Sina Technology Zheng Jun from Silicon Valley, USA
A total ban on sales in the U.S. market
The U.S. Food and Drug Administration (FDA) officially issued a ban on sales today, requiring all products of the American e-cigarette giant Juul to be forcibly removed from the shelves in the United States. Although Juul has been expanding overseas markets in the past few years, most of the current revenue still comes from the US market. The local ban means that Juul may go bankrupt and go bankrupt due to the break of the capital chain.
The FDA said in the ban statement that after evaluating Juul’s product application, it determined that Juul’s laboratory submitted findings on the company’s patented e-cigarette genotoxicity and harmful chemicals. There is insufficient data and conflicting data. Questions are not fully answered.
The FDA therefore determined that the continued sale of Juul products would not protect public safety. Therefore, Juul products must stop selling and distributing in the United States, and existing products on the market must be removed from the shelves, otherwise they will face legal risks. Retailers should contact Juul to handle inventory. However, there are no penalties for personal possession and use of Juul products.
The decision was actually not shocking, or even expected. As early as a year ago, there was news that the FDA was considering taking a ban on Juul and completely driving all Juul products out of the U.S. market. And Juul has been actively lobbying with the help of major shareholder Altria to try to defuse this bad luck. At the local level, cities such as San Francisco have issued bans on e-cigarettes since 2019.
Juul is considering appealing the FDA’s delisting order, asking the court to overturn the FDA’s decision, or reapply to the FDA in the future to sell the rectified product. However, the FDA’s ban will still cause Juul’s already sharply declining performance to suffer a new round of heavy blows.
After the FDA announced the Juul product ban, Erika Sward, a spokeswoman for the American Lung Association, said, “The FDA’s decision has been long-awaited and welcomed. But we must recognize that the FDA is now What should be done is to enforce the law to ensure that these products are completely off the market.”
The scenery four years ago is the same
Just four years ago, Juul was at its peak. In 2018, Juul, which has only been on sale for three years, has secured the unshakable number one position in the US e-cigarette market, even accounting for more than 70% of the market share, with annual revenue reaching 2 billion US dollars, and the total number of employees has grown wildly from 200. to 1500 people.
2018 was a season of nostalgia for Juul. In July of that year, Juul completed a $650 million financing at a valuation of $15 billion. Investors included the well-known Tiger Global Fund and Fidelity. Just five months later, U.S. tobacco giant Altria spent $12.8 billion to acquire a 35% stake in Juul, valuing Juul at $38 billion.
Altria is the formerPhilip MorrisPhilip Morris, which owns many traditional tobacco brands such as Marlboro, has an annual revenue of more than 26 billion US dollars and a market value of more than 100 billion US dollars. The reason why they hold Juul so eagerly is obviously to lay out the e-cigarette market in advance, because their own e-cigarette product Markten Elite cannot compete with Juul.
At that time, Juul was the sixth most valuable startup in the United States, and its valuation even surpassed that of SpaceX. They are also the most lucrative startups with billions of dollars in cash. After getting investment from Altria, Juul then spent $400 million to buy an office building in San Francisco. Then the Juul move shocked Silicon Valley even more: they decided to give $2 billion as a year-end bonus to 1,500 employees, which is equivalent to $1.3 million per capita.
However, this is also the last good time for Juul. Over the past four years, Juul has always been the number one target of regulators, whether it’s the local government or the federal government, whether it’s the Trump administration or the Biden administration. Injunction after injunction, investigation after investigation, suit after suit. The endless regulatory nightmare has never been far from Juul.
Sharp drop in revenue, sharp layoffs
In June 2019, San Francisco, where Juul is headquartered, took the lead in promulgating an e-cigarette ban in the United States, which not only prohibited the sale of nicotine-containing e-cigarettes in all stores in the city, but also prohibited e-commerce platforms from shipping to San Francisco addresses. In September of the same year, the U.S. Department of Health announced plans to completely ban the sale of all flavored e-cigarettes, and officially issued a sales ban in January 2020 (except for mint flavors).
In the past few years, the U.S. e-cigarette market has maintained steady growth; according to the market research firm GrandViewReserch, the U.S. e-cigarette market will be worth $7.3 billion in 2021, an increase of 20% over 2020. It is expected that from 2022 to 2030, the US e-cigarette market will maintain a compound annual growth rate of 29.2%.
However, Juul’s market share and revenue continued to decline. In 2020, Juul’s revenue has dropped by 29%, and it will continue to decline by 11% in 2021 to $1.3 billion, a third less than in 2018. Juul lost as much as $1 billion in 2019 and had to announce a third of its workforce cuts the following year, and another half last year.
Now Juul has given up the top spot in the US e-cigarette market. according toGoldman SachsAnalysts estimate that in the second quarter of this year, Reynolds’ Vuse brand has surpassed Juul in the e-cigarette market, and Juul’s market share has shrunk to 36%.
Due to the sharp decline in performance, the Juul entrepreneurial team also lost the right to speak on the board and had to accept Altria’s full control. In September 2019, Juul’s former CEO Kevin Burns was forced to resign, and K.C Crosthwaite, the chief growth officer arranged by major shareholder Altria, took over the CEO position so far. In October of the same year, Altria arranged for Joe Murillo, its senior vice president for oversight, to be parachuted into Juul to take full charge of government oversight. In March of the following year, Juul co-founder and chief product officer James Monsees also resigned and left the board.
For Altria, the investment in Juul, which was anxious to lay out the future, has become a blood loss business. Altria’s $12.8 billion investment in Juul’s 35% stake is now worth less than $1.6 billion (Altria’s financial report data), and has had to accrue $4.5 billion in asset write-offs. In 2020, Altria also booked $4.1 billion in Juul-related expenses to prepare for endless future litigation claims.
Sideball marketing provokes controversy
Since the U.S. e-cigarette market has maintained steady growth, and new e-cigarette brands have been approved for sale, why is only Juul the government’s thorn in the side and even punished by a direct ban? Because Juul is responsible for the abuse of e-cigarettes by American teenagers, it has to suffer the bitter consequences of their edge-ball marketing targeting young people, and may even face criminal prosecution.
Juul’s high growthChangheThe high valuation is based on their successful product design and social marketing. Juul was initially sold in major convenience stores, tobacco stores and online stores. However, their product design is different, and the flat and long U disk design is used, which seems to have nothing to do with electronic cigarettes, and it is even more difficult to detect when it is smoked. Moreover, Juul adopts a completely closed business model and does not accept third-party wildcards.
In addition, Juul has launched electronic cigarettes with novel flavors such as fruit, cream, and chocolate. Through social media and other communication platforms, with the help of Internet celebrities for advertising and marketing, to promote these seemingly “unique tastes, seemingly harmless, cool and safe” electronic cigarettes . This marketing strategy has been a huge success. In 2017, Juul sales soared more than sixfold year over year to 16.2 million units. And mint and mango flavored e-cigarettes accounted for more than 60% of Juul’s sales.
Although Juul never admits it, their marketing is seen as a deliberate attempt to attract the teenage market. Before 2018, from video sites to outdoor billboards, from print magazines to party events, Juul’s advertising and marketing used to be everywhere, with fresh and vibrant colors and dynamic dance content attracting young people. And because of strict legal restrictions, traditional tobacco is not allowed to be marketed through online and offline advertising.
The survey also shows that 82% of teens who smoke e-cigarettes try e-cigarettes because they like novel flavors, but up to 63% of Juul users do not know that this product contains nicotine. In fact, Juul’s sweet-flavored e-cigarettes contain 3%-5% nicotine. One cartridge can take 200 puffs, and the nicotine content ingested is equivalent to a pack of cigarettes. Juul abuse by teens can cause them to become addicted to nicotine without realizing it.
The proportion of smokers in the United States originally showed a downward trend due to strict anti-smoking and tobacco restriction measures across the United States in recent years. According to 2018 data from the American Lung Association, the smoking rate among U.S. adults has fallen from 55 percent in 1955 to 15.5 percent, and among high school students, it has dropped from 28 percent in 2000 to 8 percent. However, due to the proliferation of electronic cigarettes, the problem of nicotine addiction among teenagers has not only returned, but has become more serious than before.
According to the National Youth Tobacco Survey, in 2017-2018 alone, e-cigarette use among U.S. high school and junior high school students increased by 78% and 48%, respectively, year over year. In 2018, 20.8% of high school students and 4.9% of middle school students in the United States were using e-cigarettes, for a total of 3.6 million youth e-cigarette users. In 2019, the number increased further to 5 million. Juul, which occupies 70% of the market and mainly promotes e-cigarettes with novel flavors, is considered to be the main culprit in luring young people to use e-cigarettes.
Regulatory nightmare sky-high claims
In fact, behind Juul’s initial rapid growth was the regulatory loopholes in the US government. Before August 2016, the FDA did not supervise electronic cigarette products. Electronic cigarettes can be marketed without approval, and there is no specific restriction on product marketing. And Juul achieved rapid growth in sales and valuation through active social marketing in 2016-2018.
In 2018, Juul’s most prosperous year, they have entered the investigation line of U.S. regulators. In April 2018, the FDA asked Juul to provide internal documents on its social marketing and advertising strategy; in September, the FDA asked Juul to develop a specific plan on how to address teenage abuse of their products; in October, the FDA raided Juul’s headquarters, took away Thousands of pages of internal sales and marketing documents.
Facing enormous regulatory pressure, Juul has spent the past few years studying how to deal with government regulation under the leadership of Altria’s airborne executives, trying to gain leniency from regulators. In November 2018, Juul took the initiative to withdraw Facebook, Instagram andTwitterAt the same time, it no longer sells flavored e-cigarettes that may attract young users through retail outlets, and only sells them to adult users through identity verification on their official website (the legal smoking age in the United States is 21). Juul suspended all print, radio and digital advertising in 2019.
In October 2019, before the FDA had determined that a ban on the sale of flavored e-cigarettes was imminent, Juul voluntarily announced that it would stop selling flavored e-cigarette products in the United States. Now Juul only has two nicotine-containing e-cigarette products on sale in the United States: mint and original. In addition, Juul has submitted an application plan to launch an e-cigarette device that can verify the user’s age, hoping to get FDA approval.
In addition to the regulatory penalties, Juul is facing thousands of lawsuits related to leading teens to vape. Under the guidance of tobacco giant Altria, Juul continued to pay settlement money to understand the lawsuit, so as to avoid the related lawsuits from attracting public and public opinion and affecting the FDA’s approval decision on them.
Last July, Juul agreed to pay $40 million to settle with North Carolina. In November, Juul paid another $14.5 million to settle the Arizona lawsuit. In April, Juul agreed to pay $22.5 million to settle the Washington state lawsuit. In addition, Juul agreed to pay $10 million to settle the Louisiana lawsuit. Juul’s nightmare is far from over, and they still have lawsuits in California, Colorado, and Massachusetts that need to be settled in the future. In 2020, Altria has prepared $4.1 billion in Juul-related expenses to prepare for thousands of subsequent litigation claims.
Four years, from peak to valley. From industry giants to regulatory cancers, Juul’s development trajectory is like a roller coaster, and after climbing to the top, it begins an irreversible downward spiral. Juul’s controversial youthful social marketing method helped them achieve great commercial success and brought them endless bitter results.