Though there were positive developments in the e-cigarette segment, the biggest development in 2015 was the further strengthening of Vuse by R.J. Reynolds Vapor, a wholly-owned subsidiary of Reynolds American.
Data compiled by Wells Fargo Securities LLC indicated the Vuse brand firmly holds onto the No. 1 spot with 38.5% of the dollar shares as of late January. Imperial’s blu, one of the first e-cigarettes to gain popularity in the U.S. when the technology was introduced, maintains second place, but with only one-fifth of the dollar shares. Next is Logic with 14.6% of dollar share.
Perhaps the most surprising move last year was the positive reaction to the new MarkTen XL, which posted a 3.7% share in December alone. The successful rollout of MarkTen helped garner Altria Group the fourth highest dollar share with 7.6%. Of course, regional preferences come into play.
“In the Northeast, Logic is typically No.1. In our stores, it’s the best-selling e-cigarette,” observed Anna Bettencourt, category specialist for VERC Enterprises, which has 24 stores in Massachusetts and southern New Hampshire. “That said, I think we’ll continue to see Logic, blu and Vuse be the big players.”
Though e-cigarettes have lost their earlier luster, with users having matured to vaping, or switched back to regular cigarettes because of a healthy U.S. economy, e-cigs still generate high gross margins for c-stores. According to the National Association of Convenience Stores, the average monthly gross margin of e-cigs was 33.3% in 2014.
“While sales of cig-alikes continue to remain flat, the current growth of the vapor category comes from vapors, tanks and mods. These open systems offer consumers more choices in terms of flavors and vaping experiences,” said Cynthia Cabrera, president of Smoke-Free Alternatives Trade Association (SFATA).
As the popularity of vaping consumes more of the non-combustible tobacco market, convenience store operators become more reticent toward devoting more space to e-cigarettes.
“A lot of companies are no longer guaranteeing their products like they used to, so retailers are hesitant to jump into the category,” said Bettencourt.
Strong e-cig price points have spurred healthy profit margins.
“Prices of vapor products remain competitive and significantly less than tobacco cigarettes, offering a cost-effective solution to adult smokers looking for an alternative,” Cabrera said. “However, this dynamic could shift if a number of regressive state tax proposals, which equate vapor products with combusted cigarettes, go into effect.”
Last year, three states taxed vaping and e-cigarettes purchases, but at least 20 more, including the District of Columbia, proposed new or additional taxes. While many bills stalled or failed, Kansas passed a law issuing a 20-cent tax per milliliter of nicotine that will take effect July 1. Also, the Vermont governor last year signed a bill placing a 46% tax on e-cigarettes products bought for resale by stores.
Of course, the federal deeming regulations on whether e-cigarettes should be classified and taxed as tobacco products, which are still pending as of this printing, could affect retail costs, too.
Innovation is needed for the segment to evolve to the degree the market experienced a few years ago, Bettencourt said.
“You can’t always keep doing the same old thing. Sometimes little things like a packaging change or a new feature can make a big difference,” she explained.
Stay tuned to Convenience Store Decisions‘ March issue, where we delve into 38 in-store categories to identify emerging trends and garner retailer analysis to forecast what operators can expect for 2016 and beyond.