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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
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