RLX Technology, a leading vaping company from China, saw its share price more than double on its first trading day:

The company, founded only in 2018, is now worth close to US$ 50 billion. It has the largest share in China’s vaping market.

People might know that China’s tobacco market is run by State Tobacco Monopoly Administration, which controls the circulation of 40% of the world’s cigarettes. Since 2014, the STMA has been paying the State taxes and dividends of more than CNY1 trillion (US$ 154 billion) each year.

Of course it is not in the incentive for the authorities to let vaping disrupt the cigarettes market. STMA and the State Administration for Market Regulation (SMAR, which appears regularly on TLD articles these days) last year issued a series of bans on vaping companies:

  1. Ban on selling to non-adults
  2. Ban on advertising online
  3. Ban on selling online

Sales for the sector, which had largely relied on online channels/platforms to promote/sell, collapsed – some friends in the industry estimated the drop to be more than 90%.

Kate Wang, Founder and CEO of RELX

Normally, this could be death sentence to the dozens of venture-funded vaping companies. Not for RLX – it’s ex-Uber founder Kate Wang and team pulled out something extraordinary:

  1. Launch a large CSR initiative rejecting tobacco and nicotine for the youth – this plus other high profile initiatives serve as de facto marketing;
  2. Strong city team (general manager +) to open offline channels;
  3. Use Wechat groups and other social networks to sell/promote.
RELX offline
Can you see the Relx logo at this mom and pop shop?

With strong execution, they not only clawed back all the lost market, but also grew fast:

While this is a great story of execution that reminds people of Uber in its early days, it is not to forget that the business is worthwhile because it’s: high gross margin, high stickiness, high frequency, and with good brand premium.

The discussion of vaping per se aside, the revival story perhaps offers some lessons to the entrepreneurs?

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Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at hello@mworks.asia.