E-cigs: The E numbers stack up

As conventional tobacco cigarettes prepare to go dark in the c-store sector, the booming electronic cigarette (e-cig) industry is enjoying its time in the sun.

And sales are already hot. Figures released by health charity ASH reveal that e-cig usage among adults in Britain has tripled over the past two years from an estimated 700,000 users in 2012 to 2.1m in 2014, with just under 20% of current or ex-tobacco smokers now using e-cigs on a regular basis.

Looking to the future, some industry analysts estimate that up to 40% of smokers could switch to non-combustible products in the coming years, resulting in a multi-million pound industry that could not only deliver meaningful profits for retailers, but also health benefits for adults who switch from smoking to vaping.

Despite many brands opting to market their products as ‘lifestyle choices’ rather than smoking cessation aids, it is clear that smokers and ex-smokers are using e-cigs as alternatives to tobacco as they seek to quit or cut down, with many former smokers now choosing to ‘vape’ full time.

According to Mintel’s recent Attitudes to E-cigarettes report, 53% of smokers agreed that e-cigs were a “good way” to quit smoking. This is supported by recent findings in a YouGov survey commissioned by ASH which found that nearly two-thirds of e-cig users are smokers and one-third are ex-smokers. The YouGov survey of 12,269 people carried out in March 2014 also highlighted the dramatic rise in usage that has occurred in the past four years. In 2010, only 8.2% of current or ex-smokers had ever tried e-cigs, but by 2014 this figure had risen to 51.7%.

The booming popularity of e-cigs and their use as smoking cessation aids has had an impact on the smoking cessation market, which up until 2012 was growing at more than 6% year on year. However, according to Mintel’s senior personal care analyst Roshida Khanom, it recorded only “modest growth” of 1.7% in 2013, “hampered by the booming sales of e-cigs, which increased in value by almost 340% between 2012 and 2013”.

Heightened consumer understanding of the category has also led to a dramatic and rapid shift in the market and the range of different products now on offer.

Disposable products

While most early models resembled cigarettes in shape, many more seasoned e-cig users or vapers are now moving away from ‘cigalikes’ and into the growing ‘personal vaporizers’ (PVs) market, where the vast variety of different liquids, clearomisers and tanks offer almost limitless possibilities for personalisation.

Once comfortable with the category many vapers are choosing to move on from disposable e-cigs, which can be discarded when their battery life and liquid has run out, to products with rechargeable batteries and various options for topping up their ‘juice’.

However, the disposable market still offers an array of key advantages for vapers and should certainly not be ignored by convenience stores - in fact, for those near transport hubs and busy locations they can still account for a sizeable share of sales.

The advantages of disposables are clear for those new to the category; they allow ‘virgin vapers’ a cheap and easy way to first experience the category. And with no liquids to buy, batteries to charge, or tanks to refill, disposables are arguably the most convenient vaping format - ideal for vaping on the go and when travelling.

Then there’s price. Long-term vaping is cheaper with a rechargeable model. However, in the short term, the financial outlay for a single disposable unit tends to be much less.

Rechargeable products

A rechargeable e-cig gets its name from the fact that the user recharges the batteries. However, replacement cartridges, cartomisers, tanks, or clearomisers are purchased on a regular basis.

There are two primary types of rechargeable to consider stocking:

Cig-a-likes: devices intended to more closely resemble traditional tobacco cigarettes, at least in terms of their shape and size. They usually utilise separate cartomisers (an atomiser and the e-liquid both inside a cartridge). Examples of these include NJOY’s Recharge Kits and Flavour Chambers and Nicolites Rechargeable Starter Kits and Cartomisers and Gamucci’s USB Kit.

Personal Vaporisers (PVs): The modern vaporiser is larger than a conventional cigarette by design. These products will also typically use larger, longer-lasting batteries along with a tank or clearomiser - a combination of liquid-containing tank with built-in atomiser that allows for fewer refills, or for self-re-filling, and a better, more powerful vaping experience. Examples of these include Vapestick’s refillable Clearomiser.

The reasons vapers go for rechargeables are varied, but one of the main influences is cost. Rechargeable products cost less than disposables in the long run. According to Vapestick, a typical customer can save as much as 70% on the cost of conventional tobacco using a rechargeable model. The savings with disposables is closer to 30%.

Rechargeables also offer vapers much greater variety in terms of colour, style, flavour and strength. The rechargeable market is now gaining much greater traction than disposables, prompting most of the bigger manufacturers to put more resources into developing innovative new rechargeable products.

The introduction of large refillable tanks and atomisers has also boosted flexibility and power. In addition, the larger design of these models allows for longer-lasting batteries that provide a higher voltage for greater vapour production.

According to ASH, 47% of rechargeable e-cig users buy products with pre-filled cartridges, while 41% use rechargeable devices with separate tanks that can be filled with e-liquids.

The evolving market means that most convenience store retailers are now selling a wide range of different brands and formats.

John Dunne, head of sales at Gamucci, explains: “Independents are increasingly recognising that they must take a category approach to e-cigs in order to really benefit from this rapidly growing market. There is now a broad range of brands available, and where convenience stores are traditionally offered one or two brands, they are starting to catch up with the larger retailers by offering somewhere between three and five brands.”

Take Londis retailer Hiral Patel, for example. At his small but busy store in Claygate, Surrey, Hiral stocks four different disposable e-cig brands - Gamucci, Vapestick, Vype and T-Fumo - plus a range of pre-filled cartridge products such as E-Lites and Blu e-cigs, as well as a range of vaping kits and flavoured e-liquids.

“E-Lites just fly off the shelves,” says Hiral. “To be honest, I was a bit reluctant to stock E-Lites at first, but then Londis sent me a box of stock worth £180 to try out. They only had one-month shelf life on them so I was a bit worried that they wouldn’t sell through in time, but I was wrong because in 10 days the whole box had gone and I now order them regularly.

“Vaping kits and e-liquids are also becoming increasingly popular. My top seller is a company called Jenson, which produces smart glass clearomisers with batteries and a wide range of e-liquids. This section of the market was quite specialist at first, but it’s now become much more mainstream and I have many regular buyers. The biggest seller is the tobacco-flavoured e-liquid with 12ml of nicotine. However, I also sell a number of different fruit-flavoured e-liquids with no nicotine at all.”

Flavours

From Liberty Flights’ Summer Rain to VIP’s Parma Violet, the growing e-liquids market offers up a jaw-dropping range of flavours for vapers to choose from.

However, despite the rainbow of options, retailers and manufacturers broadly agree that tobacco-flavoured e-liquids account for the lion’s share of sales - with menthol coming in second, Gamucci’s Dunne adds.

The company, which has been at the forefront of ‘cigalike’ product development in the UK, is planning to launch its own e-liquid range “within weeks”.

Tobacco flavoured e-liquids also account for just under a quarter of VIP’s e-liquid flavours, while Republic Technologies has ensured that three of its six new OCB-branded e-liquids are tobacco flavoured, including original, American tobacco and Oriental tobacco. The brand also comes in menthol as well as coffee and red fruits in nicotine-free options.

Merchandising

Growing ranges and sales are prompting retailers to think much harder about merchandising, with many now looking to introduce dedicated units next to and, in some instances, in the place of tobacco cigarettes, which will of course be subject to a display ban on April 6 next year.

Hiral is planning on introducing a dedicated e-cig unit next to his tobacco gantry, as is Raaj Chandarana of Tara’s News & Brindley Avenue Post Office, High Wycombe. “The tobacco display ban presents a huge opportunity for e-cigs. When my gantry goes dark I plan to make even more of my e-cig range and will be introducing new dedicated shelving for them where sundries used to go,” Raaj says.

For now, Dunne at Gamucci recommends selling e-cigs “in branded fixtures alongside traditional tobacco products”.

“They also sell well in the health and beauty section. Some independent convenience retailers have even replaced some of their traditional tobacco product SKUs with electronic cigarettes,” he adds.

John Catania, managing director of Republic Technologies (UK) which has just extended its OCB rolling papers brand into the e-liquids market, advocates the use of CDUs for tapping into the ‘impulse’ aspect of the category.

Its new range of OCB e-liquids will be backed by a comprehensive range of POS including display stands, posters and window stickers.

And while improved signposting and merchandising of the category will undoubtedly help to drive sales, communication will also play a key role. It’s one area that Raaj is planning on focusing his energies in the months ahead.

“My plan is to become the ‘go to place’ for people’s e-cig needs and queries and as such I am working closely with the Electronic Cigarette Industry Trade Association and Vapestick to improve my knowledge and understanding of the industry and to ensure that my range reflects changing consumer needs,” he says.

“In my opinion the next six months represent a significant opportunity to drive sales, starting this month with the government’s Stoptober campaign which seeks to motivate smokers to quit tobacco cigarettes.

“January also presents a huge opportunity as that’s when so many tobacco smokers attempt to quit or cut down, and the third huge opportunity is the tobacco display ban on April 6,” he adds.

The e-cig market is expected to continue growing in 2015, although perhaps at a slightly slower place thanks to the emergence of competitor ‘heat not burn’ (HNB) tobacco products and alternative nicotine products such as Nicoventures’ new Voke, which has just been granted a medicines licence.

Voke involves no heat or combustion, and so produces no ash or smoke. It also requires no battery or other energy source as it is activated simply by the user inhaling.

The market is, however, expected to see further consolidation, with larger companies continuing to snap up smaller competitor organisations. Tobacco manufacturers’ influence on the market also remains to be seen. JTI bought E-Lites in June, while BAT owns the company behind Vype. Imperial Tobacco’s subsidiary Fontem Ventures has developed Puritane - the line of e-cigs sold at Boots the Chemist, and Philip Morris has snapped up Nicocigs which produces the Nicolites brand.

While many independent retailers are excited about the enhancements to product offers that could be brought about by the big boys’ influence on the market, others are fearful of the potential impacts on e-cig margins, currently about 40%.

Hiral says: “At the moment we can get margins of about 40% which is huge compared to the peanuts we make on cigarettes. I have a genuine fear that the tobacco manufacturers will try to do a similar thing with their own e-cig brands, which could lead to falling margins across the board,” he says.