E-Cig Retailers Watching RRPs

Six months after the official enactment of the U.S. Food and Drug Administration (FDA) deeming regulations that classify e-cigarettes as tobacco products, the retail space now appears to be less unpredictable.

Sales figures from all retail channels show the segment is regaining positive footing. Nielsen, as reported by Wells Fargo Securities, determined dollar sales for e-cigarettes and vaping products climbed 24.6% for the four weeks ending Jan, 28, 2017. Just in convenience stores, sales of electronic smoking devices increased 8.4% in dollar sales, according to Information Resources Inc. (IRI) Convenience All Scan data for the 52 weeks ending Dec. 25, 2016.
Another development is an upward trend on pricing.

“Rechargeable e-cigarettes [had] witnessed the sharpest decline with leading brands, including MarkTen, Greensmoke, and Logic, among others, cutting prices by over 35% in the past year. Tank and mod prices [had] fallen at a relatively moderate rate of 10-20%,” said Shazlie Khan, an analyst with BIS Research.

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However, Nielsen data indicates pricing in all channels for e-cigarettes and vaping rose by 10.7% for the four weeks this past January.

What hasn’t changed is how segment revenue is divvied up amongst the different product offerings. Throughout 2016, disposable e-cigarettes represented at least one-third of the revenue share, followed by rechargeable e-cigarettes, with market share ranging from 15-23%.

In terms of brands, there’s been little movement.

“The major proportion, more than 70%, of the rechargeable and disposable e-cigarettes market has been concentrated in the hands of the premium brands owned by Big Tobacco for the past three years, and continues to be so,” said Khan.

VUSE still leads the market with nearly 38% of dollar share, which is more than double the 16% share held by blu. MarkTenXL dropped to 13% of dollar share in the same period.

Due to the prolonged application process for new products to obtain FDA approval before they can be released on the retail level, many analysts expressed concerns that the federal regulations would stifle innovation.

“The future [of the category] hangs on the FDA. If the FDA changes one thing [such as the predicate date of Feb.15, 2007], or doesn’t change anything, that can affect the business monumentally,” stated Anna Bettencourt, category specialist for VERC Enterprises, which has 25 conveniences stores in Massachusetts and New Hampshire.

However, there’s a buzz growing around the potential market response to reduced-risk products (RRPs).

“Tobacco companies are now directing focus toward next-generation heated tobacco (heat-not-burn) products,” said Khan. “Heat-not-burn products are expected to be widely available in the U.S. and Europe by 2018 and bring in revenues worth over $1 billion by 2020.”

“Japan Tobacco International’s Poom TECH and British American Tobacco’s Glo iFuse are other tobacco heating devices that are being tested in markets of Japan and Europe,” said Khan.

Closer to home, Philip Morris International last December submitted a modified risk tobacco product (MRTP) for iQOS, the new heat-not-burn tobacco system from Phillip Morris. The manufacturer anticipates releasing the product to market before the end of 2017. It’s reported that the manufacturer’s MRTP was two-million pages.

“I think iQOS will be big, but again, it depends on the FDA and how it rules on things,” said Bettencourt.

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