The fall of the hookah market in Russia and the impact of POD systems on retail

Today, electronic cigarettes with PODs are very popular and many experienced smokers know what a POD system is. The main factors that influenced the popularity of vapes were the compactness and ease of use. The principle of operation of this is almost the same as that of other vape devices. A special liquid with nicotine and various flavor additives is converted into a pleasant steam after heating.

In the last year, the hookah community has been very excited about the problem that is impending on the entire hookah industry. A huge number of all kinds of “one-off”(e-cigs) and POD-systems frightens people who are not indifferent to the hookah industry.

According to many members of the hookah community, market is on the verge of extinction. More and more smokers prefer to get nicotine more easily, and hookah shops are fighting for customers by selling a huge number of pod systems.

We decided to interview market participants and ask them a few questions to put all the points on this topic.

1. Do you think that POD systems are replacing hookah products from retail? If so, how much, and can you share your analytics?

2. Do you think that the hookah market in Russia is falling in sales?

3. How did you feel the changes in the market in your business?

Based on a combination of factors, we believe that yes POD are replacing
tobacco. [Note: by the author]. By the way, not only from retail, HoReCa is
also hurt, although certainly the main blow occurred over the past year in
retail. We don’t have full-fledged digitized analytics, but all the retailers
with whom we interact, and these are mainly specialized hookah stores, as one
report that they now make 60-80% of sales on “e-cigs”. Of
course, pod systems have created additional traffic of new customers for them,
but not by 60-80%, but much less, from which we conclude that some
customers have switched from hookah products to alternative ones.

 This feeling
has been in the air for the past year, and especially for the second half of
it. In addition to our numbers, we hear similar opinions in conversations with
colleagues and competitors. Given that so many places have closed during the
pandemic and it would seem that the survivors should start earning even more, I
have examples of top Moscow places that report a drop in traffic by one and a
half times. In my personal social circle, there are a lot of people who smoked
hookah with varying frequency, but still completely stopped doing it over the
past year. For them, pod systems have become an equivalent and more convenient
replacement.  In 2021, we invested a lot of money in new products and marketing
activities, predicting to make a breakthrough by +30-50% by the end of
the year. As a result, we were sitting with the goods of 2020 in warehouses,
while severely exhausting the financial cushion. This forces us to plan our
marketing budget for the current year much more rationally and discreetly. Among
other things, we considered the possibility of producing “one-off”,
worked out the mechanics, calculated the economy. However, in the current
“gray” state of the market, decided not to take any risks and wait
for the normal legal regulation of the segment, so that if go into this, we minimize
our risks.

Roman Shutov, founder of Duft Tobacco

Yes very much [Displaces it. Note: By the author]. Our retail offers up to
30% off. Some partners lose up to 50%.

There are products and brands that are less likely to fall, but overall the decline is significant.
Russian brands are more actively looking at foreign markets.
A kick in the ass that says – change or die)

Ruslan Zakirov, founder of Hookah Market

 We have experienced a slight drop in the growth rate of sales of hookah
products in the last year. But volume of sales still continue to grow. I think for
the hookah market, this is more like a time bomb, than a momentary drop in
sales. You can only expect a miracle or the influence of tobacco market leaders,
who will attract new audiences with powerful marketing strategies.

There are also advantages — tobacco companies have become more attentive to their brands and the end user. Now the fight for market share has begun. We all know that competition drives the market forward.

Artem Driga, founder of S2B

Of course, Vapors and PODs, which have gained popularity, have an impact on
hookah products, but in my opinion, they are more likely to displace tobacco
products.

There is such a trend. In particular, the hookahs and accessories. This does
not apply to consumables. A significant part of the turnover is now made up of
“e-cigs”. We will expand the range of this, demand creates supply))

Sergey Vishnev, founder of the Мир Кальянов

POD-systems and single-use e-cigarettes give the average consumer almost
everything, what they expect from a hookah. It is not surprising that this more
portable and cheaper format for producing aromatic steam (for the end user
there is no difference, smoke or steam) displaces the more cumbersome and
expensive format.

The market has long passed the saturation stage. Now everyone who wanted a hookah already owns one or even several hookahs. At the same time,
sub-systems wear out quickly, not to mention disposable e-cigarettes. And, they
are more convenient and cheaper. That is why, when at the peak of the
popularity of hookahs, the typical smoker was about 20 years old, today the
same smoker is about 30 years old — rejuvenation of the audience does not
occur, the same people continue to smoke. But there are fewer of them-some of
them stop smoking altogether, and others switch to more portable systems.
Our company has been rebalancing its product range in favor of e-cigarettes since 2013. Today, the total sales ratio of the entire segment of electronic vaporizers to hookah products is 3 to 1.

Oleg Knyaginin, founder of Кальян.спб

Retail chains that have been on the market for more than 5 years, of
course, have experienced a decline, including our network. The consumption of
hookah products decreased by about 10% compared to 2010. While the share of
e-cigarettes and POD-systems increased by 20% over the past year.
 I would not say that they are being push us out. These are not strongly
interrelated things. The drop in the hookah destination is more due to lockdown
and the pandemic. The restaurant stopped working or removed hookahs. And as we
know, hookah bars are the main guide to our culture.
 When the pandemic passes, the work of the institution will return to normal,
and I think the market will grow.
 About how we felt the market on our business. Speaking from the point of
view of the manufacturer, retail is very reluctant to pour money into hookah
products, even if they need it. They prefer to pour money into more turnable
products, such as podcasts.

Marik Safiullin, founder of Cosmo shop

All experts agreed that POD systems somehow affect the hookah market. Perhaps soon we will see not the hookah market, but the market for alternative nicotine, or the hookah culture will be able to win this fight. What do you think about POD systems? Write your opinion in the comments.