It seems so long ago now, but it was just about five short years ago that electronic cigarettes were the new kid on the block. In truth, their popularity really only hit its stride about three years ago. Already, though, there is talk e-cigarettes have peaked.
Walking around the show floor at the 2015 Tobacco Plus Convenience Expo in Las Vegas in late January, one could believe the situation is so. While e-cigarette manufacturers still exhibited at the event, a far larger amount of floor space was dedicated to other vaping products such as open-systems, e-hookahs and e-liquids.
Is that the future? Industry insiders say yes and no.
“In 2015, we will see a continuation of the trend toward large-scale devices, tank systems, multi-function vaporizers, mods — those types of products,” said Jan Verleur, CEO and co-founder of Miami-based VMR Products. “I think you will certainly see e-liquids continue to be a driving force at retail and likely will, at some point in time throughout the year, surpass the volumes of disposables and some of the legacy retail products.”
To that point, as a function of its partnership with National Tobacco, VMR is adding to its current six retail SKUs with nine SKUs that are more focused on the open-system segment of vapor products, large-scale devices and e-liquids, Verleur noted.
A new report by Barrington, Ill.-based sales and marketing firm Balvor LLC highlighted that sales of electronic cigarettes were up almost 14 percent in December vs. the prior year — a stat derived from analyzing total chainwide sales across participating retailers. However, this figure likely understates the growth that many retailers are experiencing as the Balvor Retailer Composite, which equalizes chainwide data to an “average per store week,” revealed that dollar sales are up more than 25 percent year over year.
The firm also found that consumers are following the innovation in the segment. Notably, sales share of disposables has gone from more than 60 percent to less than 30 percent in just 18 months. Rechargeables are now the dominant system type, while refillables have captured nearly 15 percent of sales after experiencing explosive distribution gains in the last several months.
“The END [electronic nicotine device] category continues to evolve with innovations that better satisfy what consumers crave,” explained David Bishop, managing partner of Balvor. “Having the ability to more quickly identify, understand and respond to changes in the marketplace is key for retail growth, which ultimately also benefits manufacturers that are truly committed to providing better product alternatives.”
John Wiesehan Jr., CEO of Charlotte, N.C.-based Mistic Electronic Cigarettes, a division of Ballantyne Brands LLC, acknowledged that his company needs to keep innovating in order to meet consumers’ needs as the segment shifts away from cig-alikes toward open systems. He said Mistic’s electronic cigarette business was good in 2014, but “not off the charts.” On the other hand, the company’s open-system business saw great growth last year.
Does this mean first-generation electronic cigarettes, like disposables, are going the way of the phone booth? Not necessarily, according to at least one convenience store retailer.
Green Valley Grocery in Las Vegas still does a brisk business in electronic cigarettes, with the blu and NJOY brands particularly standing out in its stores. Disposable products remain the largest portion of the chain’s vapor segment, said David Crawford, vice president of operations.
“The disposable [segment] is our biggest vapor [segment] and it’s led by blu. Rechargeable and refillable products can be hit or miss,” he said. “Customers seem to be a tech-savvy bunch. Quality and function are just as important as price. Maybe more so.”
According to Crawford, Green Valley Grocery began adding next-generation vapor products to its mix about six months ago and intends to keep up with the trend. Still, electronic cigarettes and vaping products make up only a small percentage of the retailer’s tobacco category.
“The technology and the customer demands are both changing; retailers need to keep up,” Crawford said. At the same time, he doesn’t see his disposable business declining.
“I don’t see disposables going down any this year,” he said. “We might sell more of the other products as things evolve and new programs come out. The category might grow a little bit, which will bring some of the other guys in. But disposables are still pretty strong.”
Going forward in 2015, Green Valley Grocery will be adding more refillable vapor products and rechargeable e-cigarettes. At this point, Crawford said e-liquids are selling well, but the vaporizer devices are slow movers. “If you are going into a c-store, you probably already have the device. You are just looking for a flavor,” he explained.
Which brings up the subject of competition from vape shops. Vapor manufacturers that have been in the c-store space from the beginning are well aware of the emergence of vape shops. With thousands across the country — and more opening every day — these new retail outlets play an important role in the vaping industry.
Mistic is one such manufacturer turning an eye toward vape shops. The company is introducing a high-end line of e-liquids, set to launch in April, specifically 30-milliliter bottles that will be sold exclusively in vape shops. The thing about vape shops compared to c-stores, Wiesehan Jr. said, is that everyone in a vape shop is there to buy a vapor product.
Justin Wiesehan, vice president of marketing for Mistic, pointed out that since the vaping segment is still relatively new and ever-changing, consumers need to learn about the products — and that’s where vape shops have the advantage.
Wiesehan Jr. agrees, but believes there will eventually be a tipping point where the consumer no longer needs that education and the price and convenience of c-stores will trump vape shops.
VMR, once primarily an Internet sales company, has optimized the price points of many of its products for convenience stores, big-box outlets and other similar channels. However, Verleur acknowledged that vape shops are a great market for the company.
“For us, we have a very broad range of products we sell both under the V2 brands and others we manufacture,” the CEO said. “Because of that, we have some high price-point products that play extremely well in vape shops or specialty stores. We also have some products that are optimized for the faster forms of retail, which is when you are getting your morning coffee or filling your gas tank.”
Vape shops have the opportunity to excel in the variety they can offer. “I think open system has a place in c-store retail. I just think it is hard to get into anything that is particularly specialized in c-store retail,” Verleur explained. “If you want every possible iteration of something, or if you want 50 different flavors, or if you want to have the $150 and $200 devices, that’s really where I think the vape shop can excel.”
C-stores will still do well with some mainstay products, according to Verleur.
“In the c-store environment, we are only launching four or five major flavors of e-liquids and they are flavors that we have been selling in massive quantities on the Internet and other verticals,” he said. “We have the luxury of saying let’s only take our top performers, our most-wanted SKUs to a c-store. I think a vape shop has the flexibility to carry things that move with slightly lesser velocity than you would be able to do in a c-store.”