The biggest story for the vaping industry in 2015 was no news: whether the U.S. Food and Drug Administration (FDA) would deem vaporizers and associated products such as flavored e-juices the same as tobacco products.
Of course such a determination would make vape products susceptible to some federal regulations—not to mention state laws and taxes—that most other tobacco products (OTP) are under currently.
As of mid-February, the FDA’s recommendations still linger in the Office of Management and Budget. This regulation purgatory has virtually ground the industry to a halt despite the fact that there have been some positive financial indicators. According to Euromonitor International, both vapor devices and tank systems have logged consistent growth the last few years.
And though vape products and e-liquids provide a strong gross margin for retailers, the segment lately isn’t a huge contributor to store profits.
“What’s happening is that the uncertainties in the market have really hurt the market. Companies will not invest when the regulatory landscape is not in their favor, or nonexistent,” said Ray Story, CEO of the Tobacco Vapor Electronic Cigarette Association. “For the U.S. market now, it’s difficult. You cannot plan for the future because you don’t know the regulatory landscape or how restrictive it will be.”
Other than those vendors that marketed larger batteries and an ongoing influx of new juice flavors in 2015, there were fewer product introductions last year than in years past. That lag, experts say, has stymied the convenience store channel’s ability to grow the category.
“I don’t know if this industry as a whole has figured out vaping yet,” said David Dill, vice president of sales and marketing for Gate Petroleum. The Jacksonville, Fla.,-based company operates 67 GATE convenience stores.
Story believes the FDA decision will give the industry the boost it needs—by weeding out lesser players and stimulating technological development.
“When deeming regulations are released, we will have some certainty on how it will be a regulated product. That will provide standards to consumers and retailers,” Story said.
“Also, vaporization 3.0 will be coming to the market,” said Story. “Companies will make investments into the category and that should push growth and new developments of technology, such as the personal vaporizer. It will be a model that will be able to vaporize liquid nicotine, but also have the potential to vaporize energy liquids to homeopathics to pharmaceuticals.”
Such innovations may not be too far off.
“I know there are designs out there that are moving in that direction,” Dill said. “I think [manufacturers] are looking for alternatives to help make the category more viable.”
This next stage could produce even better profit margins because it’ll include more vaping products as well as growing a customer base interested in non-tobacco applications.
“[Personal vaporizers] will be a big market and will take up a large segment of the behind-the-counter space currently occupied by tobacco products. It will be an extremely important segment,” Story said.
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.