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TOBACCO BUSINESS
NOVEMBER/DECEMBER 2013
cigarette tax revenues should enough of their smoking residents
transition to e-cigarettes. As a result, retailers and e-cigarette
manufacturers may eventually face the same Byzantine tax
situation that now characterizes traditional cigarettes, where tax
rates can differ widely between states and even within them.
“The concern is that if you have a lot of state and cities
doing their own thing, it creates more confusion and less
standardization,” says Hong.
In the absence of guidance on what to expect from regulatory
and taxation standpoints, both retailers and manufacturers
are pushing forward. With all three of the major tobacco
companies having entered the fray, along with dozens of smaller
companies, the battle for market share—and shelf space—is
clearly underway. C-store retailers being hit with an onslaught
of options are feeling their way through introducing and building
the category.
Many of the c-store retailers
TB
spoke with at the NACS expo
reported carrying between three and seven e-cigarette brands, a
considerable increase from the one to two brands they carried a
fewyears ago. Still, reviews aremixed. Whilemany report strong
consumer interest and sales growth in the category, others say
reception has been lukewarm.
“We carry three brands, which we brought in partly because
our cigarette taxes went up by $1,” says Dave Murdock, who
owns a chain of Honey Farm c-stores in Massachusetts. “But
they haven’t done that well for us. I don’t think our customers
know what to make of them…and it seems like there’s a good
chance the FDA will ban them.”
“One of the good things that will happen is that over time these
products will find a home in stores,” says Batt, who notes that
retailers have struggled to decide whether e-cigarettes should
be merchandised with other tobacco products or separately.
“Having the majors coming in and declaring where they
[e-cigarettes] will be gives some clarity to that. We’ve found that
a lot of retailers have decided to make a category statement by
placing several brand offerings together [in their own section]. I
think that is the right move.”
To concerns that the Big Three will quickly dominate the
category and subsume competitors, Hong demurs and offers
as a parallel the evolution of the energy drink category over the
last decade. “Red Bull really built the category and then Monster
came in and upsized it,” she says. “There was concern that Coke
and Pepsi would enter and take share away and bring the margin
structure down. But that didn’t really happen. They spent a lot
of money on advertising and got up to four to five share points,
but then those brands kind of decelerated. The Big Three do
have distribution partners and resources dealing with regulatory
bodies that will play to their advantage, but their track record at
being successful in niche categories has not been great.”
Ultimately, however, the industry must also focus on the
fundamentals. “Conversion and repeat rates are not as high
as they should be,” notes Hong, who points out that while
regulation, taxation and competition will all impact the category,
e-cigarettesmustultimatelywintheheartsofconsumerstorealize
their potential. “To be a meaningful category going forward, you
have to start with the product quality issues, with things like the
sensory experience, the flavor and the battery life—getting that
quality where it needs to be and getting it consistent,” she notes.
“That’s what will continue to bring consumers in and determine
the category’s future.”
TB
C-STORE CORNER
e-cig Brands’ MarkeT share
(c-sTores)
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
blu
nJoY
logic
others
nicotek Metro 21st c/s
Fin
Mistic
40.6%
25.9%
16.5%
6.6%
3.4%
4.8%
1.9% 0.4%
Market share figures are shifting constantly
as brands sign deals, but blu and NJOY
remain leaders.
