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    Getting the Vapors

    Industry executives discuss the challenges and opportunities of the electronic cigarette boom.

    By Joe Tarnowski, Stagnito Business Information
    Progressive Grocer’s roundtable on electronic cigarettes, held this past February in Las Vegas

    Electronic cigarettes are experiencing the kind of explosive growth seen by energy drinks when they first came on the scene years ago. And as with the energy drink category when it first arrived, the explosive growth in the number of e-cigarette brands, as well as the huge selection of products and flavors, has led to many challenges. Among these are deciding which vendors to source, which products to offer and how to merchandise them. Added to this is the learning curve among shoppers that retailers need to address.

    These were among the issues discussed during Progressive Grocer’s roundtable on electronic cigarettes, held this past February in Las Vegas during the ECRM Electronic Cigarettes/Cigars EPPS, and sponsored by Scottsdale, Ariz.-based N’Joy. Participants included Larry Anderson, category manager, Fruth Pharmacy, Point Pleasant, W.Va.; Susan Dorsett, director of operations, ShopRite Tobacco Plus, Crowley, La.; Peter Lippe, VP of purchasing, Core-Mark International, South San Francisco, Calif.; Jason Kern, regional sales director, N’Joy; and Vito Maurici, SVP of sales and distribution, N’Joy.

    Progressive Grocer: What kind of growth in the electronic cigarette category are you experiencing, and what’s driving that growth?

    Larry Anderson: E-cigarette sales are growing for us, but the category is also growing for everybody else in our area. All the cigarette shops now have 15 or 20 different SKUs of e-cigs. My tobacco cigarette reps are slowly getting into the category, too.

    But I’m leery about jumping into it; I want to wait and see what happens with the market. I know they’re pushing for regulations and may possibly tax them, so I’m really not expanding anymore.

    Susan Dorsett: We’re doing just the opposite. Right now, we have six brands of what I would call electronic cigarettes, and then we have three brands of the electronic vaporizers. We originally didn’t want to get into the “vapes,” but we have many requests for them from shoppers.

    We had a lot of Texas traffic coming through our interstate stores, and for the past year, they have been asking for vapes, and for their liquids. So we found a vaporizer company that we could work with, and brought those in.

    The vapes have hurt our electronic cigarette business quite a bit. Our customers say they get a bigger “throat hit” from vapors than they do from electronic cigarettes, and that’s the reason they’re choosing them, especially those customers who are trying to quit smoking traditional cigarettes.

    Still, even with the vapes, we still had exponential growth in electronic cigarettes. I’d guess we’re selling 10 times the amount we were selling four years ago. And we have seen repeat sales because many customers are buying the rechargeables and cartridges.

    Anderson: Those [rechargeables] are the top sellers in my company.

    PG [to Peter Lippe]: From a wholesaler’s perspective, you deal with convenience stores of various shapes and sizes. What are you seeing from the sales side?

    Peter Lippe: We operate 21 warehouses in the U.S., and until Blu came on the scene, everything was very regional. What we were selling in the Northeast, they never heard of in the Southwest. So throughout our company right now, we’re probably doing business with 35 different manufacturers.

    We’ve seen the same growth that everyone else has seen. But our sales are almost 100 percent at the c-store level; we don’t really sell to drug stores or supermarkets. We’ve seen a trend over the last year or two where Blu and N’Joy and Logic have risen to the top as they gained share and maybe moved a little bit out of that regional niche and become more national.

    But we’re seeing a flattening trend at the wholesale level over the last three or four months. Part of it, I think, is the entrance of other channels into the category, and that’s taken some of the business away from the convenience channel. The other part of it is vaporizers. We were very hesitant to bring in vapes, as they have all the things that I think the FDA is looking to control — such as the open system and the flavors. I was really hoping that the FDA would come out with some regulations last year, like they were supposed to.

    But it’s been a growing category. We’ve been in it about three years, and certainly our sales in 2013 were 15, 16 times what they were the first year.

    PG: Do you think that regulations will have a positive impact on the category?

    Lippe: I think so. From a wholesaler’s perspective, we believe that regulation will clean up this market. We would also like to see the tobacco vendors that we have relationships with for many decades have a more dominant role in this new industry. Regulations would also help everyone understand what the rules are for distributors and retailers alike.

    Dorsett: We welcome the regulations, especially those that will keep these products out of the hands of minors. We treat the e-cigs and vapes/liquids as any tobacco product and verify the age of the consumer prior to purchase.

    Anderson: Exactly. That’s why we have only gone with two vendors so far. We chose two that seem to be pretty reputable, that really stand behind their product. You get really leery about who can make it.

    PG: Do any of you sample e-cigarettes?

    Lippe: We’re trying to apply tobacco rules to this business, so the sampling is not anything we would ever touch.

    Anderson: It’s not something we would touch, either.

    Dorsett: We haven’t sampled e-cigs or liquids, but I’m really not opposed to it. We have wine samplings.

    Vito Maurici: We’ve tried retail sampling numerous times. We age-verify because we want to do business — as Pete does — within tobacco rules. We think sampling works, but it can be costly to station someone at the store who is educated on the category and ensure that they age-verify.

    PG: How do you educate your staff about the category — particularly the employees who don’t smoke?

    Dorsett: We’ve had our e-cig reps talk at managers’ meetings, and then our managers educate their staff at store level. We also are creating learning disks that new employees are going to be watching, and we’re asking our reps to provide information that we can include on these disks.

    Anderson: The vendor I use actually comes to the store managers’ meeting. All 27 store managers come to the meeting either once or twice every two months. I have visited the stores as well to educate them on the category. But the information is mostly provided by our vendors.

    PG: How are you merchandising e-cigs?

    Lippe: As a wholesaler, we’re trying to take some learning from some other categories where we’ve been very successful. Back in the late ’90s, we developed what we call the multivendor end caps, where having a strong mix of complementary products benefited every SKU involved. So I wanted to take that same multivendor display process to e-cigarettes, but I have a couple of challenges.

    The first one is, what does this display need to look like — what size should it be? How many brands should it hold? Where should it be located? Everybody’s got a different opinion. We have to keep in mind what the regulations are going to be. So if it’s on the countertop, it’s got to be accessible from the rear only, or it’s got to go on the back counter. Also, I’m trying to do this nationally, and that’s the real problem, because of the regional differences in brands.

    Maurici: That would allow you to do layers.

    Lippe: Yes. You can make it a tower if you want; you could make it more horizontal if you want, you can have one brand in each module.

    Dorsett: We have a standard display; usually, it’s an acrylic display you pull from the back, but the customer can see everything from the front, and that works fine. It’s a little bit crowded. We hope to go to a glass-counter display.

    Anderson: We have a front register — one front register, and that’s where our cigarettes and our electronic cigarettes are. The first vendor that I brought in made a rack that worked for me. I had the second vendor design a rack to go with that, so I’m able to stick them side by side. But I’m only working with two brands.

    PG: What kind of marketing have you done to promote e-cigs?

    Dorsett: We want to be the go-to place for e-cigarettes, because we see this category growing to be a lot bigger than it is now. So we promote with our vendors to let people know what we offer. [In] one unique promotion we did with N’Joy … we had some shirts made that said, “I N’Joy Fridays.” And all of our employees still, to this day, wear this black shirt on Fridays. We did this for two reasons. First, we wanted to advertise an e-cig to reinforce our position as a destination for the category. Also, our employees love when they don’t have to wear their uniforms. But the shirts look really good, and it’s worked for us.

    We also ran the N’Joy commercials on our Facebook page, which complemented the shirt promotion.

    Anderson: We promote it in our social media, and occasionally do giveaways such as a cup or a hat from a vendor. We also run a lot of vendor-sponsored ads in our fliers, and have an e-cigarette club — which is also promoted in every ad — in which customers who buy seven of a specific vendor’s items get a disposable e-cigarette for free. It’s part of our loyalty program, so they don’t have to keep track of it — the minute they buy their seventh one, they get a coupon for a free eighth.

    By Joe Tarnowski, Stagnito Business Information
    • About Joe Tarnowski A 13-year veteran of Progressive Grocer, Joseph Tarnowski is Editor-in-Chief of Progressive Grocer Independent -- PG’s standalone bi-monthly publication serving independent grocers and wholesalers. While his primary responsibility is developing informative and actionable content, he also views his role as that of a networker who loves to connect people with common interests, knowing that when it comes to finding a solution to an industry challenge, two brains are better than one. To facilitate such connections, Joe founded the Independent Grocer Network, a custom social network for independent grocers to meet and share strategies, stories, photos and videos, or to simply ask for advice from their peers. He is also a senior editor at PG, where he oversees the brand’s quarterly PG TECH supplement, which covers all areas of retail technology, including in-store systems, supply chain, online, mobile and social.

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