A ban issued by regulators on November 1 has effectively ended e-cigarette e-commerce in China. On November 15, foreign media reported that Apple had removed 181 e-cigarette-related apps from its App Store. The online sales channels for e-cigarettes are narrowing.
With online sales prohibited, e-cigarette companies are turning their attention offline, shifting to a store-based sales model. One e-cigarette store owner remarked, "From now on, we're the masters; those with stores are in high demand."
Offline channels have suddenly become a scarce resource, and the battle for offline presence is intensifying.
Like most industries, the offline e-cigarette market has players of varying tiers. In terms of approach, some contribute labor, some capital, and some resources. In terms of style, some are steady sellers, some are marketing-savvy, and some are unconventional.
Depending on their position in the channel, these players take on different roles and receive different profit shares, forming a complete value chain for e-cigarette sales. Some sit at the top of the chain, earning guaranteed profits, while others at the bottom become targets for exploitation.
The policy shift caught many internet-savvy players off guard. The complexity of offline channels is incomparable to online, as one e-cigarette entrepreneur lamented, "Many people crossing over from the internet can't even find their way around offline at first."
There's also the matter of offline regulation. Departments led by the State Tobacco Monopoly Administration are conducting harm-prevention campaigns and regulatory management for e-cigarettes. Caixin previously reported that the State Tobacco Monopoly Administration had held meetings requiring physical stores near schools to remove e-cigarette products, but for areas not near schools, stores could not be forced to remove e-cigarettes or be penalized in any form.
However, enforcement varies by region. In some places, local tobacco monopoly officials have demanded that malls and stores not near schools remove e-cigarettes, threatening administrative penalties or even revocation of tobacco retail licenses, adding uncertainty to the offline battle.
-01- Who Sells E-cigarettes Offline?
The earliest e-cigarette sellers came from three groups. One group was previously selling traditional tobacco products, typically owning specialty stores, often themed as "vape lounges." They were the first to engage with e-cigarettes.
Another group was self-media operators, who, with a keen sense of trends, spotted e-cigarettes' potential early. For example, the founders of YOOZ and Lingxi both came from self-media backgrounds. The third group was FMCG distributors, such as those for liquor, beverages, and mobile phones.
Before the November 1 online sales ban, e-cigarette brands exploited regulatory gaps to accelerate expansion. Capital and talent flooded in, and due to lack of oversight, offline channels became a mixed bag.
Nightclubs, internet cafes, convenience stores, and digital product stores are, in the eyes of Qiu Yiwu, founder and CEO of Whale Light E-cigarettes, terminal channels with "good scenarios and strong sales capabilities." These stores can easily reach smokers, offer on-site trials, and have relatively enclosed spaces, so sales are brisk.
Starting in the second half of 2018, e-cigarettes began appearing in prominent positions in these stores, beginning with nightclubs. Products were mostly disposable e-cigarettes priced from a dozen to several dozen yuan, focusing on early market education.
These store owners directly felt the explosive growth of the new industry: e-cigarette brands often provided free initial stock, so store owners didn't pay upfront; products were placed on shelves, and payment was only required for subsequent orders after sales occurred. As more e-cigarette brands emerged, competition for offline channels intensified. Free stock, purchase subsidies, and shelf fees became standard.
A convenience store selling e-cigarettes
An investor focused on e-cigarettes told Rancaijing that for mainstream disposable e-cigarettes, convenience store shelf fees range from 150-250 yuan per month, large supermarkets 300-400 yuan per month, and nightclubs from a few thousand to tens of thousands depending on location.
A founder of an e-cigarette brand that cooperates with Bianlifeng told Rancaijing that to get products onto Bianlifeng's shelves, various fees such as SKU fees, entry fees, display fees, and deposits are required, with a minimum of 500,000 yuan just to qualify. Additionally, Bianlifeng requires a 50% gross margin and a two-month payment cycle.
The scramble for channels has driven up channel costs and attracted more players.
In the second half of 2019, e-cigarette brands rushed to open specialty stores. The popular model is: individuals apply for franchise, handle leasing, decoration, and operations, while the brand provides decoration and purchase subsidies. This essentially means brands support individual franchisees to open stores.
Specialty stores lower the barrier to entry, allowing even inexperienced part-timers to join the offline e-cigarette business. However, in the channel war, "wool party" opportunists are never far behind.
Take Snow+ (Xuejia), known for heavy subsidies and aggressive market capture. This year, it also began promoting specialty stores. According to one Snow+ franchisee, opening a franchise store yields a subsidy of 15,000 yuan for stores under 15 square meters and 30,000 yuan for larger ones. Purchases get a 40% discount, with a minimum order of 30,000 yuan, and Snow+ also subsidizes an additional 5,000 yuan worth of goods based on purchase price.
Many industry insiders see such indiscriminate subsidies as risky for store openings. But the small franchisees seem unconcerned. "We'll open while they're still standing; even if they collapse later, we can just change the logo and sell something else," one franchisee said.
Qiu Yiwu calculated that for a typical e-cigarette franchise store, with monthly rent of 8,000 yuan and staff wages of 5,000 yuan, fixed costs total about 15,000 yuan. At a 50% gross margin, a store needs to sell at least 30,000 yuan of goods monthly to break even, excluding decoration and marketing costs.
-02- Where Did the Goods Go?
Offline business is tough, a consensus across industries since the rise of e-commerce.
E-cigarette brands all want to find channels that are "both capable and resourceful." "Capability means whether you have money; ability means whether you'll invest. Those who can invest often lack money, and those with money may not have the ability to sell; they just play resource games," Qiu Yiwu said.
Based on resources and capabilities, e-cigarette channels have divided labor, with agency distribution being the mainstream model.
An e-cigarette entrepreneur told Rancaijing that the industry norm is: for a pod system kit, compared to the final retail price, the general distributor's purchase price is about 40% off, the sub-agent's is 55-60% off, and the next level down is 75-80% off. Discounts vary by level.
Different purchase discounts mean different gross margins. And before products reach store shelves, capital is tied up in the channel system. Each additional channel link increases capital and labor requirements. This is the complexity of offline channels.
The online sales ban shifted all online inventory to offline channels overnight.
Offline event selling e-cigarettes
The timing of the ban was delicate: it came two weeks before the Double 11 shopping festival, when brands had already started pre-sales. Large amounts of inventory prepared for Double 11 had to be diverted to offline channels.
Offline, departments led by the State Tobacco Monopoly Administration are conducting comprehensive harm-prevention campaigns and regulatory management, initiating a wave of industry cleanup.
Yu Lei, general manager of e-cigarette brand HIMOP and Beijing Haimanpu, told Rancaijing that some local tobacco and liquor store owners tried selling e-cigarettes, but tobacco monopoly officials usually showed up quickly.
Caixin previously reported that the State Tobacco Monopoly Administration had held meetings requiring stores near schools to remove e-cigarette products, but for non-school areas, stores could not be forced to remove e-cigarettes or be penalized. However, according to China Business Journal, local tobacco monopoly officials in Shiyan, Chengdu, Nanchang, and other places extended controls to malls and stores not near schools, demanding removal of e-cigarettes or facing administrative penalties, even revocation of tobacco retail licenses, forcing store owners into a "choose one" dilemma.
Despite lawyers pointing out that tobacco monopoly regulations do not grant administrative departments the right to penalize stores with retail licenses for selling e-cigarettes, the reality has undoubtedly shaken market confidence.
Andy, COO of Juemiao E-cigarettes, told Rancaijing that channel distribution has become harder, leading to severe inventory buildup. Many e-cigarette brands are clearing inventory, requiring agents to pay cash upfront. Some agents, eager to offload goods, have started discounting. "Warehouses are piled with hundreds of thousands or even millions of yuan worth of goods. If you can't sell hundreds of thousands in a month, your cash flow could break in two months."
In some e-cigarette communities, agents have begun dumping goods. "Various disposable e-cigarettes, free random samples of 1-5 pieces," said a provincial agent dumping goods. "They're all free; in a few days, even freebies might not be wanted."
Under distribution pressure, cross-regional selling and price chaos are worsening. The agreed prices among agents and distributors are crumbling under policy impact. Xianyu, previously known as an "e-cigarette cross-regional platform," has blocked e-cigarette keywords per regulatory requirements, pushing these goods directly into offline channels.
"Now the e-cigarette industry is about survival; brands are turning a blind eye," one agent said.
Stockpiled e-cigarettes are scattered across lengthy offline channels, unable to be absorbed quickly. This ties up channel capital and increases operational risk.
Pressure is passing to contract manufacturers. An e-cigarette factory in Bao'an, Shenzhen, had all orders canceled due to the e-commerce ban. "The goods we stocked for Double 11 all became inventory, about 5 million yuan worth," the factory head told Rancaijing.
One e-cigarette brand founder told Rancaijing bluntly that their current strategy is to control pace and shift capital costs to agents. "Our goods are in agents' hands, so our own capital pressure is minimal. In the end, the most efficient companies will survive."
"The previous market was artificially prosperous; the online sales ban was just the trigger that released the pressure," Qiu Yiwu said.
-03- How to Break Through Offline?
At the policy level, the 2018 "Notice on Prohibiting the Sale of E-cigarettes to Minors" explicitly banned selling e-cigarettes to minors. The new regulation in November this year again targeted protecting minors, but did not yet address offline control. How future policies will regulate offline is a key concern for many e-cigarette companies.
Zhang Dong, an administrative law expert and senior partner at Dacheng Law Offices, previously told Rancaijing, "The key is what category e-cigarettes will be regulated under."
"If regulated as pharmaceuticals, that's too strict; if as medical devices, e-cigarettes don't have the claimed smoking-cessation effects, which doesn't fit reality. The most likely scenario is incorporating e-cigarettes into the mature traditional tobacco regulatory system, which also has well-established tax policies."
Given the industry's development, returning offline is inevitable. The rapid growth over the past two years was largely driven by capital and internet support, but this crossed the line for tobacco groups.
Offline business is not built overnight. The game between brands and channels will be a long-term topic.
In the view of Sun Haiming, founder and CEO of Boran E-cigarettes, quality channels are scarce now, and traders and agents must rely on channels, working like oxen to cultivate the market. "In contrast, platforms and channel operators with quality traffic don't need to stockpile, enjoy high profits, and have diverse subsidy methods, making money relatively easily."
Some practitioners joke, "What's most profitable in e-cigarettes now? Malls are the most profitable." Opening a store requires site selection and leasing; brands rush in, malls raise prices, and vicious bidding occurs.
Undoubtedly, e-cigarette brands with offline store resources are the beneficiaries of this online sales ban. On the day the ban was announced, some brands directly expressed "delight" and "happiness."
One e-cigarette brand founder believes the ban will trigger industry consolidation, creating new opportunities. "Our main task now is to grab territory; the window is only one to two months." His reasoning: online traffic is being forced offline, and brands are just reacting, so the priorities are to divide online traffic and seize new offline channels.
An agent told Rancaijing that Fulu is piloting a "Fulu Direct Delivery" service in Beijing. Users make appointments through Fulu staff, and delivery personnel deliver products at the scheduled time. This allows continued offline sales while also verifying age. However, compared to e-commerce platforms, this increases operational costs.
Accelerating store openings is a common choice for many e-cigarette brands, but there are different paths for what kind of stores to open.
Zhao Yangbo, investment vice president at Qichen Capital, analyzed for Rancaijing that with the implementation of the online sales ban, the industry will see more multi-brand stores rather than single-brand specialty stores.
In the past, the industry was dominated by specialty stores, where franchisees joined a single brand, and the brand bore all opening costs. Zhao believes that in the future, multiple brands with differentiated products will share the costs of opening multi-brand stores, shifting channels from single-brand to multi-brand coexistence. Agents, channel operators, and users will gradually begin to choose among brands.
For brands, multi-brand stores reduce opening costs and increase channel options; for franchisees, they reduce the risk of being tied to a single brand and increase operational flexibility.
The offline breakthrough battle for e-cigarettes has officially begun. In this early winter, whether e-cigarette companies can survive depends not only on regulatory attitudes but also on the effectiveness of their offline strategies.
Source: Rancaijing (ID: rancaijing) Tips for exclusive news: 400-2000 yuan