Changing the Scene

In the summer of 2013, subsidiaries of Reynolds American Inc. (RAI) and The Altria Group Inc. entered the electronic cigarette arena, completing the trifecta of Big Tobacco throwing their hats into the e-vapor category ring.

R.J. Reynolds Vapor Co. unveiled its digital vapor cigarette, VUSE, at a launch party in New York in early June 2013, one month before introducing the product to Colorado stores. VUSE entered its second market, Utah, several months later.

In August 2013, tobacco retailers in Indiana began selling Nu Mark LLC?s MarkTen. Nu Mark is a subsidiary of Altria. The e-vapor product then hit store shelves in Arizona that October.

Fast forward to this past summer and both VUSE and MarkTen began their national rollouts. To date, the products are still making their way across the country.

North Salt Lake City, Utah-based Maverik Inc. has had a front-row seat to the action.

Maverik operates more than 250 convenience stores in 10 western states, including Colorado and Utah. Today, all Maverik stores carry VUSE and MarkTen ? MarkTen hit its shelves in early June and VUSE arrived later that month portfolio-wide, said Jeff Arnold, category manager. Maverik also was a test market for both products in certain states.

VUSE is doing well in the stores. In fact, it is Maverik?s leading brand for its electronic cigarette and vaping category. ?It took off immediately in our stores,? Arnold said.

MarkTen started off strong. However, it is now struggling with supply, according to Arnold. He noted that Maverik has had an issue with out-of-code product and its wholesaler was not able to supply MarkTen at the time he spoke to Convenience Store News in early November.

?Their share and volume has dropped considerably,? Arnold reported.

Brian May, senior manager of communications for The Altria Group, acknowledged that Nu Mark has received some retailer feedback about shelf life. The company is working to address their concerns and making good progress, he said.

?E-vapor is a new and rapidly evolving category and we?re continuing to learn about supply chain and inventory management in this space,? he noted.

As of late October, VUSE and MarkTen were not available in every convenience store, as was the case at Tedeschi Food Shops. Stephen Monaco, director of category management for the Rockland, Mass.-based chain, said its stores would be carrying the products in the next few weeks and he ?anticipated e-cigarettes category growth as a result of offering? both.

?The category has leveled off the last few months due mainly to the introduction of vaping,? Monaco said. ?I honestly believe the rollout of these two items will jumpstart the e-cig phenomenon all over again.?

MARKING ITS TERRITORY

MarkTen can be found in about 80,000 stores as the company makes its way eastward toward national distribution, according to May.

?Over the summer, we were in 60,000 stores; and if you go back further than that, it was just a little over a year ago that we introduced MarkTen into a test market in Indiana. In just over a year, we will be in national distribution. We?re really pleased with the progress so far,? he said.

While everyone agrees the category is still relatively new, Altria?s latest quarterly earnings report showed that at the end of September, MarkTen was in the top three brands.

?It?s still early days in this category, so you might see some movement back and forth. Nu Mark?s goal is really to become a leader in this category over the long term. That?s how we are building our plans,? May explained. ?We?re really excited about the national distribution of MarkTen, and Nu Mark is building a robust pipeline of innovative products.?

May declined to provide a peek at that pipeline, but said Nu Mark is confident in its ?abilities to meet adult smokers? and adult vapers? expectations in this category. We?re going to work on developing innovative products for them.?

LIGHTING A VUSE

RAI is also eyeing the next generation of vapor products, but its priority is VUSE, President and CEO Susan Cameron said during RAI?s third-quarter earnings call in late October.

In 2014, the national expansion of R.J. Reynolds Vapor Co.?s VUSE digital vapor cigarette has progressed smoothly, now in nearly 70,000 outlets nationwide, according to company spokesman Richard Smith.

?Early performance has been very strong, and indications are that we do indeed have a game-changer on our hands, with strong repeat purchases from adult tobacco consumers,? Smith said.

Although he wouldn?t speculate on what may or may not happen in the future, he said ?we do believe VUSE and the vapor category present opportunity for continued innovation.?

VUSE is the latest example of the RAI operating companies? approach to transforming the tobacco industry, Smith added, by providing a modern smoke-free alternative for adult tobacco consumers to consider, and in meeting the changing expectations of adult smokers.

A SHIFTING LANDSCAPE

With the introduction of these brands and the evolution of the category as a whole, Maverik will be making a shift from e-cigarettes to more vaping products, including e-juices and vaporizers. There is no timeline for the shift to be completed.

?I think this will always be in transition,? Arnold said. ?Things are changing so quickly right now. For example, the vaporizers are going from open systems to closed systems and different types of juices keep hitting the market. It?s ever evolving. We?re just trying to keep up with what?s new and what our customers want.?

To that end, Maverik regularly conducts customer focus groups to collect feedback.

Looking at the overall tobacco category, the growing e-cigarette piece has not taken a toll on Maverik?s traditional cigarette business. As Arnold explained, e-cigarettes are still a very small percentage of Maverik?s total tobacco sales and while e-cigarettes are the fastest-growing segment, any declines in cigarette volume are ?more than made up for in sales and profit.?

Currently, Maverik carries four brands of e-cigarettes, not including vapor products. Now with VUSE and MarkTen on the national scene, Arnold believes the industry will see some of the small players fade away.

?I think it?s very similar to what we saw with energy shots five or six years ago,? he said. ?You had a lot of small players getting into it and they slowly disappeared.?