEM, which has left a market space for start-ups.

According to the research report of Tianfeng Securities, China is already the world's largest producer and exporter of steam electronic cigarettes, and about 90% of the world's products and accessories are produced in China.

On October 1, 2018, China (Shenzhen) International Electronic Cigarette Exhibition 2018 was held in Shenzhen Convention and Exhibition Center.

There are thousands of domestic e-cigarette and its accessories enterprises, most of which are small manufacturers mainly engaged in OEM, while large manufacturers usually do both OEM and private brand. At the same time, many companies began to list on the NEEQ, among which, the electronic cigarette manufacturer McVail's revenue reached 1.176 billion yuan in 2018, and its net profit was 198 million yuan; The revenue of battery supplier Fengjiang Battery is about 1.483 billion yuan, and the net profit is more than 40 million yuan.

Li Oucheng, partner of Bopai Capital, told reporters that since 2014, overseas demand for electronic cigarettes has increased, and its price is one third of that of traditional tobacco. Bopai Capital has made its next investment in 2016, and once became an angel investor of refined salt technology, an electronic cigarette R&D company, with 5 million yuan.

Li Oucheng said that in addition to traditional e-cigarette enterprises, only three or four of them have independent R&D and structural design capabilities, while most of the others choose OEM e-cigarette factories.

In 2016, the scale of China's electronic cigarette market began to grow. Booth data shows that the market size has nearly tripled compared with 2015, and the market size exceeds 3 billion yuan. However, Euromonitor data shows that from a global perspective, China's market share is only 5%, the largest is 43% in the United States, and 13% in the United Kingdom.

The reporter of Beijing News once tried to contact several traditional e-cigarette manufacturers, who declined the interview request.

What are the health risks of electronic cigarettes?

Zhang Jinyuan believes that it is uncertain whether electronic cigarettes will become a substitute for traditional tobacco in China, but his understanding of the Internet and channels is expected to help him gain new users, that is, people who did not smoke in the past. In his view, electronic cigarettes will become a new category, which is expected to replace chewing gum or coffee in terms of time consumption. The advantage of doing so is that it can not only open new markets, but also avoid the policy risks associated with "smoke".

Li Oucheng told reporters that in addition to highlighting personality, 50% of the users of electronic cigarettes were not smokers before, which became the logic of investors' investment. "E-cigarettes are like craft beer. Many users don't like ordinary beer, but they will choose craft beer if they need to drink on some occasions.".

Recently, the Guardian quoted a report from the British Health Protection Agency, saying that "compared with real tobacco, the risk of electronic cigarettes is very small, and its harm is 95% less than real tobacco". Subsequently, Chinese entrepreneurs began to cite this figure to prove its superiority over traditional tobacco. The report also provides another important point of support, that is, "electronic cigarettes can help more smokers quit smoking". As a result, many entrepreneurs regard "health" as one of the promotion points of electronic cigarettes.

However, the reporter inquired about the official website of the British government and found that the data was released in August 2015, and the British Health Protection Agency entrusted Professor Ann McNeill of King's College London and Professor Peter Hajek of Queen Mary University London to lead the research. At the time of press release, the British Health Protection Agency News Office did not reply whether the study was updated in recent years or whether the data is still valid.

The medical community has begun to reflect on whether electronic cigarettes are harmful to the human body. David Thickett, a professor at the University of Birmingham, UK, once pointed out in the research report published in the 2018 medical bimonthly journal Thoracic Cavity that electronic smoke makes important immune cells in the human body lose their function, and warned that the earlier statement that electronic smoke "is safe for the human body" might be wrong.

At present, Zhenge Fund, Dynamic Capital, Source Code Capital, IDG Capital and other institutions have begun to invest in this track. However, most investors remain cautious. Entrepreneurs who have been exposed to investment told the reporter that at present, capital is still worried about the threat of policy risks to the entire industry, because the government may adopt a "one size fits all" policy to completely overturn and reconstruct the pattern of the entire electronic cigarette industry.

Different governments have different attitudes towards e-cigarettes

In order to persuade smokers to quit smoking, the British government believes that electronic cigarettes are less harmful than traditional tobacco. The British Health Protection Agency disclosed that 65% - 68% of the people who use electronic cigarettes and nicotine replacement therapy successfully quit smoking.

The US government has adopted stricter control over the sale of electronic cigarettes. In November 2018, the US Food and Drug Administration announced that it would revise the compliance policy of e-cigarettes, and e-commerce sellers need to implement age certification for online sales of e-cigarettes. Although e-cigarettes do not contain tobacco, most e-cigarettes still contain nicotine, which can make people addicted.

In contrast, the Singapore government has issued the most stringent ban at present. In addition, Thailand, Argentina and other countries have also banned the sale of electronic cigarettes.

As for the Chinese market, a person in the tobacco industry told the reporter that the production and sales of electronic cigarettes without tobacco crop ingredients are not prohibited from the existing laws, but several local governments are putting electronic cigarettes under supervision, and the national level has issued a warning against the sale of electronic cigarettes to minors. Next, the government may define e-cigarettes as new types of tobacco and bring them into the monopoly range.

In January 2019, Shenzhen issued the Regulations of Shenzhen Special Economic Zone on Smoking Control (Revised Draft for Comments), formally proposing to include electronic cigarettes in the scope of smoking ban. In February, the Food and Health Bureau of the Hong Kong Special Administrative Region Government submitted the 2019 Smoking (Public Health) (Amendment) Bill to the Legislative Council of the Special Administrative Region, proposing that the import, manufacture, sale, distribution and promotion of electronic cigarettes and other alternative smoking products should be prohibited, and offenders could be fined up to HK $50000 and imprisoned for 6 months.

(Editor in charge: Han Ying, Zhang Chen)

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