E-Tobacco Shows No Signs of Slowing

Although the electronic cigarette category in the U.S. is barely five years old, a dizzying number of brands are vying for the attention of retailers—and more are entering the fray just about every day.

By Marilyn Odesser-Torpey, Associate Editor

In a report released in May, UBS Investment Research likened the chaotic e-cigarette category to the e-commerce boom in the late 1990s. While the burgeoning category offers virtually unlimited opportunity for even the smallest brands to establish a foothold, only a few of the strongest, most solid ones will survive the shakeout that is certain to come.

You really can’t blame any manufacturer, however small, for trying to get in on the ground floor of an industry that shows such promising potential. According to the UBS report, the e-cigarette category has been growing by triple digits, reaching an estimated $250 million during 2011. That number is expected to double by the end of 2012 and the Tobacco Vapor Electronic Cigarette Association (TVECA) expects the category to quadruple by mid 2014.

Of the more than 100 individual brands currently available in the marketplace, most are owned by small companies that import their products from China and operate direct-to-the-consumer e-commerce sites.

However, a growing number of manufacturers are beginning to focus on the brick and mortar marketplace, particularly convenience stores, which are regarded by many retailers and wholesalers as the number one sales channel for e-cigarettes, according to a report from Wells Fargo Securities.

While extremely low-priced products may promise higher profits, industry experts agree that retailers should be aware of fly-by-night brands that cannot deliver, either on quality or supply consistency. First and foremost, they advise retailers to be skeptical of superlatives.

“Every brand claims to be number one in terms of being the first, best and/or largest,” said Lou Maiellano, president of Sevierville, Tenn.-based TAZ Marketing & Consulting Group, which specializes in providing solutions for the tobacco industry. “If I’m the retailer, I’m doing some research to find out the facts about the financial stability of each company, how it manufactures its products and how much support it is willing and able to give me in terms of distribution reliability, product back-up, external marketing and in-store training and merchandising.”

Finding Distribution and Support

The Wells Fargo report noted that blu and NJOY appear to be “emerging as early market leaders.” Retailers told Wells Fargo that blu’s purchase by Lorillard, with its extensive sales force and legal experience, has given the brand (and the category overall) “credibility” and “legitimacy.”

Vapor Corp.’s Krave brand has emerged as another category leader. Vapor Corp. now has a full line of e-tobacco brands including Smoke 51, Green Puffer, VaporX and EZ-Smoker.

NJOY has the distribution might of McLane behind it. And both are focused on “consumer-centric” branding/packaging and marketing, a particular necessity when even the basic e-cigarette technology is an enigma to may Americans. Other brands like Crown 7 and V2 are also gaining notoriety. Even propriety brands are starting to emerge, such as Smoker Friendly’s line of deluxe, express and disposable e-cigarettes.

Retailers can also look to their distributors for recommendations on brands to carry.

“You want to make sure to choose products that go through mainstream distribution or servicing companies that carry only brands that meet their quality specifications,” Maiellano said. “No matter how attractive the price, you don’t want to take the chance of getting a possible short-term product off the back of just anybody’s truck.”

When the United Dairy Farmers (UDF) convenience store chain was shopping for an e-cig brand to feature, management was particularly impressed with NJOY’s strong track record with retailers, as well as its marketing programs, said Jay Scherer, category manager for UDF, which operates nearly 200 stores throughout Ohio, Kentucky and Indiana.

“I found out that the brand is well established and aligned with good retail chains across the country,” Scherer said.  (According to NJOY’s Website, it is available in over 10,000 retail locations nationwide, including 7-Eleven, Hess, Stripes, Sunoco A-Plus and Chevron ExtraMile c-stores.)

In addition to attractive packaging and reasonable price points, Scherer said he felt that NJOY provided marketing support in the form of educational pamphlets to help explain the products to customers. “Our stores distribute so many that they are constantly yelling at us to send them more,” he added.

The manufacturer’s Website also allows consumers to easily locate their nearest retailers by entering city and state or zip code.

Carry Multiple Brands

Whatever brands might be the current leaders of the pack, Maiellano recommended that retailers take a multi-vendor approach, carrying products from at least three or four to ensure consistent availability, appeal to different vapor juice flavor profile preferences and allow for a variety of price points.

Collett Enterprises’ 22 tobacco and convenience stores in Indiana, carry up to four brands, including its current biggest seller, Smoker Friendly, said the chain’s general manager, Brent Fleming. Before becoming an authorized dealer, Collett Enterprises explored the supply and support capabilities of Smoker Friendly and spoke with other retailers, Fleming said.

The company also tested the products in a few of its stores before rolling it out to the rest of the chain.

Product quality testing is another key to determining which brands are keepers and which should never be allowed to take up shelf space, according to the experts. Maiellano pointed out that recently a manufacturer sent him 12 e-cigarettes for his review, and four didn’t work.

What to Look For

Thomas Kiklas, co-founder and CEO of TVECA, recommended that retailers spend at least a week putting any e-cigarette product through its paces to accurately measure its mettle. The unit should consistently fire up without fail and live up to its performance promises, including delivering the expected number of battery hours and number of puffs per charge.

“For us, dependability is more important than price,” Fleming agreed.

The quality of the juice is another important part of the equation. On its Website, V-2 E-Cigs offers consumers a free batch safety test report for its liquids. The user types in the batch number listed on any of the company’s packages and the test results are available in PDF format.

Some brands are saying or at least insinuating that they are better because they are “Made in America,” but Kiklas thinks this statement may be misleading.

“The technology was developed in China and that is where the majority of e-cigarettes are made,” he explained.  “As for the inference that a product not made in America is questionable or of low quality, that’s simply not true.”

Maiellano concurred with Kiklas. He emphasized that, like iPods and cell phones, there are many high quality e-cigarettes made in China. Maiellano went on to say that the statement “Made in America” itself might be somewhat misleading.

Retailers should specifically ask what this means, he said.  It could simply mean that the unit is assembled in the U.S. or that the juices are manufactured here.

For Smoker Friendly, “Made in America” means that all of its unit components and vapor liquids are produced in this country, said Curtis Farkas, director of national sales for the Boulder, Colo.-based company that was launched about three years ago by the long-time owners of more than 20 Gasamat c-stores in the Rocky Mountain region.

Farkas said he believed that, as of the writing of this article, Smoker Friendly was the only brand that could legitimately make this claim.

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