Vape Crusades

Have you seen the ideal vapor product? Many define it as one that can satisfy even the most habitual smoker, and they therefore believe it’s not on the market yet. But the industry is getting closer as vapor technology continues to advance and staunch supporters continue their crusade.

Consider some of the recent expert buzz on new tobacco technology overall:

• The world is entering “a new era” for tobacco products with an opportunity to rewrite the rule book, according to Scott Balin, director of the Alliance for Health, Economic and Agriculture Development. He believes science, technology, innovation and new players entering the tobacco industry are all taking key roles in the new era of harm reduction.
• “We have long believed technology will play a pivotal role in shaping the future of the tobacco industry,” said Bonnie Herzog, managing director of beverage, tobacco and convenience store research for Wells Fargo Securities LLC.
• Reduced-harm or modified-risk tobacco products “will likely be the lifeblood of the industry,” stated Jim Dillard, senior vice president of regulatory affairs and chief innovation officer at Altria Client Services.

More specifically to vapor products, the wheels are quickly turning to establish product differentiation and customer satisfaction. From all corners of this quickly evolving market, the latest innovations have made leaps beyond first-generation initiatives with the intent to elevate vapor perception and performance.

Wells Fargo recently reported that retailers remain excited about innovation, particularly second- and third-generation products that are now being launched in the market, which they believe could be a “catalyst for growth.”

ADVANCED GEN MODELS

Regarding hardware, advanced-generation electronic smoking devices have hit the scene fast and furiously, especially since many consumers found fault with — and, in some cases, did not come back to — some of the initial products.

On the traditional electronic cigarette side, experts say the early models did not deliver enough nicotine to satisfy a smoker’s cravings. So this year, several companies ramped up their nicotine levels, such as blu eCigs and Altria’s MarkTen. NJOY uses a pharmaceutical ingredient in a new version of its device that it reports will increase vapor absorption in the lungs and elevate nicotine delivery to about 70 percent of a combustible cigarette.

R.J. Reynolds Vapor Co. completed national expansion for its Vuse Digital Vapor Cigarette, which aims be on a more advanced track to solve the vapor inconsistency found in basic e-cigs. Vuse uses a “vapor delivery processor” that communicates up to 2,000 times a second with a smart memory chip to monitor and regulate each puff, counting down the puffs. The product is intended to create “the perfect puff” every time, according to the company.

Longer battery life and increased vapor production are other improvements being made to existing products, including in the vaporizer realm. At the same time, many newer devices have the ability to control the temperature to minimize the generation of harmful or potentially harmful constituents (H/HPHCs).

Heat-not-burn sticks — slender, tube-like devices that give users as much nicotine as the real thing by heating, not burning, tobacco — are bringing even more attention to the Big Tobacco companies that make them. Namely, Philip Morris International and Reynolds American Inc.

The main distinction between them and e-cigarettes, which use liquid nicotine, is that heat-not-burn devices contain real tobacco. Scientific studies are underway, and early reports show there is far less cell damage with heat-not-burn devices than with cigarette smoke.

The heat-not-burn initiative has also given way to other innovative ideas, such as an inhalable nicotine spray marketed by British American Tobacco, which late last year won approval from British drug regulators. And specialty pharmaceutical company Ross Myles Health launched Nicofi, described as a U.S.made “patented, fast-acting dissolvable nicotine tablet intended for use as an alternative to smoking” that has been “clinically proven to deliver nicotine [about as quickly as] smoking a cigarette.” The Nicofi is placed under the bottom of the tongue and releases a solution of nicotine directly into the bloodstream through the lining of the mouth. One Nicofi tablet offers the equivalent of the nicotine delivered from one cigarette.

A FLATTENING PHASE

Still, according to a growing number of experts, despite all of this innovation and as advanced as it has become, it’s still not advanced enough. The slowing of segment growth shows it.

In the convenience channel, a recent Wells Fargo survey of 12,500 c-stores found that:

• Overall vapor category sales growth was a “solid” 8 percent in the first quarter of 2015, but decelerated compared to 17.4-percent growth in the fourth quarter of 2014;
• Vapor displaced about 3 percent of combustible cigarette volume in Q1 2015, down from about 4 percent in the third and fourth quarters of 2014, but remained flat year to year;
• Repeat vapor purchases accelerated to more than 65 percent in Q1 2015, steadily increasing sequentially from 40.5 percent in Q2 2014; and
• The e-cig subcategory registered about 8-percent growth in Q1 2015, slower than the 15-percent growth in Q1 2014, but up from 5-percent growth in Q4 2014.

Reynolds American Inc. (RAI) President and CEO Susan Cameron has called it a “flattening in the space.” While she recognizes there has been continued growth of tanks, mods and liquids, and she sees a “dynamic” cig-alike market, she has made reference to customer dissatisfaction.

“There has been tremendous trial of vapor across cigarette smokers and the conversion has not been as high as we would like to see, yet there is continued use,” Cameron stated. “What that would say to us is that people aren’t finding the complete satisfaction, either from a convenience or from a satisfaction perspective in the vapor space as of today.”

Cameron believes there is a lot of upside in Vuse “because when we get that into the hands of cigarette smokers, or those who have [moved] to vaping, it is satisfying.” While she expects to see more trial of Vuse specifically, she also acknowledges “there are consumers who are waiting for something that isn’t out there yet.”

Nik Modi, tobacco analyst and managing director of RBC Capital Markets, agrees the biggest challenge to widespread success is the fact that vape technology simply is not there yet.

“If you really go to a core pack-a-day smoker, they’re just not getting the efficacy from current e-cigs,” he said. “There’s nothing wrong with the vape category; it just needs to evolve.”

ASK THE SMOKERS

It is clearly smokers who present the challenge and opportunity to the vapor segment.

“I think technology will continue to develop, and better technology will yield more satisfying vapor products to the adult consumer who probably was a previous smoker. If you were not a previous smoker, then your enjoyment of vapor products is probably pretty high,” reasoned Don Burke, senior vice president of Management Science Associates, a statistical analysis and intelligence firm.

But smokers are clearly not satisfied, and the question comes down to the delivery of nicotine.

“Water molecules are larger than smoke molecules, so it’s not as efficient a deliverer as smoke,” Burke explained to Convenience Store News. “So, I have a feeling that once they figure out a way to deliver a reasonable amount of nicotine, vaping satisfaction will increase and more trial and even more repeat purchasing will be achieved by smokers in the vapor category.”

Beyond nicotine delivery, vapor products need to get simpler, not more complicated, for the smoker set, according to Cynthia Cabrera, executive director of the Smoke-Free Alternatives Trade Association.

“I think the vapor product that will be adopted en masse hasn’t been introduced yet because the number of vapers we have now, while in the millions, is still a tiny fraction of smokers,” she told CSNews. “So if you look at the demographics of smokers, we have some products that are super technologically advanced with variable volts, etc. — this is too much for most smokers, they want products that are simple to use. They don’t want to have to refer to an instruction manual to be able to smoke, or in this case, vape.”

Cabrera sees the improvements of late being adopted by the “fringe,” as she calls it. This group consists of the early adopters, the true vapers. But for the smoker set, the mainstream market in this case, she said “when the technology provides a longer battery life in a safer product that’s easy to use and delivers the experience/satisfaction of a cigarette, that’s when the industry will really be on to something.”

With convenience and a largely untapped smoker base on their side, c-stores are said to have a first-row ticket to capture more vapor business, once the technology does advance.

“There’s a huge opportunity in this category involving tobacco smokers switching to vapor, and the advantage there goes to c-stores,” said Herzog. “These set-in-their-ways consumers buy a pack of smokes when they fill up with gas; 65–75 percent of cigarette volume is sold in c-stores, so I imagine the channel will play an important role as this broad category continues to evolve.”

In order for all this advancement to take place, though, the government will have to be onboard to allow it. The industry is still waiting for a federal regulatory framework.

“I really do believe in the next one or two years, there will be a product good enough to convert pack-a-day smokers,” said Modi. “The question is: Will regulations allow it to come to market?”

“There has been tremendous trial of vapor across cigarette smokers and the conversion has not been as high as we would like to see, yet there is continued use. What that would say to us is that people aren’t finding the complete satisfaction, either from a convenience or from a satisfaction perspective in the vapor space as of today.”
— Susan Cameron, Reynolds American Inc.

“When the technology provides a I longer battery life in a safer product that’s easy to use and delivers the experience/satisfaction of a cigarette, that’s when the industry will really be on to something.”
— Cynthia Cabrera, Smoke-Free Alternatives Trade Association