Gaining steam

Once used by an eclectic few, electronic cigarettes and vaping products are now a $2 billion business.

The landscape along Tobacco Road is changing.

Smoking bans, cigarette taxes, insurance surcharges and consumers’ overall desire to improve their health have created a speed bump for cigarette sales. To wit, industry observers estimate that the adult smoking rate now hovers at around 18%, an all-time low.

Enter electronic cigarettes; the once niche products have gone mainstream. According to Chicago-based IRI, electronic smoking device sales at food, drug, mass and select club and dollar stores for the 52 weeks ended November 2, accounted for nearly $800 million, up almost 20% versus the year before. However, that only tells half the story. After totaling sales from independent vape shops and online, observers estimate that sales from vaping products pushed past $2 billion.

“Unlike traditional cigarettes, electronic nicotine delivery has evolved very rapidly,” says Mark Rappaport, director of trade marketing and market information for NJOY, based in Scottsdale, Ariz. “It is important to remember that e-cigarettes just recently became widely accepted in retail locations. In just a few short years even the terminology has changed. In 2012 we called e-cigarettes ‘e-cigs.’ Today, due to the quickly evolving category, the term e-vapor has been coined to encompass both e-cigarettes and their e-liquid and vaping device counterparts.”

To further root its place in society, the word “vape” was recently chosen by Oxford Dictionaries as the 2014 International Word of the Year.

The evolution in the category is about more than just terminology. When e-cigs first burst onto the scene, consumers preferred products that looked and felt like a real tobacco cigarette—what the industry refers to as “cig-a-likes.” Small and light, these mimic all the design features of real cigarettes, down to the filter pattern and the ash-like LED tip that lights up red when activated.

Now, as the electronic cigarette becomes familiar ground, consumers have opened up to experimenting with products that reach beyond the simulated cigarette experience. “The familiar cig-a-like cigarette format is being displaced by new product introductions such as pens, larger battery tanks and cartridge systems,” says Brittani Cushman, director external affairs for National Tobacco, based in Louisville, Ky. “Adult consumers have shown a desire for bigger batteries and larger tanks for vaping e-liquids.”

She adds that it is not unusual for consumers to own two or three pen devices as well as several battery size options and different sizes of e-liquid tanks or clearomizers.

While these other large-tank formats are gaining traction, cig-a-likes, also known as micros, still constitute a large portion of the vaping category, say observers, adding that micro e-cig technology is evolving to where they are also going to be tank-based systems.

Looking forward, the industry predicts that there are going to be two distinct types of vapers. “There are going to be people that really embrace vaping and want the more hobbyist, high-end type stuff,” says Jan Verleur, co-founder of V2 Electronic Cigarettes, based in Miami, “devices with higher capability, longer battery life and more capacity for the more die-hard vaper. And then there are the general consumers, those that don’t want to carry around a larger device; they will want something that still looks like an old cigarette.”

There is also a shift in how micros are being delivered. In the e-cig category’s short history, disposable micros have traditionally been the top sellers. However, most expect that within five years disposable micros will no longer be a relevant product, replaced by rechargeable micros.      

“Tanks, mods and personal vaporizers are helping drive the broader vape category as cig-a-likes have recently remained flat,” says John J. Wiesehan Jr., CEO of Mistic, based in Charlotte, N.C. “Adult smokers and vapers are looking for more flexibility and choice that is not necessarily offered in a closed-like system, such as cig-a-likes. But many consumers still like the configuration of cig-a-like rechargeables.”

Realizing this need, Mistic introduced its Mistic Bridge with HAUS technology. Wiesehan, Jr. says this is the latest generation of the company’s cig-a-like rechargeable line that combines the flexibility of an open tank system with the convenience of a cigarette-like configuration. “Basically it is an open tank on a cig-a-like battery,” he says, adding that the Bridge tank not only fits Mistic batteries, but competitors, such as blu and MarkTen, as well.

Advances in technology have allowed blu Ecigs to introduce its blu PLUS Rechargeable Kit. Jason Healy, president and founder of blu Ecigs, based in Charlotte, N.C., says new features include a pre-filled blu PLUS Tank that holds more e-liquid and delivers more consistency from drag to drag as well as a new flavor formulation that “perfectly combines taste and nicotine strength.” He adds that the battery is also larger, lasts twice as long and features rapid battery recharging so vapers are never left waiting to use their e-cig.

24/7 Vapor, an affiliate of Russell Springs, Ky.-based Tantus Tobacco, recently introduced a non cig-a-like pre-filled vaping tank product, the PFT25. Brian Cooper, CEO of 24/7, says the PFT25 is made with a new innovative technology that allows the e-liquid to give off more flavor and vapor than refillable tanks, adding that the new technology also uses 20% less e-liquid per puff than the refillable e-liquid tanks.

The PFT25 package is the same size as a pack of cigarettes and retailers can merchandize them on a pack rack. “The good part is it fits so many batteries that people already have, they don’t have to go out and buy a new battery,” says Cooper.

Figuring out how and where to best merchandize e-vaping products may be the biggest roadblock to retailer success. Observers say those retailers that have proven themselves to be adept at embracing the category generally feature vaping products in two areas of the store.

“One thing we noticed is that a number of retailers don’t have a section for e-cigs,” says Verleur. “It will be more integrated into the tobacco section, and then they will have a vaping section.”

Yet, more often than not, retailers—grocers in particular—seem to be at a loss when it comes to vaping products. Industry experience would suggests that retailers treat vaping products like any other, providing them with signage and making them noticeable to shoppers. An educated sales staff would not hurt either, add observers.

“If a retailer is serious about the category—and they should be with the margins it has—they should train their staff on vapor products,” says Cooper. “If somebody comes in and asks about a vapor product and the cashier does not have the appropriate knowledge then chances are the consumer will be turned off and will want to go to a retailer that is more focused on vapor.”

This is a major obstacle in the category, say observers; one of the most pressing, if not the most pressing, issue at retail is lack of consumer education at point-of-purchase. “Many adult smokers are intrigued about vapor product but don’t necessarily get adequate information at the register,” says Mistic’s Wiesehan, Jr. This information can include everything from prohibiting the sale of products to minors to product information to discussing the benefits of switching from smoking to vaping.

To help minimize this obstruction, Mistic does provide retailers with in-store signage and instructional videos, but the biggest educational tool out there is the Internet. Manufacturers use websites to not only sell product and educate consumers, but also drive them to brick-and-mortar retailers.

If a retailer partners with V2 Electronic Cigarettes, there are things we can do to help in-store sales, says Verleur, V2’s CEO. “From our store locator online, which receives a million views a month, and activating our customer base online, we can contact hundreds of thousands of customers every day. That said, we can activate people to new retailers and we can drive sales from the web to retail.”

The lack of education over the years has lead to retail buyers making plenty of mistakes, say observers. These mistakes lead to retailers being stuck with a lot of unmovable product. “Retailers have to pick products that work. The industry is getting smarter now. The buyers have been burnt enough that they have begun to recognize the products that can perform,” says Verleur.

Picking products that can perform becomes even more important in a category that has seen such rapid expansion. Simply put, there are a lot of product from which retailers—and consumers—can choose, and they obviously cannot carry everything. It becomes even tougher for retailers because, for the most part, the category has no true brand leader that retailers can fall back on.

“It is certainly true the category exploded with both high consumer trial and rapid trade expansion,” says National Tobacco’s Cushman. “The product choices and the number of brands have expanded almost as quickly, resulting in too many companies chasing an emerging market.”

The result, say observers, is an of abundance inferior product in the marketplace from inferior companies. Yet, it is just a matter of time until this proliferation of brands and products clears out.

“We are already seeing companies close and brands disappear. This is likely to continue for a few more years and will accelerate as FDA regulatory burdens become clear,” says Cushman.

The entire industry has its eyes on the FDA right now. But despite all the hubbub, media coverage and speculation, to date there are no applicable regulations that the FDA is currently enforcing on the industry. Observers estimate that the final rule and implementation will come around mid-year—and that date timeframe could just as easily be pushed back.

The debate remains whether or not e-cigs and other vaping products containing tobacco-derived nicotine or tobacco-derived flavors will be deemed to be “tobacco products” and subject to FDA regulation.

The hope is any enacted regulations will benefit the industry; and many manufacturers are all for regulation.

“We were one of the first e-cig companies to commend the FDA’s efforts to establish a science-based regulatory framework, which is important to help move the industry forward, especially since e-cigarettes have become a significant alternative to smoking,” says Wiesehan, Jr.

As for the retailer, currently pending regulations do not affect their business. “It could take three to four years before we see a regulation that truly impacts the industry,” says Verleur. “Retailers should just operate business as usual.” 

Smokeless is more

Not all smokers looking for an alternative are turning to vaping. Smoke-less tobacco sales continue to soar. According to Chicago-based IRI, smoke- less tobacco dollar sales at food, drug, mass and select club and dollar stores for the 52 weeks ended November 2, were up 4.6%, topping $6 billion. Unit sales were up 1.6%.

For smokers really looking to kick the habit, there is the tobacco- and nicotine-free option. “We have seen increased demand in our brand, espe- cially over the last five years, due to the increased restrictions on tobacco products,” says Dave Savoca, president of Sandy Hook, Conn.-based Smokey Mountain Chew, maker of tobacco- and nicotine-free Smokey Mountain Herbal Snuff. “I believe over the next five years tobacco alternatives will

continue to grow and really start to mature.” To support its brand and help retail pull-through, Smokey Mountain

sponsors a truck and a car in two NASCAR series’ and recently signed on to sponsor Major League Bowhunter with Chipper Jones and MRA Hunting with Shawn Michaels. Smokey Mountain is also the national sponsor of Champi- onship Bull Riding.

In store, Savoca says that in order for retailers to get the biggest bang for their buck, products should be marketed in a place near smokeless tobacco. “It should be visible, and if possible accessible to the adult consumer. It is kind of like non-alcoholic beer being near regular beer,” he says.