Many Factors Causing Sales Fluctuations for Electronic Nicotine Devices

BARRINGTON, Ill. — Sales of electronic nicotine devices (ENDs) continued to grow in March, but at a lesser rate than in previous months, according to the latest data from the Balvor LLC Retailer Composite (BRC). Dollar sales of ENDs were up 7.1 percent, while retail units sold grew by 26.4 percent.

The March year-over-year sales growth rate is dramatically lower than Balvor’s fourth-quarter 2014 analysis, which showed December sales grew more than 25 percent year over year.  

“It’s critical to have a deeper knowledge of the business as there are many factors causing fluctuations in the category’s performance,” said David Bishop, managing partner of Balvor, a Barrington-based sales and marketing consultancy.

Bishop shared two market observations that help explain the slowdown.

1. More than 90 percent of the retailers participating in the BRC now sell refillables, also known as open systems, up from 50 percent last year during March. This means consumers have more options today in terms of where to buy these products.

2. VUSE is still expanding nationally, with approximately 70 percent of the retailers reporting sales during the March 2015 period. As a result, sales growth is negatively impacted for retailers who aren’t selling this brand yet.

In terms of system types:

• Disposables continue to decline vs. last year, both on a sales and unit basis. Disposables now represent less than one-third of the category’s dollar sales vs. over half in 2014.
• Rechargeables have extremely strong sales and unit growth year over year due to significant product innovation and promotional support from manufacturers. Rechargeables account for more than half of the dollar sales, up from one-third last year.
• Refillables are experiencing mixed results with sales down and units up as sales shift toward the e-liquid segment, which has lower price points. While sales are down, dollar share is up this year almost 6 percentage points to nearly 16 percent, driven by greater availability at retail.

For this quarter, Balvor expanded its analysis to include profitability measures. The BRC revealed that the weighted average gross margin for the category was 40.4 percent during March, down around 60 basis points from 12 months ago. 

“Understanding profits is vital to growing the business more effectively and we now have that missing piece,” Bishop noted. “Although no one likes margin compression, there aren’t many, if any, tobacco segments where retailers are able to generate on average more than $3.50 per unit sold.”

The Balvor Retail Composite is based on item-level data from 14 convenience retailers, representing retailers of different sizes and from various regions across the United States. Balvor utilizes custom segmentation and equalizes chainwide data to an “average per store week” (APSW) basis. This approach removes much of “noise” associated with changes in store count between periods; minimizes sample bias that would skew toward larger-store operators; and provides more actionable insights.

Retailer companies interested in learning more about the report or participating in the quarterly tracking service should contact David Bishop at [email protected].