Alternative products such as electronic cigarettes are helping drive interest and sales in the tobacco category. Grocers will need to overcome assortment and merchandising challenges to capitalize.
The tobacco category is undergoing a huge transformation in the U.S. Increased taxes, tougher smoking restrictions and an array of other issues are heavily impacting cigarette consumption, causing nearly half of all smokers to seek alternatives to cigarette smoking, say industry observers.
According to Dave Savoca, president of Sandy Hook, Conn.-based Smokey Mountain Chew, the moist smokeless tobacco (MST) segment is benefiting from this trend and continues to grow at approximately 6% annually. “Without a doubt, U.S. adult smokers are seeking out smoke-free tobacco products and tobacco-free alternatives more often,” says Savoca. “Today there is a product out there to suit the needs of just about every adult consumer shopping the category.”
One of the more popular emerging segments is electronic cigarettes. Growth in the category, say observers, is coming from a number of places including smokers who are seeking a satisfying alternative to a traditional cigarette when they can not or choose not to smoke. “Most consumers are dual users, so e-cigarettes are incremental and carry almost three times the margin that traditional cigarettes deliver,” says Roy Anise, executive vice president for NJOY Electronic Cigarettes, based in Scottsdale, Ariz.
Calling 2012 a “breakout year” for e-cigarettes, Isaac Soibelman, vice president of sales for Green Smoke, based in Miami, points out that as consumers become more aware and educated on the product’s features interest in the category is expected to escalate and predictions are calling for the segment to top $300 million in retail sales for 2012. “Electronic cigarette sales are growing across all channels of trade, including grocery,” says Soibelman. “Customers are very excited to have an alternative to traditional tobacco cigarettes.”
The fact that electronic cigarettes offer a very similar smoking experience to traditional cigarettes without any ash, odor or trash are some of the top features attracting consumers to try the product, observers say. “With e-cigarettes, people can smoke almost anywhere and that is a tremendous advantage when they are prohibited to smoke traditional cigarettes almost everywhere they go,” says Soibelman. Electronic cigarettes, he adds, are also a cheaper alternative to traditional cigarettes, noting that each replacement cartomizer is equivalent to approximately 1.5 packs of regular cigarettes.
Officials at Ft. Lauderdale, Fla.-based Vapor Corp. say the company’s electronic cigarette batteries are long lasting and backed by a lifetime guarantee. “What sets us apart from our competition is diversity and quality of product, customer service, professionalism and our ability to create unique, customized vendor programs,” says Adam Frija, director of business development for Vapor. “We are also a leader in design and development, as our research and development team is constantly striving to improve the design and functionality of our products.”
Vapor’s products are broken down into two categories—rechargeable and disposable—and distributed under leading brand names such as Krave, Fifty-One, Green Puffer and VaporX. “Rechargeable e-cigarettes are available in various starter kits to satisfy any user’s budget with pre-filled cartridges. Additional cartridges are available in several different flavors as well as various nicotine strength levels,” says Frija. Vapor’s line of disposable e-cigarettes is available in several brands and styles categorized by puff count, meaning the average number of puffs before disposal.
With strong competition coming from other retail channels, particularly convenience stores, experts say there is no room for missteps in managing the category. They say with a few adjustments, grocers can create a department consumers want to shop. Bill Greiwe, CEO of Cheyenne International, based in Grover, N.C., says to ensure tobacco is a profitable category, retailers need to focus on providing a well-rounded assortment that includes both tobacco and non-tobacco products the adult consumer wants. Tobacco users, he adds, will shop where they feel wanted, where there is an assortment of product that appeals to them and where there is knowledgeable staff. “I am a strong believer that it is possible to create a tobacco section that is both in compliance and welcoming,” Greiwe says.
A balanced assortment is especially important given that adult consumers are diversifying their tobacco usage and using multiple products, says Greiwe.
“Grocers should provide enough space and do their research to understand what tobacco products sell best in their area,” he says. “Other channels continue to outperform grocery because they place a higher priority on the category and getting the mix right for their adult customers,” he says.
Anise says early adopting consumers prefer the value offered by rechargeable e-cigaretttes, but notes that disposable entries continue to expand in part due to their lower prices.
Given its relative newness, observers say the electronic cigarette segment is wide open with many manufacturers and suppliers competing for the retailer’s attention. However, as experts note, retailers need to remember to exercise due diligence when partnering with a suppler.
Soibelman says Green Smoke prides itself as a leader of technology, innovation and quality as evidenced by their in-house staff which includes mechanical, electrical and chemical engineers. “Our product is rigorously tested to ensure it meets the highest standards. Consumers expect and deserve electronic cigarettes that are safe, and perform as advertised to fully enhance the smoker’s experience,” he says.
For fall 2012, Soibelman says Green Smoke is introducing its Long-Lasting Vapors disposable e-cigarettes. “Our FlavorMax cartomizers offer America’s favorite flavors and high smoke volume, and now our new long lasting one-piece technology offers even more smoke volume, the equivalent of up to two packs of traditional cigarettes,” he says.
In June 2012, Vapor Corp. filed a non-provisional patent for a soft tip filter said to have the same tactile feel of a traditional cigarette filter. “We believe the soft padded electronic cartridge is the most significant innovation to e-cigarettes since their invention and introduction to the U.S. marketplace,” says Kevin Frija, CEO of Vapor, who notes that the comfort of the new soft tip filter will offer their customers the most realistic experience akin to the filters of traditional cigarettes.
Frija is confident the company’s newest product, Krave King, will connect with consumers. It will be the same size and feel of a traditional cigarette, including a FLEX TIP Soft Filter and a realistic looking ash LED. “Utilizing MINIMAX technology, Krave King offers the most authentic electronic smoking experience of any e-cigarette in the industry. And, with the highest margins, it is sure to redefine the game,” he adds.
Greiwe says his company will be promoting its new Cheyenne Cigarillo products at the upcoming NACS show as well as its smokeless products, which include Klondike Smokeless and Nordic Ice Snus.
Smokeless tobacco consumers, studies show, are price/value oriented regardless of income level which means price is playing a critical role in what and where people purchase tobacco-related products. “Consumers are definitely looking for the best price or focusing on the product’s value at a given price,” says Savoca. For these reasons and more he believes it is important for manufacturers to properly position, package and price their brand to attract the consumer that they are targeting. “It is equally as critical for the retailer to merchandise the brands in a location and format that attracts the attention of the consumers that the manufacturer is targeting,” he says.
The same holds true for products such as e-cigarettes which are newer to the market and many of the styles and brands are unfamiliar to consumers. Consequently, to boost awareness and grow sales in the category, industry officials point out that the adult smoker needs to be given information on what the product is and how it works, but most of all the products need prominent merchandising support. “One mistake grocers make is taking the path of least resistance and placing e-cigarettes such as NJOY in the cigarette department,” says Anise. Products placed here get lost and do not experience the sales growth they could, he explains.
For their part, grocers will need to leverage this opportunity by working with suppliers to develop programs that give the category the exposure it needs. Observers say retailers also need to educate consumers about the category. “Success with this category will hinge on the retailer’s commitment to showcase the category and support it with in store marketing materials that not only promote, but also educate the consumer on the benefits of electronic cigarettes,” says Soibelman.