Catering to the Electronic Cigarette Consumer

NATIONAL REPORT -- Tucked into a row of stores on West Main Street in Anoka, Minn., is a retail establishment that caters to a relatively new type of customer -- the electronic cigarette consumer.

Steve Ryan seemed to be putting all his eggs in one basket when he opened The eCig Shop on Oct. 26. As its name implies, the store only sells electronic cigarettes and related accessories. But a little more than a month into the business, Ryan saw his bet start to pay off.

"When we first opened, people thought we were absolutely crazy," he admitted. "They asked, 'How can you have a shop that sells only one thing?' Now that we are open, the customer reception has been incredible."

Ryan is a former cigarette smoker, counting two packs a day for 23 years. He tried his first electronic cigarette in 2007, but was not impressed. When new technology brought different products to the market two years ago, he gave it a second try and never looked back.

Others have been slower to come to e-cigarettes. Part of the problem, Ryan explained, was the cost associated with earlier versions of the product -- mainly due to the expense of importing materials from China. "In Minnesota, a pack of cigarettes costs between $5 and $6, but an electronic cigarette was almost double that in a convenience store," he said.

With the introduction of refillable cartridges made by manufacturers in the United States, the cost has come down. But another barrier still exists: where to buy e-cigarettes and what kind? That is where Ryan, and similarly the Vaporesence shops in Texas, come in.

"There are so many different options available. Now, there is a store where you can go in and try different ones and see what you like," he said. "It's like buying a suit. A lot of stores sell suits, but you have to go in and try them on, see what fits you best and what you like."

Right now, a lot of people are buying off the Internet and that is one-size-fits-all shopping, Ryan noted. "Now, they have a convenient option. As a smoker, you could go into any convenience store or gas station and buy a pack of cigarettes. It is harder to find electronic cigarettes."

Just who is coming in to buy e-cigarettes? In Ryan's experience, it is customers aged 30 and older, and pretty evenly split between men and women. "The majority of my customers are in their late 30s up to 60s," he said. "These customers like to touch, feel and try a product, and they choose not to buy online."

The first three weeks of business at The eCig Shop was on par with Ryan's expectations, he said, but it has since ticked up. "In the first month, we sold 111 kits. Now, I am having a hard time keeping inventory in stock," he added.

Stumbling Blocks in C-stores

John Call, managing member of CF Capital Assets, sees education as a huge stumbling block to getting electronic cigarettes to the right customers.

"Nobody has had overwhelming success with electronic cigarettes," he said. "Traditional cigarettes are pretty simple. It's a little white stick; you put a flame to it and suck. With electronic cigarettes, you have to buy the kit, charge it or use pre-charged kits. It's mechanical."

Although it is true that adult smokers can use electronic cigarettes in more places than they can smoke traditional cigarettes, Call has yet to see anyone actually using one. "There has to be a first guy to try it and then tell someone who tells someone," he said.

Call wishes the electronic cigarette industry well and hopes it does find success in the retail market, but as he sees it, they "are not flying off the shelves."

"What I see as the issue is there is an education curve that consumers are not willing to financially invest in and the manufacturers are not financially sponsoring," he said. "It takes a huge amount of education to get people to try electronic cigarettes. It's an uphill battle. It's something that requires a big change."

He said manufacturers are doing a good job getting their products on the shelf, but it ends there. "People are not making a big deal at this point because there is a high entry point for consumers to try it," Call explained. "What doesn't work if you don't push it? It's the same with coffee clubs, sandwich clubs or any rewards program."

David Bishop, managing partner at Balvor LLC, agrees that more needs to be done to get electronic cigarettes from the retailer's shelves to the consumer's checkout basket.

"Retailers are really intrigued by the segment," he said. "Here is a new OTP segment that has the potential to create and unlock new growth for the tobacco category, which has suffered from market compressions, decline in cigarette volume plus a shift to smokeless alternatives."

But there is a negative aspect to the intrigue, he added. Some retailers are wondering what all the "hubbub" is about and what the future holds for the industry. "It is still too early to tell," Bishop said. "Expectations are higher than reality at this point."

There are two key ingredients to making electronic cigarettes a strong component of OTP. "Consumer education is key and industry standardization is a must," Bishop said.

That lack of standardization is not only confusing to the consumer, but also to the retailer. For example, refillable cartridges are not interchangeable among the different e-cigarette brands. So, if a consumer buys a kit in one retail establishment, he or she cannot buy a refillable cartridge from another unless that retailer carries that specific brand, he explained. As a result, retailers need to carry multiple brands.

The need for standardization is also obvious when it comes to displaying electronic cigarettes. "For retailers to be successful, they need to have a way to effectively merchandise electronic cigarettes in a display," Bishop said, adding that the lack of standardization prohibits displaying the different products in one unified case. "It limits the ability of retailers to market these products."

Unlike other c-store categories, it's not about price or placement, but about educating the consumer, he said, pointing out that the store staff needs to be able to tell consumers about the products. "Manufacturers and retailers need to work together to educate the consumer," Bishop said. "It is not enough to offer the product and think they will sell themselves because they won't. Retailers need supplier support."

Armed with education and standardization, electronic cigarettes could be a viable contender in the c-store environment. "Electronic cigarettes could be the third-largest OTP category behind smokeless and cigars. That is not to say it will be as big as the other two because it wouldn't be," Bishop explained, adding that if smokeless garners 60 percent and cigars 30 percent, that only leaves 10 percent for everything else in OTP.

"It has a place. It needs to be defined and it needs to be part of the category," he said. "A lot of it has to do with standardization."