Vape Shops Emerge as the 'Starbucks of E-Vapor'

NEW YORK -- A recent retailer survey found that advanced vapor products pose a threat not only to combustible cigarettes, but also electronic cigarettes. As demand grows for these products, so do retail outlets dedicated to this growing tobacco segment.

Wells Fargo Securities LLC recently visited Henley Vaporium in New York City. According to Bonnie Herzog, managing director of beverage, tobacco and convenience store research, it was apparent that users of e-vapor products have their "go-to" juice, which could lead to potential brand loyalty. Vapers are also experimenting with flavors and brands, and customizing their products.

"We were very impressed with Henley's innovative, differentiated format, and the space and brand its owners have created to cater to the vaping community," Herzog said. "Vape shops such as Henley are the 'Starbucks of e-vapor' in our view, offering a 'third-place' experience where vapers can hang out, work, socialize and vape."

According to Wells Fargo Securities' analysis, e-cigarettes are losing share to vapors/tanks/mods (VTMs) in the $2.2-billion e-vapor market. At the same time, vape shops could number between 5,000 and 10,000 outlets across the United States.

"While we believe the combined profit pool of combustible cigarettes and e-vapor will continue to grow, we increasingly question which company(ies) will capture the bulk of the profits," said Herzog. "We question how the [big three tobacco companies] will or could get involved, especially given [that] part of the vaping culture is a disdain for big tobacco and not wanting to be associated with smoking or be considered a smoker."

The open systems associated with VTMs, a platform that allows the vaper to use different brands of e-juice, could also create a wrinkle for the major tobacco companies.

"Unlike the rechargeable e-cigarette razor/blade model, VTMs appear not to be emulating the razor/blade model since any juice can be used with any mod. Hence, therein lies the threat/potential opportunity for the Big Three," Herzog said.