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After promising growth, sales of electronic cigarettes have flattened. As consumers gravitate to vape shops for more premium vaping experiences, mass-market sales of electronic cigarettes have suffered.
Sales of electronic cigarettes at supermarkets were $16 million for the 52-week period ending Nov. 28, 2015, according to data from Chicago-based IRI, a 2 percent dip from last year’s sales. The convenience store channel generates the greatest sales in the category among all mass-market outlets, with supermarkets garnering about 5 percent of category sales, IRI notes.
To combat the sales slip, manufacturers have stepped up promotions on products. San Francisco-based Wells Fargo Securities reports that continued heavy promotions of both RJ Reynolds’ Vuse and Altria’s MarkTen brands in the c-store channel elevated unit momentum this past year, but at the expense of dollar sales.
Wells Fargo research also suggests that some new, improved versions of products already on the market may cannibalize sales of existing products if those products to introduce new users to the market.
Still, many analysts are optimistic about the long-term consumption potential of electronic cigarettes, which they believe could surpass traditional combustible cigarettes by 2025. The category’s strength going forward will be dependent on improved technology of second- and third-generation products that are starting to hit the market as the category’s focus shifts from rechargeable kits to higher-performance cartridges.
Present and Future Innovations
“Frequent product innovation is crucial to driving adoption rates,” affirms Jan Verleur, CEO of Miami Beach, Fla.-based e-cigarette manufacturer V2. “The fact that open-system vaporizers (OSVs) officially overtook disposables in 2014 suggests that consumers are already leaning toward more sophisticated vapor devices.”
According to Verleur, technological innovations like customizable vapor strengths, longer battery life and the ability to taper down nicotine levels have attracted consumers to OSVs. “As technology continues to improve, we’ll see an even greater share of users switching to OSVs in 2016,” he adds.
Todd Millard, COO of Monroe, N.C.-based Ballantyne Brands, maker of the Mistic and Haus brands, notes that while consumers may start with refill “cig-alike” products, or pen-style lower-end vaporizers or open systems, they often upgrade to a better-performing mechanical device, or “mod.”
Sarah Richardson, spokeswoman for Pax Labs’ Juul brand, says the category’s key limitation so far has been the inability of e-cigarettes, especially cig-alikes, to replicate the satisfaction profile of a traditional cigarette. “Juul takes that challenge head-on,” she asserts. “The result is an e-cig that reliably ‘works’ for pack-a-day smokers, and can go head-to-head with cigarettes. Juul is now the fastest-growing top-10 vapor brand in the c-store category, indicating the potential for this category to grow as more smokers choose to vape.”
San Francisco-based Pax recently received a U.S. patent for the nicotine salt e-liquid formulation used in its landmark Juul e-cigarette. Unlike other products in the e-liquid space, Juul uses nicotine salts found in leaf tobacco, rather than free-base nicotine, as its core ingredient.
Juul e-cigs hit the market in June 2015 in four cartridge flavors: tabaac, miint, fruut, and bruulé. A starter kit, which includes a device, one of each Juul pod flavors and a USB charger, retails for $49.99; Juul pod 4-pack refills retail for $15.99 each.
Last year, Richmond, Va.-based Altria introduced MarkTen XL, a larger-format version of the MarkTen, with a broader range of flavors and better battery life. The company also extended its Green Smoke e-vapor products into a number of markets.
Blu Plus+ and Logic Pro introduced similar trade-ups in 2014. Blu Plus+ features a longer battery life and enhanced vapor production and flavor delivery. “Blu Plus+ uses the latest technology to provide an easy, satisfying transition for adults in search of a viable alternative to traditional cigarettes,” says John Wardley, chief marketing officer of Charlotte, N.C.-based Fontem Ventures, parent company of Blu. “Ultimately, the growth in 2016 will come from products that are engineered toward customer satisfaction, by those brands that have the pulse of the adult smoker.”
RJ Reynolds continues to expand its Vuse brand, which achieved national distribution in 2015. The Winston-Salem, N.C.-based company added colors and styles in some key states and spent heavily last year to increase brand awareness and trial of Vuse. Trial has been strong for the brand, driven by heavy couponing.
Reynolds is also focused on building brand awareness for its new Revo heat-not-burn (HNB) technology. The company is positioning Revo as a bridge product from combustible cigarettes to vaping. Revo has a carbon tip that, when lighted, heats the tobacco rather than burning it, so that the cigarette releases a tobacco-flavored vapor rather than traditional cigarette smoke.
Elevating the Experience
Other companies are focused on bringing an elevated vape-shop experience to mass-market consumers through new and improved products.
In December, Ballantyne added two flavor profiles to its Haus Craft Collection, a line of high-end vaping hardware and premium vaping liquids, or “vape juice.” Mistic and Haus are sold in the mass market, while its Unbroken is a vape shop-specific line. The Craft Collection aims to enable mass-market consumers to enjoy a vape-shop product.
The two new flavors, Shadow Cut and Dark Ice, bring the Haus Craft Collection up to five e-liquid flavors. The brand’s mod-style starter kit contains a sub-ohm tank and coils, similar to products that are currently available only in vape shops and on the internet. “The majority of the volume is going through vape shops,” observes Millard. “We saw this trend change in early 2015, and that is why we developed our Haus Craft Collection line, which is a high-end mod and hardware offering with premium vape juices.”
Millard sees consumers gravitating away from traditional tobacco and menthol flavors toward more nontraditional varieties. “Our fruit-based and sweet or dessert-type flavors are outpacing our tobacco and menthol flavors by a large margin,” he points out. In a striking example of this trend, boutique e-juice company Coastal Cloud’s premium breakfast-cereal flavor won “Best in Show” at the fourth annual Vape Summit last October.
GreenSmartLiving recently introduced a nicotine-free, cannabidiol-based e-liquid, but the Salt Lake City-based company is also committed to the disposable business. “This category will mature, but there will always [be a] trend towards convenience, which I see in the disposable category,” says company spokesman Andrew Middleton.
In With Both Feet
Merchandising the category can be a challenge for retailers, since product must be kept behind the counter.
V2’s Verleur believes the challenge goes beyond fixtures. “The category requires commitment to a strategy to clearly differentiate e-cigarettes — micro-cigs or OSVs — from other tobacco products,” he says. The nonverbal “point to the pack” mode of shopping “simply doesn’t work for e-cigarettes, because most people don’t know what to point to,” continues Verleur. “They need to see the product up close. They need to read packaging, or at least the POP material. And they need to find a way to have their questions answered. If these conditions aren’t met, the vast majority of consumers will simply stick with inertia, which, more times than not, means the purchase of a combustible.”
Ballantyne’s Millard thinks there’s room for improvement in the way the grocery channel merchandises the category.
“While we understand it is difficult to properly merchandise in the grocery channel due to space constraints and location, there is also a lack of dedication to the category, meaning, grocery retailers are playing in this category with a one-foot-in-and-one-foot-out approach,” he asserts. “If you are going to be in the category, be in it wholeheartedly.”
“Ultimately, the growth in 2016 will come from products that are engineered toward customer satisfaction, by those brands that have the pulse of the adult smoker.”
—John Wardley, Fontem Ventures
“Our fruit-based and sweet or dessert-type flavors are outpacing our tobacco and menthol flavors by a large margin.”
—Todd Millard, Ballantyne Brands
“This category will mature, but there will always [be a] trend towards convenience, which I see in the disposable category.”
—Andrew Middleton, GreenSmartLiving