Do E-Cigarettes Still Hold Opportunity for C-stores?
JERSEY CITY, N.J. — Electronic cigarettes have been taking a hit lately, with many wondering what is happening in the segment. Some are even questioning whether it is still a viable segment to be in — particularly considering the uncertainty surrounding the Food and Drug Administration's (FDA) proposed deeming regulations.
What is known is this: In the grand scheme of things, e-cigarettes are still pretty new, and the segment continues to grow and evolve. Industry insiders still see plenty of opportunity — for both retailers and manufacturers.
Speaking during a Convenience Store News webcast entitled "E-Cigs: The Category of Evolution," Miguel Martin, president of webcast sponsor Logic Technology Development Corp., pointed out it is important to understand that the consumer for electronic cigarettes is the adult smoker.
"The reality is, cigarettes have had a tremendous year, but regardless of the success of cigarettes, almost half of adult smokers are looking for an alternative," said Martin, whose company is the maker of Logic Premium Electronic Cigarettes. "And whether that's been snus or different items in the past, electronic cigarettes do appear to meet many of the core needs that adult smokers have."
These core needs go beyond just nicotine to include societal cues, social cues and the hand-to-mouth experience. These attributes that attract adult smokers to electronic cigarettes are just as true today as they were in the past, he explained.
However, Martin acknowledged that it is not lost on Logic, nor anyone else in the industry, that e-cigarettes have slowed in sales.
"To be frank, that is true. That being said, it is a still a very large segment and companies like Logic that are focused primarily on brick-and-mortar see a very bright future," he maintained.
"While electronic cigarettes may not be growing as they once were, they are still a very important category for retailers and wholesalers, and very importantly allow the trade to have much higher margins than traditional combustible products," Martin said. The segment also has the potential to allow retailers and wholesalers the flexibility to customize their offerings, he noted.
While there is no syndicated data available on vape shops and online sales, Logic is aware these outlets exist and are an important part of the overall electronic cigarette business.
When you look at the market share of the e-cigarette segment, Martin explained the consumer is still figuring things out, so the brands are moving around very quickly.
"But first and foremost, to dispel what I think has been a bad narrative, the unit sales of electronic cigarettes vs. the prior year — and as defined as 2015 full year vs. 2014 full year in Nielsen — grew," he pointed out. "And while the valuation of the dollar spent on the category did go down due to a lot of investment by companies such as Logic, there are more electronic cigarettes being sold in those tracked channels than there were in the past.
"This concept [that] this is the end of electronic cigarettes, I think, is really a false narrative," he said. However, he does agree the products have to further advance to better satisfy the needs of adult smokers.
Many e-cigarette manufacturers have been introducing new products to the market. And the good news is that an electronic cigarette is an electronic item, and as Martin remarked, "electronics have a much faster ability to modify and meet the needs adult smokers."
"The electronic cigarettes on the market today are dramatically better than even the ones that were on the market a year ago," he said, adding the satisfaction gap will continue to close as manufacturers, including Logic, roll out significant enhancements. "I believe the opportunity for electronic cigarettes is very bright."
A Study of Best Practices
Logic recently conducted a study to identify the highest-volume electronic cigarette stores in the entire country and then tried to pinpoint the common factors among them.
While one might expect it to be factors such as pricing, location and number of SKUs, Logic did not find that to be the case. Rather, there was a certain correlation to the amount of a store's combustible cigarettes business, but there was also a correlation to the state excise tax for cigarettes, according to Martin.
Digging deeper, Logic also found in some of the high-volume locations, a store associate was an e-cigarette consumer themselves. Hence, they were able to explain to customers what an electronic cigarette is and the differences among the key brands, and provide a recommendation for that customer as they were potentially moving from a disposable to a rechargeable to an open system.
"The first and most important thing — and I know there is turnover and it is hard — but the sales associate, at a minimum, should know what an electronic cigarette is and isn't, and what are the key attributes among the brands you sell," he said.
Other best practices among the highest-volume locations are:
- How the e-cigarette segment is merchandised, which should be adjacent to the cigarette segment within eye line and not below other tobacco products;
- Supporting the segment with signage outside the tobacco category; and
- Partnering with companies that are investing in the category long term.
With all that being said, the e-cigarette segment still has a cloud of uncertainty surrounding it, as the industry waits for final federal regulations to be approved and implemented.
"I think it's important to take the temperature of the regulatory landscape in the [United States], which is best described as confused," said co-presenter Anthony Hemsley, head of corporate affairs and communications at Logic Technology Development.
Instead of portraying a category of opportunity, the media in the U.S. has become a battleground of those that want to over-regulate the segment vs. those that embrace the advancements of technology and innovation it represents, he stated.
"This has left adult consumers in somewhat of a quandary, unsure and somewhat skeptical of the products that are on offer," Hemsley explained.
Complicating matters further, as the FDA's proposed deeming rule sits with the White House Office of Management & Budget, state and local lawmakers are enacting their own measures in what Hemsley dubbed "a knee-jerk reaction to the scare mongering that is going on and that pervades our daily lives."
In addition to the patchwork of regulations, states are moving toward adding an excise tax to electronic cigarettes on top of existing sales taxes. Four states, Washington, D.C. and some local municipalities currently have excise taxes on e-cigarettes, according to Hemsley. At this time, there are also 13 tax bills pending at the state level, with more states considering similar moves.