CEO Interview | Yunshuo CEO Hu Xin: The way for small and medium-sized e-liquid factories to survive without being tied to large manufacturers

CEO Interview | Yunshuo CEO Hu Xin: The way for small and medium-sized e-liquid factories to survive without being tied to large manufacturers

2Firsts interviewed Hu Xin, CEO of Yunshuo Technology. In the interview, Hu Xin emphasized that the company is committed to innovating unique flavors and segmenting flavors, and realizing the strategy of survival and development in the e-liquid market through the "small and beautiful" positioning.
Hu Xin, CEO of Yunshuo Technology:

 

Staying Small and Beautiful

The Survival Thinking and Practice of a Small and Medium-sized E-liquid Enterprise

 

Text | 2Firsts

 

In the first 20 years of the development of the e-cigarette industry, the dominance of the industrial chain was occupied by OEM factories and e-liquid factories. In the past five years, the global e-cigarette market has experienced an era of "big explosion". The market has gradually transitioned from product competition to brand competition. The dominance of the industrial chain has quickly changed hands and began to be monopolized by brand owners (including brand-type channel merchants). With strong resources and market influence, brand owners, as the leader of the industrial chain, affect the survival and development of the entire upstream supply chain manufacturers. As the most important link in the e-cigarette supply chain, the fate of the e-liquid factory is particularly precarious under the tide of the times.

 

Faced with the strength of big brands, some e-liquid factories have either actively or passively started to choose sides, hoping to stabilize their market share through long-term binding with big brands. On the other hand, in order to further reduce costs and strengthen control over the supply chain, some big brands have also begun to build their own supply chain systems. With huge orders, leading brand owners are able to quickly support OEM factories and e-liquid factories that are more controllable by themselves. Under the influence of the above two methods, the e-cigarette e-liquid market structure has been reorganized, and the leading e-liquid factories have established "strong connections" with big brands in different ways.

 

What should small and medium-sized e-liquid factories do? With the general trend of increasing industrial concentration, can they continue to find their own position and survive and develop under the competition of giants?

 

With such questions, we walked into Yunshuo Technology (hereinafter referred to as "Yunshuo"). This company originated in Yunnan, a major tobacco province in China. With a five-year history of corporate development, it can be regarded as a "new enterprise" in the Chinese e-cigarette circle, and it is also a typical small and medium-sized e-liquid enterprise.

 

Yunshuo CEO Hu Xin met with two supreme 2Firsts in his Shenzhen office. Before the meeting, he had just seen off a group of customers, and there were several e-cigarettes with oils brought by customers on the tea table. After a brief greeting, Hu Xin quickly switched to the interviewer's status. With a background in law, he spoke with a slight "Southwest Mandarin" accent and was very talkative. When he was excited, his eyes lit up.

During the conversation, Hu Xin took out his mobile phone from time to time to show the exclusive e-liquid formula | Photo: 2Firsts

 

"Small and beautiful" Yunshuo has e-liquid and flavors and fragrances

 

Two supreme 2Firsts: What is the current development status of Yunshuo in the e-cigarette industry? How would you position and define your own company?

 

Hu Xin: We are focusing on building a "small and beautiful" company, and doing a solid job in technology and products.

 

Yunshuo was founded in 2019. After two years of working in the traditional tobacco industry in Yunnan, we saw the potential of Shenzhen's e-cigarette technology and innovation. It is impossible to go deep into the e-cigarette industry in Yunnan because the distance is too far, so we came to Shenzhen to open a branch. The closer we are to customers, the more opportunities we have.

 

Compared with a "smoke oil factory", I prefer to define Yunshuo as a flavor and fragrance service provider. At present, many practitioners in e-liquid factories are more like "flavor application engineers" rather than "perfumers" in the true sense. Yunshuo is positioned as a service provider of overall solutions for tobacco flavors in multiple temperature ranges. No one in the industry has positioned it this way yet, because I position it from the perspective of temperature segment. I believe that different temperature segments must have different tobacco categories, but now everyone uses the same flavors and fragrances to solve all problems.

Yunshuo's various qualifications and certificates | Picture: 2Firsts

 

"Binding with big manufacturers" has practical advantages, but it is not "long-termism"

 

Two Supremes 2Firsts: How do you view the current competitive landscape of the e-cigarette industry, and where does Yunshuo stand?

 

Hu Xin: There are many e-liquid companies in the industry that are bound to big customers. It is said that some e-liquid factories are also bound to e-cigarette brand companies at the capital level.

 

From a business operation perspective, any e-liquid factory that can "bind with a big factory" will not be unhappy. I also like to be bound, because binding with big customers can quickly gain benefits. If you bind with the top big customers, you don't have to think about it. Some e-liquid factories serve one big customer, and there is no need to make additional adjustments. They just need to use the previous formula for production.

 

However, this binding relationship is also changing. On the one hand, it is binding, and on the other hand, it is breaking through. Many e-cigarette brands are breaking the "gateway" and optimizing products in the supply chain.

 

From an industry perspective, binding will also bring restrictions to e-liquid factories. Specifically, I think e-liquid has a one-to-many attribute, and binding may not be a good thing. From the perspective of short-term enterprise development, binding is definitely the most important; but from the perspective of the long-term development of the entire industry, one-to-many is definitely more important.

 

I think binding is not the only way out. The industry is always changing. There are good and bad bindings, and a single customer has always had systemic risks.

A corner of Yunshuo's Shenzhen R&D laboratory | Photo: 2Firsts

 

"The quality of e-liquid is more important than the quantity, but the quality evaluation criteria are problematic"

 

Two Supremes 2Firsts: E-liquid companies want to be "small and beautiful", so how is "beauty" reflected and measured?

 

Hu Xin: How to define a good e-liquid lacks evaluation criteria.

 

The current market lacks clear standards for what is a good e-liquid. Whose e-liquid is good now depends on who has a large e-liquid scale.

 

The problem now is that the quality evaluation of e-liquid has actually become whoever's e-liquid enters the system of the top e-cigarette companies will "rise up all of a sudden".

 

The quantity of e-liquid is not important, the quality is the key. But the quality evaluation criteria are problematic again.

 

In fact, according to my observation, many e-cigarette companies are also beginning to explore how to define a good e-liquid, so as to determine which e-liquid factory's e-liquid meets their procurement standards.

 

In addition, from the market perspective, e-liquid and the C-end (referring to the "consumer end", 2Firsts note) lack connection. Some supply chain links are often deliberately hidden, and brand owners usually do not disclose the source of the e-liquid. In the past, brand owners often chose to conceal the specific information of the e-liquid supplier, and some even signed confidentiality agreements to ensure that this information was not disclosed. In the future, once the e-liquid brand built into the e-cigarette can have a direct cognitive connection with consumers, it will also be an important influence on the reconstruction of the evaluation system.

 

In general, I think that good e-liquid will definitely form a consensus in the future. How to explore the rules and how to find the "gene" of good smoking, there must be rules to follow.

 

Small and beautiful way: innovative unique flavors + vertical segmentation of flavors

 

Two Firsts: How does Yunshuo achieve "small and beautiful" and what is the competitive strategy?

 

Hu Xin: We attach great importance to the development of new flavors. For example, the tamarind coffee flavor we prepared was soon imitated in the market after it was launched because it is very unique. This is our Yunshuo's specialty product.

 

At present, we are constantly preparing more e-liquid flavors. One series (flavor) after another (flavor) to "bite", develop and reserve new flavors.

 

In terms of flavor segmentation, we have strong market competitiveness. For example, we continue to vertically segment watermelon flavors and create different flavors such as watermelon rind, watermelon flesh, watermelon frost and watermelon juice. The research on mint varieties is also extensive. Our mint series includes ocean mint, continental mint, musk mint, caramel mint, etc.

Hu Xin shows Yunshuo e-liquid products | Photo: 2Firsts

 

As an industry has developed to this point, subdivision and subdivision are my opportunities.

 

I am willing to use my flavoring ability and technology to help e-cigarette brands to establish their own flavor system. I think the flavors of each e-cigarette should be different.

 

Dealing with global regulation: Return to the essence of tobacco and grasp the health needs

 

Two supreme 2Firsts: Many countries and regions are strengthening e-cigarette regulation, including restrictions on flavors. How does Yunshuo evaluate the regulatory prospects and how to respond?

 

Hu Xin: When the policies of some countries stipulate that e-cigarettes are only allowed to have tobacco flavors, many people think it is a devastating blow. But I think it is a return to normal. Because e-cigarettes themselves belong to the tobacco industry, we have obtained tobacco monopoly production licenses, and each one is a tobacco company. E-cigarettes are not a lawless place. The global trend of compliance allows the e-cigarette industry to return to the essence of tobacco. In fact, tobacco flavors can also be further subdivided, and there are still many expressions.

 

In the face of regulation, I think that as long as the essential demand of health is grasped in the future, this industry will have opportunities. In the context of global compliance, flavor bans have always been under discussion. Electronic cigarettes exist as a product that reduces harm by 90% compared to traditional cigarettes. They are healthier products, and health is the essential need of electronic cigarette users.

 

Note: This article is based on interview materials. For the purpose of presenting the article, some content is slightly different from the original expression of the interviewee.