66
TOBACCO BUSINESS
NOVEMBER/DECEMBER 2013
E-Cigarettes Gain
Ground in C-Stores
Retailers in the convenience channel are ramping up e-cigarette
offerings, report industry observers and insiders.
By Jennifer Gelfand
D
epending on how you look at it, there’s a lot going on
in the e-cigarette market—or a whole lot of nothing
much. Tobacco industry analysts continue to predict
a bright future for the category. In September, Wells Fargo’s
Bonnie Herzog announced with great fanfare that e-cigarette
sales will top $1 billion in 2013, dubbing the figure a momentous
milestone. Meanwhile, Goldman Sachs’ Judy Hong reported that
e-cigs could reach a 15 percent share of total tobacco industry
profit by 2020. But these figures and predictions are not news
to those in the industry, who well understand the category’s
potential.
It’s regulatory news that the industry has been eagerly
anticipating, and, at press time, had yet to receive. The FDA has
delayed making a decision on regulating e-cigarettes not once,
not twice, but three times now, leaving retailers, e-cigarette
manufacturers and industry observers to continue to make their
own guesses about what the regulatory picture will look like and
how it will impact the category’s future.
“There is a demand for flavor,” Andy Batt, VPofmerchandising
for Eby-Brown Company, told attendees at an educational
seminar on the topic at the National Association of Convenience
Stores’ annual trade show. “As a result, right now, you have a lot
of flavors in e-cigarettes and in hookahs. The challenge is how
that will fit in with what a lot of people expect to see, which is
the FDA’s elimination or regulation of flavored e-cigarettes. The
sooner we get clarification on that, the better, so we are not left
with confusion or inventory we are sitting on that is no longer
viable.”
Focus on Flavors
Most close to the topic agree that there is a strong likelihood
that theFDAwill releasesomeguidanceon itsplans fore-cigarette
regulation before year-end, possibly as soon as November, and
that retailers should plan accordingly. “I believe you have to start
with the premise that FDA motivation will be driven by access
to youth consumers,” notes Judy Hong, a tobacco analyst at
Goldman Sachs. “In that context, restrictions or bans on flavored
e-cigarettes, online sales and age will all come into play. At the
same time, there is recognition at the FDA level that there is a
continuum of risk and that is something they need to be mindful
of while looking at regulation of different products across the
tobacco industry. To regulate and tax these products the same
way goes against that continuum of risk notion. I am hopeful
that the FDA will address that youth issue in a way that does not
[stifle] innovation.”
The tax situation is equally murky. Currently, there is no
federal tax on e-cigarettes, and only one state—Minnesota—
taxes them, but most in the industry agree that taxation is likely,
both on the federal and local levels. “At the federal level we have
a proposal for a tax similar to the [per-pack tax on] cigarettes,”
David Bishop told NACS show attendees. “That differs from
what the industry would prefer, which is to pause and make
a determination based on the perceived health benefits those
products will deliver.” Bishop expressed the hope that the
government will take a cautious and considered approach to
taxation, noting that because “taxation is hard to pull back once
they have it at a federal level.”
The sTaTus oF sTaTe
and local e-cigareTTe Taxes
Although many states have considered taxing e-cigarettes,
onlyMinnesota has a tax on e-cigarettes in effect. However, Utah,
Oregon and other state and local governments are currently
considering the idea, likely mindful of the potential loss of
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