By Howard Riell, Associate Editor
Electronic cigarette sales are soaring and the vapor tank-mods business is growing. But when it comes to e-cigars, convenience store operators may find unlocking their untapped potential a challenge.
While e-cigarettes are sometimes used as a buffer against traditional tobacco products, e-cigars are generally not. Also, cigar smokers tend to smoke less frequently, savoring their taste and feel—none of which applies to electronic models.
That being said, the key to growing this or any other category is sound retailing practices: quality products, prominent placement—alongside either traditional cigars or other vapor products—taking advantage of promotions, knowing one’s customers and educating employees.
“To accurately assess the viability of e-cigars, context is vital, given that a retailer may carry one or a few SKUs at most,” said David Bishop, managing partner of Balvor LLC, a sales and marketing firm based in Barrington, Ill. “If a retailer determines whether to offer them or not based on the aggregate contribution they generally make to the broader Electronic Nicotine Device (END) category, most would probably elect to not carry them, as it is extremely low.”
However, a retailer who looks at the sales per SKU, a measure for the product’s value/productivity, and compares it against disposable e-cigarettes would likely carry or at least reconsider discontinuing them, Bishop concluded. For instance, in a recent Balvor sales analysis of the entire END category, e-cigar SKUs were typically found to drive higher sales than one-third to one-half of the disposable e-cigarettes sold at the same stores.
That’s a telling statistic, according to one industry expert.
“In my mind e-cigars are about as viable as the (combustible) cigar market,” said Gregory Conley, president of the American Vaping Association (AVA) in Medford, N.J., an advocacy group for electronic cigarettes. “The vast majority of cigar users only use one, two, three a month, maybe one a week, and so the cigar market probably will not become even one-tenth as popular as the cigarettes. But I definitely think that cigar smokers know that if they were to smoke two or three cigars a day they would be increasing their risk of tons and tons of different diseases, (so) if they can get their cigar taste without the carcinogens it actually could take off.”
Conley noted that from a practical standpoint, carrying e-cigars may prove easier for a convenience store than carrying regular cigars.
“You have to keep those fresh and in a case. I definitely foresee that five years from now there will be more convenience and grocery stores carrying the cigar model than there will be carrying physical cigars,” Conley said.
Another complication with e-cigars results from the Family Smoking Prevention and Tobacco Control Act and its Feb. 15, 2007 deadline for registering cigarette and smokeless products in order to have them exempted from regulations.
“The same issues apply to the vapor products,” said Bryan Haynes, tobacco practice partner with the law firm Troutman Sanders LLP. “The impacts are a little bit different (than with traditional tobacco products) only in the sense that I think they will be a little bit more difficult to comply with for the e-products.”
The premarket review process for traditional tobacco products involved comparing product to those that were on the market before 2007. “For the vapor products that may be a challenge,” Haynes said, “because of the fact that this is such new technology. In general terms, the premarket requirements could be more difficult for anybody who conducts business in the vapor space.”
While this is nothing that retailers need to comply with, the result will likely be felt at the register.
“What it’s going to lead to is fewer products available, fewer companies that are offering product, and fewer new products,” Haynes said.
NOT ALL ROSY
Convenience store operators have yet to find the spark that will ignite e-cigar sales, but the search goes on.
“We keep them in the e-cigarette case,” said Lori Bull, director of c-store operations for Fabulous Freddy’s Car Wash in Las Vegas. “At first they were with the other cigars. We have not had much success with them.”
In fact, e-cigars are a separate niche in what is already a niche category.
“To be honest, my electronic cigarette category has been very disappointing, so it probably does not interest me,” admitted Ross Marchbanks, vice president of Bear Mountain Travel Stops in Bakersfield, Calif. His stores have stocked e-cigarettes for nearly a year, and despite point-of-sale materials supplied by the manufacturer, they have not gained much traction.
“We have (e-tobacco) next to our cigarettes, and we use a couple of window decals,” Marchbanks said of his marketing efforts. “They have not done as well as I expected.”
Part of the reason may be his clientele. “Truck drivers are pretty old school,” he said. ”They like their Marlboro Reds and their Camel Filters, and I would think maybe I don’t have enough traffic on my car side.”
Along with Marchbanks’ reluctance to expand his vapor offerings with e-cigars is the fact that he has never been pitched about the segment.
“Reps have not come out, and so I have no basis for it. My cigar sales compared to my cigarette sales are miniscule, so if you extrapolate it over to electronic cigars versus electronic cigarettes it would be basically nil,” Marchbanks said of prospective e-cigar sales.
‘GIVE IT A TRY’
Bishop emphasized that it is important for retailers to test different merchandising options to learn what works best. In terms of placement, most are currently merchandising e-cigars with all the other END products.
“However, another option is to integrate within the traditional cigar category and work with the manufacturer to leverage a shelf dangler to call attention to the product,” he said. “For some brands, like Swisher, it would be simply extending the brand block to include this SKU.” The rationale is similar to what Altria and Reynolds are doing with their e-cigarette brands, cutting them into the cigarette set.
When it comes to merchandising, Conley suggested that stores take advantage of existing strengths: where there are strong cigar sales, position the electronic products within the existing set. “If you just carry Black & Milds, then you should put them next to the Logics and blus.”
Conversely, Conley doesn’t see a direct correlation between e-cigarettes and e-cigar sales.
“I’m sure that there are parts of the country where cigars aren’t as popular as in other parts, so you have to look at the demographics and see where people are buying cigars in the U.S. and where they aren’t,” Conley said. “And that may not match up where people are buying cigarettes and e-cigarettes.”
Conley suggested that c-stores that aren’t yet stocking vapor products, begin with open-tank products and liquids. “But if you are already carrying open products and have some extra room on your shelf, definitely give it a try.”
Figuring Out the Future
The long-term viability of electronic smoking devices has been a point of discussion in the industry, and remains so.
“I think the whole ‘e-nicotine delivery system’ category has, at best, a limited future once the initial novelty begins to fade,” said Ryan Mathews, founder and CEO of Black Monk Consulting of Royal Oak, Mich. “E-cigarettes, for example, are already being banned in many of the places where traditional smoking products are taboo. So what’s the advantage in not being able to ‘smoke’ one thing versus another?”
When it comes to the advantages of e-cigars, however, Mathews said he invokes logic when speaking with retailers.
“Between excessive taxation, potential issues surrounding insurance and the continued winnowing away of public spaces where any form of smoking is allowed, nicotine delivery in any form is on its way to being an endangered species somewhere in the next 20-50 years. Cigars have always represented a small, but often profitable sub-category. But movie stars, rappers, politicians and other celebrities aside, many people have never liked the smell of cigar smoke, which is clearly a large part of the cigar experience.”