Not Just Smoke, or Vapor, and Mirrors

Faced with new rules, company mergers and changing consumer preferences, the tobacco and electronic cigarette categories are adapting. Manufacturers are developing new flavors, devices and other innovations, while still making sure retailers can succeed in the category. 

According to IRI, a Chicago-based market research firm, U.S. multi-outlet sales of cigarettes for the 52 weeks ended Oct. 30, totaled more than $14.6 billion, up 2.9 percent compared to the same period the previous year. Unit sales totaled more than 1.3 billion, down 1.5 percent. The average price per unit increased 46-cents to $10.81.

Sales of electronic smoking devices were the opposite scenario. Dollar sales were down 5.8 percent to $126.4 million, while unit sales were up 2.8 percent to nearly 13.8 million. The average price per unit was down 84-cents to $9.17. 

Earlier this year the U.S. Food and Drug Administration (FDA) announced the long-awaited deeming regulations, which refers to the FDA’s decision to extend the agency’s authority to e-cigarettes and other products such as cigars and pipe tobacco. The rules include a minimum purchase age of 18, a prohibition against free samples, and beginning in 2018, a new warning statement on labels. 

Manufacturers say the rules will create some challenges, but the future is still bright. 

“While increased regulation by the FDA will likely cause some consolidation in brands, the reputable and reliable companies will be left standing,” says Jessica Fratarcangelo, marketing director for Cheyenne International, based in Grover, N.C. “Grocery retailers should feel confident in the manufacturers they do business with and as such, make regulatory issues a point of discussion. Despite impending changes in the industry, there is still a lot of room for opportunity.” 

Cheyenne International launched the Cheyenne Tropical Cigar, which Fratarcangelo says has been so successful that the company decided to take it from a Limited Edition item to a permanent item in the brand lineup. “The distribution continues to grow and we’ve received a lot of positive feedback from consumers who are looking for options in the filtered cigar category,” she says. The company also plans to release a new cigar product in first quarter 2017. 

According to IRI, cigar sales were up 2.9 percent to $367.4 million, and unit sales were up 12.5 percent to 128.4 million.

This month Swisher will add Swisher Sweets Mango to its everyday line-up. Officials for the Jacksonville, Fla.-based company say the Mango blend has been well received in Limited Editions, and more recently in the natural leaf Optimo Cigarillos. Swisher Sweets Mango Cigarillos will be available at three price points: two for 99-cents, two for $1.49, and save on two. 

In the smokeless tobacco category, IRI reported that sales increased one percent to more than $697.2 million, and unit sales decreased more than 2.7 percent to just below 94.3 million. 

Smokey Mountain Chew also saw success with a new flavor this year. The Sandy Hook, Conn.-based manufacturer of tobacco- and nicotine-free smokeless alternatives added a citrus flavor extension to its lineup. “The citrus flavor is very bold and very true,” says Dave Savoca, president of Smokey Mountain Chew. “With citrus in a non-tobacco format sometimes you nail it and sometimes you don’t. The feedback was we nailed it.” 

Smokey Mountain Chew also recently launched the AIRIO Micro filter, which company officials say is the world’s smallest cigarette filter and can be used as part of a tobacco cessation program. The user puts the 1/4-inch filter on the end of a cigarette, and AIRIO removes most of the tar and toxic chemicals. “We strive to be the innovator and market leader in developing alternative products in the tobacco category,” says Savoca. He adds that the future of the tobacco-free segment, and of Smokey Mountain, is tremendous. “There are more and more consumers that are looking for tobacco alternatives. We want to be the tobacco-free brand of choice at the distributor, retailer and consumer level.” 

Acquisitions are also impacting the category. Louisville, Ky.-based Turning Point Brands, parent company of National Tobacco Co. and Intrepid Brands, recently acquired five smokeless tobacco brands from Springfield, Tenn.-based Wind River Tobacco Co.—Big Mountain, Appalachia, Black Mountain, Springfield Standard, and Snake River. “The addition of these solid regional brands further strengthens our position as the No. 2 marketer of chewing tobacco products,” says Brittani Cushman, vice president of external affairs. Turning Point Brands also acquired Smoke Free Technologies, which does business as the e-commerce company VaporBeast. 

Cushman says consumers seek variety. “As we see in many consumer packaged goods segments, consumers are evolving in their buying preferences and often want the option to try newer styles and types of products,” she says. “Turning Point Brands aims to service retailers looking to provide a variety of quality offerings to their consumers through our lengthy catalog of products.” She adds that Turning Point Brands offers Stoker’s Moist Snuff in a 1.2-ounce can and also in a 12-ounce tub for value seekers. 

Cue New Business  

While some companies are joining together, others are creating new businesses. In 2015 Swisher formed E-Alternative Solutions (EAS) as a sister company. In October 2016, EAS announced the widespread release of the Cue Vapor System, which will be distributed to high volume retail locations starting early in 2017. The Cue Vapor System is “a revolutionary patent-pending technology that delivers full-flavor, all day vaping with just the push of a button,” according to EAS. The device will be available in six colors: black, blue, white, orange, pink and red. The 5-ml refill cartridges will be available in varying nicotine levels (0-mg, 3-mg and 6-mg) and in multiple flavors, including a variety of tobaccos, fruits, desserts, mints and drinks. All e-liquids are made in the U.S. with domestic and imported ingredients. The company is supporting the launch with advertising on television, radio, print and digital, merchandising material, in-store support and category management practices. 

Merchandising is very important for success of the e-cigarette category in grocery, says Jan Verleur, CEO and co-founder of V2, based in Miami. “There is tremendous potential in the grocery market,” he says. “In order for retailers and manufacturers to meet that potential, however, retailers will have to be willing to boost in-store merchandising and marketing to make e-cigarette and vaporizer products more easily discoverable for in-market buyers.”

Verleur says the category is performing well. “While there has been much written about a slowdown in electronic cigarette adoption, the overall market is doing very well,” he wrote in a 2016 wrap-up. “There has been a contraction in overall e-cigarette sales. But this is a normal correction following explosive growth early in the category. It is also important to note that the contraction has been accompanied with growing sales for larger vaporizers.”

V2 recently launched the VERTX Plus micro-cig, which has touchscreen controls and an all-new heating element that is more powerful and more efficient then previous heating elements, delivering three times as many puffs per cartridge as V2’s classic cartridges, according to the company. The vape itself has an angled form that will not roll off a table.

In 2017, says Verleur, vaporizer sales will outpace e-cigarettes as larger scale devices continue to add more features and improve on performance. “Electronic cigarettes have been available for nearly eight years now,” he says. “In that time, there has been a steady shift in appetites, with e-cigarette users moving towards open system devices designed to exceed the capabilities of a micro e-cigarette.”

Others say they too are keeping up with this shifting appetite. Wayne Jones, senior vice president sales operations at Charlotte, N.C.-based Fontem US, which acquired blu e-cigs in 2015, says the brand and the category are strong. “For blu specifically, we have seen disposable sales stabilize, continued growth for our PLUS device and eight blu SKUs rank among the Top 22 SKUs in the marketplace, three of which being in the top 10,” he says. 

In June, blu launched online sales of its latest rechargeable e-vapor device, blu MAX, and will make the products available for purchase in retail locations in 2017. Jones says blu MAX will provide consumers with the brand’s trademarked Responsive Draw technology, designed to adapt and respond to the intensity of adult consumers’ inhalation. “Every aspect of blu MAX has been designed in a way that improves the complete vaping experience from its look to its functionality,” he says. “The product is more lightweight and offers an ergonomic mouthpiece that allows consumers to inhale precisely and effortlessly. It is also completely intuitive, with a proprietary connector that provides quick and easy refill changes and a ‘smart’ liquid level indicator that alerts consumers when remaining liquid is low.”

The company also added two flavor refills to blu’s retail portfolio, Caramel Café and Blueberry. “We are confident that our unwavering commitment to responsible leadership will continue to produce an even greater group of new and existing retail partners, and their e-vapor users, throughout 2017,” says Jones. 

Another new product comes from CB Distributors, which offers the Vapin Plus line. CB is launching a 30-watt Mini Mod, which is top loaded, has a ceramic atomizer, and can produce large amounts of vapor at a very competitive price. “The ceramic atomizer is a much better experience than traditional coil atomizers,” says Carlos Bengoa, president of the Beloit, Wis.-based company.  CB Distributors is also launching DA VAPE e-liquid, in 30-ml and 60-ml bottles with .03-mg of nicotine and 20/80 propylene glycol/vegetable glycerin. It is designed to offer smooth inhaling, massive vapor and great taste. The company also offers Vapin Plus Elite, a closed system vaporizer with ceramic atomizer, available in five flavors. 

As for the future, “We believe the new administration will take a totally different, new approach toward e-cigs,” says Bengoa. “It is a very interesting and challenging year ahead for this industry.” 

The overall tobacco and e-cigarette environment is in solid shape but softening, according to Tobacco Talk—Third Quarter 2016 U.S. Retailers Survey, a report by Wells Fargo Securities. Bonnie Herzog, managing director for Beverage, Tobacco & Convenience Store Research, wrote that several trends have had a positive effect on the category. One is that pricing power, or the ability of manufacturers to raise prices without seeing a decline in demand for the product, has been strong due to a favorable macroeconomic environment and also an increase in disposable incomes among adult tobacco consumers. Industry consolidation has also helped pricing power.