E-Cigarettes' Already Dramatic Growth Accelerates

NEW YORK -- Electronic cigarettes have been gaining traction for the past few years, but the industry's growth at retail is really picking up speed.

According to Wells Fargo Securities LLC's newest Tobacco Talk quarterly survey, nearly 90 percent of the respondents indicated that e-cigarette sales accelerated in the first quarter of this year vs. the fourth quarter of 2012, with annual growth topping 30 percent.

The Tobacco Talk survey also found that repeat purchases of electronic cigarettes have surpassed trial purchases.

"Retailers have become incrementally more positive on the category and have praised the advertising and marketing efforts of e-cig manufacturers," said Bonnie Herzog, managing director of tobacco, beverage and consumer research at Wells Fargo Securities.

Respondents did point out, however, that the growth is coming off a small base. "Percents are very misleading on a small base," one retailer said. "[We] should talk [about] dollar increases and percent of the tobacco category."

In particular, blu -- which is owned by Lorillard Inc. -- was named by 83 percent of the survey respondents as the brand that secured the most incremental shelf space during the first quarter. The e-cigarette brand also launched a national TV advertising campaign, "Rise From the Ashes," featuring actor Stephen Dorff.

In addition, retailers generally had positive things to say about the consumer response to blu, as well as Lorillard's collaborative approach to working with retailers to grow the brand, Herzog noted. Greensboro, N.C.-based Lorillard is also the parent company of the Newport cigarette brand.

Currently, Lorillard is the only major tobacco company with a noticeable presence in the e-cigarette arena. However, most retailers participating in the Tobacco Talk survey anticipate that The Altria Group will enter the category soon. Richmond, Va.-based Altria is the parent of Philip Morris USA and the Marlboro brand.

All this movement around electronic cigarettes could be taking a toll on the cigarette segment. According to Herzog, industry cigarette volume was down 4.5 percent in the first quarter, below historical trends, due primarily to slower traffic from cooler weather, high gas prices and increased payroll taxes. The increasing popularity of e-cigarettes also played a role in the decline, she concluded.