We have previously reported that tobacco giants such as the United Kingdom, the United States, Philip Morris, and Altria have withdrawn or stopped operating in the Russian market due to the depreciation of the ruble and sanctions from the Western world. It might be an opportunity.
First, we are reporting on "Russia-Ukraine conflict continues to ferment, is the e-cigarette market expected to reshuffle? ” mentioned that the penetration rate of HNB in Russia’s new tobacco market is as high as 20%. The “2021 Electronic Cigarette Blue Book” shows that Russia is the third largest market in the industry’s foreign trade after the European and American markets.
Second, there are only two management measures that have been implemented recently that are related to overseas foreign trade. Many industry insiders believe that the state encourages the electronic cigarette industry to actively develop production technology and earn foreign exchange overseas.
Third, the solid electronic cigarette category has a relatively small volume in China. Although many practitioners predict that the new national standard will be good for solid electronic cigarettes, it still takes time for the market to increase, and solid electronic cigarettes urgently need to expand overseas markets.
As a result, Grid talked to Mr. A, the person in charge of the two brands in the solid-state electronic cigarette industry chain, to learn more about whether solid-state electronic cigarettes have potential in Russia and how to go overseas.
Russia's HNB market has enough potential
Domestic brands are expected to enter
The first point is that the potential of the new tobacco market in Russia is beyond doubt.
According to Philip Morris International's announcement, its revenue in Russia will account for 6% of its net profit in 2021, and this is only obtained by sharing the 20% of the HNB penetration population in Russia with the three tobacco giants, Empire, Altria, and Britain and the United States. .
So who will fill the vacancy after the withdrawal of the tobacco giant?
"Our brand is already doing export business in Russia, but the transportation cycle is relatively long." Mr. A said. "We just opened two openings before this (the giant's withdrawal of capital), and negotiated cooperation with local big dealers."
According to Mr. A, a certain number of Russian smokers use the HNB system, which was a market for further development before, and now it is an opportunity.
"Although the current mainstream category in the Russian market is still liquid electronic cigarettes, especially disposable and some oil-filled pods, the solid category does not need to go there to compete with them for stock, just continue to develop traditional smokers." Mr. A said .
It is understood that the reason why Russia is the main new tobacco market is that in addition to the number of cigarette smokers ranking fourth in the world, the more important thing is that Russia's terminal channels are not multi-modal like other countries, such as domestic brand stores, collections There are two types of shops and tobacco hotels, but the collection of various categories is unified within the tobacco shop.
"If HNB is there, you can just put it on the tobacco store. The place that sells cigarettes is not like our electronic cigarette store, tobacco and alcohol retail. They have everything on the shelves of their terminal stores." Mr. A added.
In this way, the Russian market is more likely to achieve the transformation between brands and even categories than other markets, and the previous one-off, oil injection and other categories have developed rapidly. The same can be said for solid-state electronic cigarettes.
In addition, according to the report of Japan Tobacco, which accounts for 38% of its annual revenue in the Russian market, Russian smokers prefer pop-bead cigarettes to traditional cigarettes, and the most popular products Mr. A currently sells to Russia are pop-beads product. This also proves the market potential and space of HNB, which is presented in the form of explosive beads, in Russia.
As for the more prominent patent issues in the solid-state category, Mr. A said that his particle-structured cigarettes can completely bypass the thin-sheet cigarette patents set up by tobacco giants led by Philip Morris. where the foundation lies.
However, what is even better is that according to the feedback from Mr. A's local salesmen, they have not clearly felt any regulatory resistance. The promotion of new tobacco in the Russian market has basically not been hit by policies, regulations and law enforcement. Perfect supervision is implemented.
But this also brings serious problems.
good market
But whether to make money or not depends on cost control
"We have tried to do the Russian market, but finally gave up because the local consumption power is too poor. Generally speaking, it is better to do the next European market." A solid electronic cigarette brand said.
Due to the problem of the local economic level in Russia, the general consumption level of its smokers is relatively low, and the unified collection of stores makes it easy for smokers to choose high-quality and cheap products, which is one of the reasons for the rapid rise of one-time in Russia.
The fermentation of the Russian-Ukrainian conflict has further devastated Russia's economic system, and the devaluation of the ruble has led to a 30% increase in the price of local e-cigarettes. We have learned that there have been many e-cigarette brands before, and they will do everything possible to reduce the price so that Russian dealers can pick up the goods.
"The market potential depends entirely on the local consumption power. Now that the war is going on for a while, and the local economy is not good enough for smokers to eat, how can they smoke? So although there are many smokers there, they are not interested in new tobacco. Demand is also increasing, but you can't say it's a very profitable place," Mr A said.
Since the profit is low, it needs to be compensated in terms of cost and efficiency. But the efficiency problem is difficult to solve for a while.
Mr. A has mentioned before that the transportation cycle for exporting to Russia is long. Due to the geographical location of Russia, Siberia, which borders the Pacific Ocean in the east, is inaccessible and not the market. Therefore, the transportation method of the industry to Russia basically relies on the China-Europe railway. The China-Europe Railway is still an old-fashioned train, which is inefficient and time-consuming.
Then the problem can only be solved from cost control. At present, there are two ways to solve the cost problem:
Following the example of tobacco giants to build factories in Russia, self-production and self-sales save the international freight link
Start with the source of research, production and sales, and build automated production lines to control costs
"We have considered whether to build a factory in Russia before, and we also took a fancy to the Kuril Islands near the Sea of Japan. It is a Russian enclave, and the Russian government also intends to make it an international free trade zone. But now Russia faces sanctions, in The products produced by the factories there can only be sold to Russia, not to other countries." Mr. A said.
Whether it is automated production or investment in building a factory, it is a heavy asset investment for an enterprise. Assuming that there are no products that sell well and have a long lifespan, heavy asset investment will eventually affect the company's cash flow, or even bring down the company.
Therefore, there is basically no need to consider building a factory in Russia. If you want to do business in Russia, you need to work hard on your own research and production to control costs. So looking back, who has the most strength to expand the solid-state electronic cigarette market in Russia?
The answer is our new tobacco brand. We have previously found that there are qualified exporters who have obtained the corresponding qualifications who are in need of cooperation with Russian distributors and provide them with additional preferential subsidy policies.
"The most important thing at the moment is the exchange between Russia and China. After this problem is solved, as long as the gross profit can be generated, as long as the company can control the cost well, this trade can be done. And I think the current four major tobacco companies can do this trade. Withdrawing from Russia is an opportunity for China Tobacco, and the official connection will also better solve the problems that are difficult for private enterprises to solve.” Mr. A said.
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