Recently, American e-cigarette company Juul Labs said it has received approximately US$1.3 billion in financing. The company has yet to say how it will use the funds. A few months ago, Juul announced that it would lay off about 250 people to reduce operating costs. Earlier in November 2022, the company cut about 400 jobs and reduced its operating budget.
In fact, Juul has been seeking financing since last year, and the two layoffs were also to protect its business as it dealt with a large number of lawsuits related to e-cigarette marketing. For example, in April this year, Juul agreed to pay $462 million over eight years to resolve charges in six U.S. states, including New York, California and the District of Columbia, that it illegally sold nicotine products to minors.
Ranked second in the U.S. market over the past year
The latest US e-cigarette market data from Nielsen on November 4: Vuse, a subsidiary of British American Tobacco, has a market share of 42.1%, while Juul accounts for 24.4%. Compared with Nielsen data half a year ago, Vuse's US market share is 42.7%, while Juul's is 25.6%. Both have declined slightly and are basically stable. At the same time, also affected by the proliferation of illegal flavored e-cigarettes and disposable e-cigarettes in the current US market, neither has seen a significant increase. In third place, the market share of NJoy, the e-cigarette brand acquired by Altria, has not grown substantially, remaining unchanged at 2.5%, which is far from the top two. At its peak in 2019, Juul once occupied 74.6% of the market share, nearly 43%.
Juul has been in trouble for the past few years, and Altria had to give up. Altria is always looking for new investment targets. After abandoning Juul, Altria found a new e-cigarette alternative-NJOY, which currently ranks third in the U.S. market share at 2.5%. In the first half of this year, Altria completed the acquisition of NJOY for US$2.75 billion and implemented its business promotion plan for NJOY in the second half of the year.
In fact, Altria began to contact NJOY last year, because some of NJOY's products have passed the PMTA (Premarket Tobacco Product Application) authorization of the US FDA (Food and Drug Administration). In Altria's view, NJOY's background It is relatively clean and has more investment potential than Juul in terms of social recognition and development prospects. But NJOY’s market share is still far behind the top two.
Nielsen's data mainly comes from large chain stores. For smaller chain stores, Nielsen only infers trends, and the data covers the four weeks before November 4. Juul has faced nationwide bans in the past few years, accountability for the e-cigarette epidemic, accusations from social media, the giant's status being replaced by Vuse as the second largest brand, strict regulation of e-cigarettes in the United States, FDA's PMTA review, and banned flavors, including Mint flavor, etc. Against this background, Juul has been declining.
Juul’s past and present life
Back in 2004, Juul's two founders, James Monsees and Adam Bowen, were both graduate students at Stanford University. Smoking, as a common hobby between two people, also gave both parties an interest in research. They found that "the tobacco industry is an industry with a low innovation rate but an extremely large market size." So is there any opportunity for change in this industry? In 2007, Monsees and Bowen incorporated Ploom, and the prototype of Juul was born.
In 2015, Monsees and Bowen changed the company's name to Pax Labs. In 2017, it was separated from PAX Labs and became an independently operated company, Juul Labs. At that time, it accounted for more than one-third of the US e-cigarette market. By September 2018, Juul had occupied 72% of the U.S. e-cigarette market, with sales reaching $2 billion that year. As a result, Juul's valuation has also soared. In July 2018, Juul's valuation was only US$16 billion, which doubled to US$38 billion three months later.
Juul’s original sin
So what exactly is causing Juul’s rapid expansion in market share and valuation? The answer is that it captures young people. The company invests most of its marketing budget in advertising, various marketing conferences, social media such as Instagram, and promotes e-cigarettes through young internet celebrities, attracting large amounts of exposure to attract young people. Juul's products also have a very fashionable appearance, like a slender USB flash drive, which links e-cigarettes with a high-tech feel, arousing great interest among young people. Juul’s marketing and channels are all aimed at young people.
What caused this giant to decline was its appeal to young people. E-cigarette products represented by Juul have caused a sharp increase in the use of e-cigarettes among minors in the United States. According to data from the U.S. Bureau of Drug Abuse, in 2017, more than 28% of high school seniors had smoked e-cigarettes in the past year. By 2018, This figure increased to 37%. In the second half of 2019, a strange "e-cigarette pneumonia" began to break out in the United States, and American society's criticism of Juul reached its peak. Facing thousands of compensation lawsuits from more than 40 state governments across the United States, it finally reached a settlement in March this year and agreed to pay more than US$1.7 billion.
Juul's market share has been declining since its peak, but judging from the data over the past year or so, it has basically stabilized at around 25%, with no obvious continued downward trend. It is good to still occupy 41% of the market after being hit by successive blows. , although it cannot restore its status as a giant, the second place is basically stable. At present, the attitude of the US FDA has been very clear. It bans the sale of flavored cigarette cartridges, including mint flavor. All flavored products have been issued rejection orders. The only cigarette cartridges that have passed the review and authorization are tobacco flavor.
Under this condition and environment, it is no longer possible for any compliant brand to develop explosively. However, the US FDA's PMTA application review is about to be completed. If it can be completed as scheduled by the end of this year, the FDA will make the next step next year and take substantive regulatory actions to remove illegal flavored e-cigarettes and disposable e-cigarettes from the market. When the time comes, there will be a new round of reshuffle in the US market. What is the prospect of Juul? How much help can the US$1.3 billion in financing help Juul? Let’s wait and see.
