Until recently, e-cigs have been sold through traditional tobacco stores that normally expect a keystone or 100% markup on items other than cigarettes. Though it is hard to determine the number of e-cig users in the U.S., the National Vapers Club estimated that about a million people used e-cigs last year, so it certainly is a growing segment, and the product offers c-stores an excellent alternative to cigarettes with lower taxes and much higher margins.
“In 2010 there were 750,000 units sold and that jumped to 2.5 million sold in 2011, and the market is expected to quadruple by end of 2013 to early to mid of 2014,” said Thomas Kiklas, co-founder of the Tobacco Vapor Electronic Cigarette Association.
Close to 20 million cartridges are sold in the U.S. on a weekly basis and about 10 million disposables weekly, Kiklas said.
Both disposable and rechargeable packages have distinct markets. Disposables tend to sell best in gas stations and convenience stores where people come in and out quickly, while rechargeables are selling strongly in tobacco stores where customers have time to learn about the technology.
“There is still some skepticism on the part of the consumer and the retailer based on whether or not the FDA will get involved to a greater degree,” said Stephen Monaco, director of purchasing for Tedeschi Food Shops in Rockland, Mass.
Last April, the FDA announced its plans to regulate e-cigarettes as tobacco products and will work with the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) to tax and regulate distribution, which means e-cigarette importers must have tobacco importing licenses, and sellers must have tobacco licenses in all 50 states.
States are still figuring out how to deal with e-cigarettes. In Hawaii, for example, the product was up against a proposal that aimed to tax e-cigarettes at 70% of the wholesale price. Luckily for Hawaiian retailers, the bill was not passed.
“We have no problem with the taxing of the product, but you have to tax it at the level of harm that it does, and it’s a less harmful product than a traditional tobacco cigarette,” Kiklas said. “So if you’re going to tax it, tax it at that level, and that level would be not very high.”
Just last month, e-cigarettes made the national news when a device blew up in a Florida man’s mouth, leading some to question the safety of the devices.
“We are waiting for the Florida authorities to come to a determination on what brand and what product the gentleman was using because it’s our understanding that he was using something called a MOD—that’s a modified product where they take batteries and they really juice up a unit to really where it’s no longer an e-cig,” Kiklas said. “We do not recognize MODs as electronic cigarettes.”
Kiklas compared turning an e-cig into a MOD with taking a normal gas lawnmower and adding a turbo charger and nitrous oxide, in other words, an improper, unsafe way to modify a product.
“What some people are doing in the market is they’re modifying e-cigarettes to generate a lot more vapor than they were initially intended for, and we think that’s what the gentleman in Florida was using when he had the anomaly,” Kiklas said.
To keep things in perspective, Kiklas added, out of the more than 2.5 million units sold last year and the billions of e-cigarettes used in the last two years, “there has never been an anomaly like what happened in Florida ever, so let’s wait until authorities learn what actually happened,” he said.
New Product Excitement
Tedeschi has been testing disposable and rechargeable e-cigarette brands at 15 of its 190 stores, and is also testing the refill cartridges.
“I don’t see the hype right now that seems to be prevalent in other parts of the country for e-cigarettes. It doesn’t seem to have reached New England yet, or at least the state of Massachusetts,” Monaco said. “But I believe electronic cigarettes and cigars are here to stay and will become more dominant as the year goes along.”
At Express Convenience Centers in Wisconsin, e-cigarette unit sales are low, but the company sees the sales and margins on electronic tobacco products as worth the investment, said Scott Glaser, merchandising manger and buyer for the 19-store chain.
“We do have a few committed e-cigarette customers, but it’s too soon to tell if customers are trading off from other tobacco categories or if they are capturing an entirely new customer,” Glaser said.
E-cigs are skewing toward the female demographic at 60.5% versus 39.5% of the male demographic, according to ECH Research in conjunction with Opinionnaire.
This could be for several reasons, including that women tend to be early adopters of socially oriented trends, and may be more conscious of cigarette odor on clothes and hair. They are also more frequent Internet shoppers.
Kiklas noted when e-cigs hit the market around 2007 there was some question to whether the product would have legs and whether smokers would accept the alternative.
“People are transitioning from tobacco cigarettes to electronic cigarettes and you can see that trend in the sales figures,” he said. “The outlook looks great for the product and the category.”
Who’s Buying Electronic Tobacco Products?
A June 2011 national study conducted under the supervision of ECH Research of Cincinnati, in conjunction with Opinionnaire, surveyed more than 200 smoker households that use electronic tobacco products and found that 99% of e-cigarette users are either current or past users of multiple forms of tobacco. Approximately 70% of survey respondents said they intended to quit smoking before starting e-cigarettes.
But most importantly for convenience store operators, 49.5% of e-cigarette smokers purchased their first e-cigarette over the Internet. This means retailers not embracing electronic products are missing out on significant sales opportunities.
Other study highlights include:
• 46% of e-cigarette users either smoke or used to smoke cigars.
• 33% of e-cigarette users reside in Southern states.
• 19% of e-cigarette users reside in the eight Northeast states.
• 57% of e-cigarette smokers have used e-cigarettes less than six months.
• 79% of initial e-cigarette purchasers continue to buy and use them.
• 82% of e-cigarette smokers currently continue to smoke regular cigarettes in
addition to e-cigarettes.
• 62% of e-cigarette smokers state they have stopped smoking cigarettes or smoke fewer cigarettes since starting e-cigarettes.
Source: ECH Research/Opinionaire, June 2011
Do E-Cigarettes Help Smokers Quit?
• Electronic cigarettes produced six-month abstinence rates better than those for traditional nicotine replacement products.
• 31% of first-time purchasers of electronic cigarettes surveyed reported having quit smoking
•Of those who quit smoking, 34.3% discontinued the use of electronic
cigarettes, as well.
• 66.8% of respondents reported reducing the number of cigarettes they smoked after using electronic cigarettes.
• 48.8% of respondents reported quitting smoking for a period of time after using electronic cigarettes.
• Among respondents using electronic cigarettes frequently (more than 20 times per day), the six-month smoking abstinence rate was 70%.
Source: American Journal of Preventive Medicine