Vapor Category Faces a Public Perception Problem

NEW YORK — Many in the industry remain optimistic about vapor products, but a new retailer survey indicates the category may need a little push.

Wells Fargo Securities' latest Tobacco Talk survey highlighted a few "calls to action" for the vapor category. Tobacco retailer and wholesaler contacts representing about 20,000 U.S. convenience stores participated in the research.

Specifically, the survey respondents said the Food and Drug Administration must take leadership and act soon to improve consumers' perception of the relative risks of vapor and uncertainty surrounding the category. Also, the vapor industry must align, particularly to push for modified risk claims so that public perception doesn't deteriorate further.

In addition, they believe vape shops need to be regulated more closely as they are "playing by their own set of rules," potentially harming the industry's reputation.

"We believe it's imperative these factors are addressed promptly; if not, we're concerned that vapor category growth could continue to moderate," said Bonnie Herzog, managing director of beverage, tobacco and convenience store research at Wells Fargo Securities.

However, she still views the vapor category as having potential.

"We remain bullish long term and still believe consumption of vapor and other non-combustibles (such as heat-not-burn) could surpass consumption of combustible cigs in the next decade (by 2023)," she explained. "We continue to believe that technological innovation is crucial and that Big Tobacco will be pivotal in shaping the non-combustible nicotine industry."

Even with its 17-percent growth, the vapor category has not led to a decrease of cigarette volume in convenience stores, according to Wells Fargo Securities.

"This has been very perplexing to us, but we believe it could be due to high prevalence of dual use; and vapers consuming more," Herzog said.

Other key takeaways from the latest Tobacco Talk survey include: 

• Vapor category growth in c-stores remains robust (17 percent in the fourth quarter of 2014), but decelerating relative to the 21-percent growth in the third quarter — which was likely driven by continued heavy promotions on both VUSE and MarkTen;
• Vapor continues to displace about 4 percent of combustible cig volume;
• Repeat vapor purchases accelerated to 60 percent in the fourth quarter, up from 57 percent in the previous quarter;
• Electronic cigarette subcategory growth continues to decelerate. Wells Fargo Securities' contacts estimate about 5-percent growth in the fourth quarter, down from 7 percent in the third quarter and 19 percent in the fourth quarter of 2013;
• blu continues to cede share to VUSE, Logic and MarkTen. This is expected to continue given heightened activity — particularly on VUSE and MarkTen; and
• Retailer contacts are increasingly disenchanted with NJOY, noting issues with product returns and the company generally overpromising and under-delivering.

Moving forward with innovation in vapor products, "retailers seem somewhat underwhelmed by the larger devices that are meant to 'bridge the gap' between 'traditional' e-cigs and VTMs — such as those from NJOY, Logic (Pro), blu (+) and Mistic," Herzog said.

"The contacts feel that about 75 percent of the sales of these products will cannibalize existing sales rather than generate incremental sales. A few retailers noted the higher price points could discourage consumers," she said.

In fact, one retailer commented, "At a time where retail prices are falling on traditional e-cigs, the price point on advanced systems will discourage sales." However, others noted that the technology improvements will benefit the category and are necessary. 

"Bottom line, we remain cautiously optimistic by new e-cig/vapor technological innovation," Herzog said.