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product introductions. Juul is reportedly doing

well where it’s available. Blu is “not keeping

up,” and Fin is having continuing struggles,

according to the securities company.

The revenue mix of e-cigs vs.

VTMs/personal vaporizers shifts

moderately toward rechargeables

and away from VTMs.

Wells Fargo puts this number at around 33 per-

cent, up from 27 percent in the first quarter of

2017 and up from 22 percent in the fourth quar-

ter of 2016. Meanwhile, sales of VTMs (or per-

sonal systems) have shrunk considerably, from 15

percent of sales in the fourth quarter of 2016 to

1 percent in the second quarter of 2017.

Retailers remain concerned

most about vapor manufacturer

return policies.

Despite that the vapor players are shrinking and

streamlining their businesses, the industry is

still at the beginning stage of ensuring retailers

don’t get burned. Thus, retailers told Wells Far-

go they are most concerned about vapor manu-

facturers not taking back returns. More than 68

percent of those surveyed said they were “very

concerned” or “concerned” about this vapor

business issue—the top concern of the survey.

The next biggest concern is the increased

taxation imposed on the category—more than

57 percent named this in the “very concerned”

or “concerned” columns.

In the “somewhat concerned” pile, more than

31 percent of survey respondents named the

impact of the FDA’s deeming regulations, so it

is perhaps not as immediately pressing a business

issue as previously thought. Tied to this in the

“not concerned” category, more than 40 percent

are not worried about e-cigarette manufacturers

going out of business due to the deeming regu-

lations. Nearly 40 percent are also not worried

about traffic being lost to vape shops.

Interestingly, some retailers view the deem-

ing regulations as a benefit to business, believ-

ing it will propel consolidation and strict retail

guidelines that may result in a higher percent-

age of customers coming back to the category.

Retailers are most excited about the

prospect of the reduced-risk industry.

Altria’s iQOS product was mentioned by

name by several respondents as an exciting

introduction. One mentioned it as a positive

for the industry but also expressed concern for

non-Big-Tobacco innovation.

“I like to hear that RAI and Altria are work-

ing on new innovations,” he said. “My con-

cern is that you hear little from the smaller,

alternative players much anymore. We need

them to keep the big dogs honest.”

Wells Fargo reported that retailers are

“broadly optimistic about RRPs (reduced-

risk products) to the tune of about 70 per-

cent in favor, with a third planning to allo-

cate additional shelf space to Altria for iQOS

when it’s commercially available, which the

company believes will be as early as late this

year or early next year.

TB

2016

2017

Q1 -3.9%

Q3 3.2%

Q1 1.0%

Q4 1.0%

Q2 4.1%

Q2 -0.6%

Source: Wells Fargo Securities, LLC

[ T O B A C C O B U S I N E S S . C O M ]

TOBACCO BUSINESS

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