By John Lofstock, Editor.

Hailed by many as an emerging threat to the tobacco cigarette industry, electronic cigarettes are providing smokers with an alternative to traditional tobacco-based smoking. But these battery-operated devices serve as much more than a nicotine delivery system, they are serving as a shot in the arm for an entire industry.

E-cigarettes are booming and now with major tobacco players Altria and R.J. Reynolds entering the business alongside the established brands, the category is poised to surge even higher.  

In 2012, according to Wells Fargo, e-cigarette sales generated roughly $300 million at retail. But that number is expected to grow exponentially—developing into a $1 billion category as early as 2013 and offering gross margins comparable to traditional cigarettes within a decade. While Wells Fargo’s figures didn’t differentiate between sales of disposable and rechargeable e-cigarettes, one thing is for sure: the opportunity for new sales is boundless.

“It’s a fairly new category, and that’s what I find so exciting,” Bonnie Herzog, a senior market analyst at Wells Fargo, told me during the NATO Show in Las Vegas in April. “I’m making some pretty big predictions. I think it’s possible that consumption of e-cigarettes could surpass that of traditional cigarettes within the next decade.”

In CSD‘s annual tobacco issue, Herzog and a host of other tobacco industry experts weigh in on the future of e-cigarettes and the tobacco category overall. While the FDA pokes its nose around e-cigarettes and threatens a new round of legislation and additional taxation, now is the time to capitalize on the enormous profit potential this category offers.

Focusing on Customers
Since consumer behavior and motivations can vary dramatically, the effectiveness of your c-store marketing programs should differ systematically across each category. These issues are key to any formal category management process where retailers must define the role that each category plays in the overall store portfolio. Effective category management requires that retailers understand where to allocate scarce marketing resources in order to get the biggest bang for the buck.

This is one area in which the convenience store industry has typically excelled. While the industry is a lean and battle-tested group that has learned to survive the onslaught of competition stealing market share both in-store and at the pumps, this prolonged weakened economy has stirred creativity and unique operating solutions like never before. Who knew market volatility would be the edge convenience store owners needed to strike fear into the heart of drugs stores and supermarkets?

For many operators the weakened economy is just another obstacle that they’re forced to overcome. In fact, among many retailers there is a certain degree of optimism that this industry has matured and will be a dominant force across all retail channels as the economic situation brightens.

Focus on improving the customer experience. If you ask someone about a good experience they had at a restaurant, they’ll almost never tell you about how good the food was; they’ll tell you how they were made to feel. Focusing on what feelings you want to convey as a foodservice operator—quality, consistency, image, culture, etc., is just as important as the actual food.

Consider the industry’s top quartile chains. At the NACS State of the Industry Summit in Chicago the talk was about how the divide between top quartile chains and the rest of the industry is widening as these great operators distance themselves from the pack. They have great programs, a great image and great prices, but they also sell entertainment and fun. They have become not just a destination in their customers’ lives. In many cases, they are the destination. That is a powerful statement.
Keep this in mind when planning for the future. The average corporate executive spends 2% of time actively thinking about the future. That is simply not enough.

Force yourself; discipline yourself on figuring out where you want to be in five years. That’s the best way to avoid becoming complacent.