On March 11, the State Tobacco Monopoly Administration issued the national standard for electronic cigarette (second draft for comments); Meanwhile, the measures for the administration of electronic cigarettes will be issued, and the new regulations will come into force on May 1. This report mainly analyzes the possible changes in the future from the perspective of China’s e-cigarette & traditional cigarette industry chain system from four aspects: production end, channel end, export end and marketing end.
At present, the upstream of the atomized e-cigarette industry chain is raw material suppliers, the midstream participants include equipment manufacturers and brands, and the downstream subjects are distributors and e-cigarette users. The formal introduction of the e-cigarette management measures will significantly improve the access threshold, and the benefit distribution pattern of the e-cigarette industry chain will be reconstructed. The traditional tobacco implements the monopoly system, which is operated and managed by China Tobacco Monopoly Bureau and China National Tobacco Corporation. Its subordinates include 33 Provincial Tobacco Monopoly bureaus and their subordinate prefectural and municipal monopoly bureaus, 18 provincial tobacco companies and their subordinate local cigarette production enterprises. The Chinese traditional cigarette brand CR3 is as high as 61.8%.
I. production end
Conclusion 1: we believe that the essence of e-cigarette products is to replace traditional cigarette products. In the future, e-cigarette may return to the original attributes of tobacco such as taste reduction and smoking experience. With technical R & D strength, the company is expected to gain more market share.
Conclusion 2: in the short term, the sales volume of e-cigarettes will be constrained by the taste, which will be reduced in stages, and there is still some room for deployment in the taste. In the long run, with the full restoration of e-cigarette and tobacco taste, the scale of China’s e-cigarette market still has great room for growth. In 2020, FDA issued a taste ban. The retail scale of the U.S. e-cigarette market decreased from US $9.644 billion in 2019 to US $9.378 billion in 2020, and is expected to rise to US $10.299 billion in 2021. In addition, compared with key countries in the world, China’s e-cigarette penetration rate was only 1.5% in 2021, while that of the United States, Japan, Britain and France were 38.0%, 30.3%, 20.9% and 4.1% respectively. It is expected that China’s e-cigarette penetration rate will further increase.
II. Channel side: wholesale link or return to China tobacco system, and brand stores may be replaced by collection stores, convenience stores and traditional cigarette outlets.
III. outlet end:
Conclusion 3: the official version of the management measures is more flexible in export supervision, which is conducive to the export of Chinese made brands. According to Landong and China e-cigarette Industry Association, more than 90% of the world’s e-cigarettes are produced in Shenzhen. It is estimated that China’s e-cigarette export volume will be 63.1 billion yuan in 2021, with a year-on-year increase of 28%. China is in a leading position in the global competition and has become the world’s largest e-cigarette producer and exporter, The national policy recognizes the role of “export earning foreign exchange” of e-cigarette industry.
IV. marketing: emphasize the protection of minors and strengthen the management of advertising.
We believe that the release of the national standard for e-cigarettes (second draft for comments) and the measures for the administration of e-cigarettes will promote the orderly development of the e-cigarette industry, gradually clarify the competition pattern of manufacturers and brands, and benefit enterprises with high production standards, high-tech reserves and high capital reserves.
Risk tips: industrial policy risk, raw material price rise risk, macroeconomic fluctuation risk;
