Tobacco Forges an Electronic Transformation

E-cigarettes are a relatively new product, but for convenience stores they are beginning to make a big impact on sales.

By Howard Riell, Associate Editor.

While electronic cigarettes show promise as a growing tobacco subcategory, two issues are threatening its widespread growth.

One is the looming threat of government regulation, which most agree is inevitable, but at least a year or two away. The other involves ongoing research intent on poking holes in e-cigs’ claim that they are a safer alternative to conventional cigarettes.

Cigarettes, Not Devices
Health questions aside, electronic cigarettes are an emerging cigarette alternative for millions of Americans. As such, lawmakers are attempting to define precisely what e-cigarettes are and are not, so they can begin to pile on regulations. A uniform standard has yet to be applied. Some states consider e-cigarettes to be tobacco products while others don’t.

For example, some states tax electronic cigarettes at the other tobacco products (OTP) tax rate, while others have an ad valorem tax, which is a percentage of the wholesale price. So if, on electronic cigarettes, a kit costs $50 and a state’s OTP tax rate is 20%, then the tax is $10.

“I think the biggest news is that the FDA indicated that it is going to be treating electronic or alternative cigarettes as cigarettes rather than delivery devices,” said Lyle Beckwith, senior vice president of government relations for NACS. “The concern was that they going to regulate them as drug-delivery devices.”

In April, FDA announced it would not appeal the recent decision by the U.S. Court of Appeals for the D.C. Circuit in Sottera Inc. vs. FDA, stating that e-cigarettes and other products are not drugs/devices unless they are marketed for therapeutic purposes, but that products “made or derived from tobacco” can be regulated as “tobacco products” under the FD&C Act.

FDA officials noted they are “aware that certain products made or derived from tobacco, such as electronic cigarettes, are not currently subject to pre-market review requirements of the Family Smoking Prevention and Tobacco Control Act. FDA is developing a strategy to regulate this emerging class of devices as tobacco products under the Family Smoking Prevention and Tobacco Control Act.”

Beckwith called FDA’s position a responsible one to take. “A lot of questions remain, though. For instance, are they going to be taxed like cigarettes? Are they going to require warning labels like cigarettes? There is a lot of uncertainty, things we just don’t know yet,” he said.

Finding Traction
Duxbury, Mass.-based Verc Enterprises, which operates 21 stores in the Boston market, rolled electronic tobacco units into its top 10 stores in cigarette sales in late May. Category manager Ed Oliveira said he and his colleagues have been watching this burgeoning product segment closely for the previous 6-8 months.

“Until this point we really haven’t seen traction,” he said. “We’ve done a lot of site visits in the area versus our competitors. The only major competitor we’ve found who actually carries anything is 7-Eleven. We did a lot of legwork in that regard and we remain cautiously optimistic about what this type of product can do for us.”

After studying the product selection, Verc decided to add disposable one-time-use units rather than the reusable, rechargeable variety. The decision makes sense given the relative lack of penetration of the product in the market. “We think people will be more willing to spend $10 or $12 on a disposable unit than they would be to spend $25-$30 on a rechargeable.”

Identifying the customer is another challenge. “For us, the intended e-cigarette user is the smoker who wants to try and quit but who still needs a nicotine hit, or smokers who are limited in the number of places they can smoke,” said Oliveira.

The disposable line for which Verc has opted is the same being carried by local 7-Eleven stores. Verc will merchandise the units with clip strips as part of its OTP sets. Executives had considered placing them on the counter, but FDA legislation and strict Boston health department standards prevent that. A small sign with the price will sit atop the clip strip. Employees will be taught to talk about the units.

Oliveira believes FDA will not get around to piling on additional regulations for at least a year or longer. “Nothing happens quickly with them. I guarantee they’re watching it, though.”

Will e-cigarettes achieve the status that so many retailers are hoping they will? “I think there is a lot of potential, no question,” Oliveira concluded. “But depending on what happens with the FDA, it’s going to take awhile to become a larger part of the business. I think it’s a niche type of product right now.”

E-Cigs as Cigs
NACS’ first and most important recommendation to the c-store industry is to treat e-cigs like regular cigarettes.
“Operators should maintain age verification. All sales rules that pertain to cigarettes will pertain to e-cigarettes,” Beckwith said. “You can’t have them sitting out on the floor for self-service. Just assume that they are to be treated exactly like cigarettes, and wait for more information about taxes and warning labels.”

Training courses like We Card have been keeping up with all the FDA recommendations for approved training programs, so chains have access to information on how to handle the products, Beckwith said.

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