The cigarette industry is experiencing its first major technological advancement in decades. Now is the time for retailers to take advantage.
Virginia Slims’ infamous slogan “You’ve come a long way baby” popularized smoking for women in the 1960’s. The slogan can now be applied to the flourishing electronic cigarette industry.
E-cigarettes are working to regain the glamour and popularity of smoking epitomized in shows like AMC’s Mad Men, where characters are seen smoking in the office, public transportation, restaurants and many more locales where traditional cigarettes are now banned. Electronic cigarettes are designed to return smoking to these areas without the unwanted smoke, odor and ash.
The cigarette industry is undergoing its first major technological advancement since filters were widely introduced in the 1950’s, and consumers are trying and buying electronic cigarettes as a supplement or replacement to their traditional tobacco products. By reinventing themselves with the help of technology, cigarette manufacturers have ensured their survival in a world that is increasingly anti-tobacco.
Electronic cigarettes, or e-cigs, are battery powered, personal vaporizers. Available in disposable and rechargeable forms, e-cigs produce no smoke, very little smell, and do not have the lingering effects of cigarettes. “The factors driving smokers to seek alternatives and choosing electronic cigarettes are lifestyle concerns, cost savings, availability at retail, lower prices resulting from taxation and ‘no smoking’ regulations,” says Joe Gorelick, chief operating officer for Green Smoke, a Miami-based e-cigarette manufacturer.
Many electronic cigarette manufacturers market cartomizers, a flavored cartridge, as an accessory to their product. Cartomizers are available in various flavors and nicotine strengths. Cartridge flavors include classic gold and red tobacco, menthol, vanilla, peppermint, mocha, chocolate, coffee and cherry. Consumers can even purchase the liquid inside cartomizers by itself, allowing them the freedom to refill when needed or desired.
Wells Fargo analyst Bonnie Hertzog recently projected that the electronic cigarette industry will surpass $1 billion in revenue in 2013 and could potentially outperform the traditional cigarette 10 years from now. With 400 electronic cigarette companies operating in the U.S. market, it is estimated that less than 5% control nearly 70% of the national market share. The Tobacco Vapor Electronic Cigarette Association, based in Alpharetta, Ga., estimates that there are 2.5 million electronic cigarette users today, and now is the time for retailers to capture their business.
In order to succeed in the transforming tobacco category, a retailer must diversify, say industry observers. Todd Millard, chief operating officer for Charlotte, N.C.-based Ballantyne Brands, the maker of Neo and Mistic e-cigs, says that a vast majority of national retailers are making a large commitment to the category. “Most will eventually carry 3-5 brands of e-cigs,” he says. “We believe the cartridge refill portion of the business to be the most profitable for the both the supplier and the retailer.” Both rechargeable and disposable e-cigs are succeeding and reinforcing growth in the other, thereby driving overall category growth.
Given the faster growth, bigger margins and fewer restrictions associated with electronic cigarettes, retailers can earn about three times the gross profit on e-cigs versus traditional cigarettes, say observers. “While traditional cigarette companies prices have skyrocketed due to high taxes, the cost of a three-pack of disposable V2 Cigs (the equivalent of six traditional packs) is less than $25,” says Andries Verleur, CEO and founder of Miami–based V-2 Cigs.
Repeat purchases are increasing, driven by greater knowledge and awareness, as well as what appears to be an attractive value proposition for consumers. Industry officials estimate that 80% of electronic cigarette product purchases are repeat purchases.
Electronic cigarettes are not the only way in which the tobacco industry is evolving. Smokeless tobacco, chewing tobacco and snus are also undergoing shifts to adapt with the advancing technology and awareness surrounding tobacco. Observers say retailers need to follow their lead, adding that with increased tobacco taxes, insurance restrictions and social issues, adult tobacco consumers have been under considerable pressures to quit or reduce tobacco consumption.
“Tobacco-free smokeless brands provide adult smokeless tobacco consumers with a viable alternative to tobacco,” says Dave Savoca, president of Smokey Mountain Chew. “It’s very similar to non-alcoholic beers providing an alcohol-free option for beer drinkers.” Smokey Mountain, based in Sandy Hook, Conn., offers a large line of tobacco-free herbal snuff products. Company officials say their products satisfy a consumer’s dipping ritual, minus the ill effects of nicotine and tobacco.
Unlike traditional cigarettes, e-cigarettes have little advertising restrictions. Several brands have produced commercials and print advertising to start connecting with the consumer. Retailers can take advantage of these opportunities by promoting the availability of e-cigarettes.
Most manufacturers offer a full line of disposable and rechargeable cigarettes. Many promote their rechargeable products by marketing kits stocked with a variety of cartridges and batteries, liquid for refilling and charging accessories inside a convenient carrying case. All kit components are available in various styles for different usage occasions.
Manufacturers are doing their part to drive traffic to stores via in-store promotions, print advertising in local retail circulars, as well as national magazines, special events and radio commercials. Although many e-cigarette manufacturers require that sale of their products be clerk-assisted—and that consumers be age-verified—they urge retailers to make the products clearly visible to the consumers. “Nothing is more powerful than showing the consumer the product,” says Roy Anise, executive vice president of Scottsdale, Ariz.-based NJOY.
NJOY is best known for its King e-cigarette. With its paper feel, soft tip, light weight and traditional or menthol flavors, consumers feel like their enjoying the real thing, says Anise. “It’s a clean way for smokers to get the results they desire,” he adds. NJOY capitalized on the lack of advertising restrictions by running a commercial for their King product during the 2013 Super Bowl last month. It was the first time a cigarette product was advertised on television since 1970.
“Education is the key to success at retail,” says Joe Gorelick of Green Smoke. “Visual aids, informed staff and e-cig starter kits with attractive pricing are essential to get customer trial and acceptance.” Observers recommend that the products be merchandised either in a stand-alone display, or as part of the tobacco rack. “POP or static clings should be present somewhere in the store to let the consumer know the retailer carries e-cigs,” adds Millard.