In the fast-growing vaping marketplace, c-stores are discovering where they fit.
By Anne Baye Ericksen, Contributing Editor
It doesn’t seem that long ago that vaporizers comprised a little-known product category for convenience stores.
Really, this segment of the non-combustible electronic nicotine devices (ENDs) industry was just revving up.
Today, vapors/tanks/mods (VTMs) have locked onto the lead market position. Not only are vapor items expected to surpass the $2 billion mark this year, but vapor sales could exceed e-cigarette sales by $500 million. Research by Wells Fargo Securities indicates vape sales now outpace other non-combustible smoking devices three to one.
One of the reasons the vaping industry has recorded such impressive dollar figures over the past few years is because it’s grown exponentially, particularly with independent storefronts popping up around the country. In 2013, as reported by BloombergBusinessweek.com, approximately 3,500 vape shops were in operation. A year later, the estimate jumped to 8,500 vape shops nationwide.
“It seems the market continues to grow. Every month, people are in business that hadn’t been in it the month prior,” said Gregory Conley, president of the American Vaping Association.
Additionally, online sales have skyrocketed. In fact, research divides the industry into three distinct business forums: one-third of sales come from vape shops; another third from the Internet; and the remaining 33% covers other retailers, such as c-stores, that have added ENDs to their existing product lines.
Although this portion of vapor sales consists of a conglomeration of different types of retail businesses, it produces substantial revenue—$300 million in 2014, and a projected $400 million this year, per Wells Fargo.
“Folks continue to gravitate to vape shops. It’s almost like a craft beer; customers want certain flavor profiles, body and color,” said Jim DeFilippis, vice president and general manager of Tonawanda, N.Y.-based NOCO Express, which operates 36 stores in upstate New York. “C-stores don’t have the time to invest or the right educational experiences for our associates. My approach is that I don’t want to be a vape shop.”
However, c-stores are accessible locations for vape products.
“It’s two different types of clientele,” said Jon Fleck, merchandising manager for Cenex Zip Trip, the retail outlet division of CHS Inc., headquartered in Inver Grove Heights, Minn. “People buy vaping products from us because they are paying for the convenience.”
Of course, the topic of competition is another issue.
“The fact that devices are at [various] retailers helps,” Conley said. “While vape shops seek to convert pack-a-day [cigarette] buyers into going to vape shops once a week, c-stores want to be more convenient than vape shops.”
The unabated growth of the vapor sector, however, may have started to settle. According to Wells Fargo, the annual growth of vape products in the first quarter of 2015 rose 8.6%, a marked difference from double-digit measurements recorded last year, even though forecasts call for a manufacturing capacity increase of 26% this year.
Analysts suggest the slowdown is less a result of declining interest and more attributable to recent negative publicity.
“I think there may be some effect on the bottom line from the hyped-up, fear-mongering campaigns. In 2010, 80% of the public aware of vaping said they considered it less hazardous than cigarette smoking,” said Conley. “One of the many hopes we have is that the campaigns against vaping are so over the top and vilifying that people in the media and the public look at the campaigns with a suspect eye. It seems the market continues to grow despite the fear and misinformation campaign against vaping products.”
For most convenience stores, VTMs, including open-system vaporizers, tanks, and e-liquids, function as a supplement to traditional tobacco sales rather than a specialty item meant to draw in a new customer demographic.
“It’s been a complementary category for us that has helped keep numbers up,” said Fleck. “I don’t want to say it’s insignificant, though, because anytime you do some sort of add-on, it’s always a positive.”
One of the positives VTMs have contributed is an avenue for repeat purchases, primarily e-liquids.
Whereas vape shops offer customers an artisanal experience experimenting with flavors, c-stores serve more as a refill station, much like they do for combustible and smokeless tobacco products, food items and beverages.
“I have seen some prices decline, but I think that’s part of the attractiveness of open-system vapor products compared with closed systems that go through two cartridges a day,” Conley said. “It’s far more affordable to get e-liquid products. I would think there are two or three times as many consumers in the e-liquid market because of the price differential. And I think prices will continue to go down slightly.”
Despite the notable data, neither Fleck nor DeFilippis has chosen to invest in expansive e-liquid inventories.
“We brought in a limited number of SKUs of e-liquids to begin with. The majority of what we’re selling is the standard stuff, cherry, grape and tobacco,” Fleck said. “But if customers ask for more, we’ll bring in more.”
Earlier this year, Wells Fargo reported that repeat VTM purchases were up 60% for the fourth quarter of 2014, which could account for some of the 60% increase in consumer vapor spending. Another industry report stated e-liquid sales for the 52-week period ending May 2, 2015, VTM purshares increased by 4%.
“You want to say you have every offering, but [the industry] is growing so fast that you can go out of business by tying up inventory,” DeFilippis said. “You can test yourself out of business in this type of environment.”
Of course, manufacturers and c-stores also are anticipating the federal government’s official stance on ENDs, and what, if any, industry shift will occur in response.
“We’ll see how many people will stay past the regulations, but I don’t see a slowdown right now, and I don’t anticipate one in the future,” concluded Conley.
Vape Enthusiasts like Flavor
Flavors have played a crucial role in attracting Americans to vaping. Active smokers admit the varied flavors keep a freshness in this other tobacco segment.
One survey revealed that nearly half of the respondents associated a lack of vaping flavors with increased cravings for cigarettes, according to a recent survey. Forty percent of those polled stated they would be less likely to reduce or quit smoking without the option of vaping flavors. According to the International Journal of Environmental Research and Public Health, former-smokers-turned-vapors use three different flavors per day on average.
E-liquids are by far the fastest growing segment of the electronic nicotine device industry. Per VapeNewsMagazine.com, there are approximately 7,700 flavors available with new ones added every month. And, according to research spearheaded by faculty at the University of California at San Diego, e-liquid manufacturers divide up their products into these trending flavor categories:
• Tobacco: 93.4%
• Menthol: 92.1%
• Fruit: 84.2%
• Dessert/candy: 79.9%
• Alcohol/drinks: 77.5%
• Snacks/meals: 25.7%
So what flavor profiles are most popular with consumers? According to the International Journal article, seven out of 10 users prefer fruit-flavored e-liquids. Next came alcohol/drink flavors at 61%. When informally queried for top-selling flavors, convenience store operators cited tobacco and fruit, with cherry, watermelon and grape leading the way.