After a product development lull, the e-cigarette segment is gearing up for a next-generation breakthrough.
When JUUL debuted three years ago, the e-cigarette industry was preoccupied with how federal regulations classifying electronic nicotine delivery systems (ENDS) as tobacco products could affect future sales and product development.
Manufacturers, tobacco retailers, and convenience store category managers didn’t give the new device from a small startup company much credence at the time.
Rather, they were waiting to see what type of impact the introduction of VUSE would make on profit margins. The other tobacco products (OTPs) subcategory was in a slump. Soft unit growth combined with heavily discounted pricing resulted in dropping dollar sales. Would the entrance of R.J. Reynolds Vapor Co., currently owned by British American Tobacco (BAT), help revive the category?
By the end of 2015, VUSE had assumed the top spot, and firmly held onto it quarter after quarter. Meanwhile, JUUL slowly gained popularity, until midway through 2017, when the device that looks more like a USB drive than an e-cigarette, became the leading brand. By last summer, it was posting triple-digit growth measurements, which certainly helped revive the OTP subcategory. According to the National Association of Convenience Stores’ preliminary State-of-the-Industry report, sales of e-cigarettes improved by 8.4% last year.
“Within a month of introducing JUUL, it became our No. 1 brand, and it has not slowed down,” said Nik DiMambro, tobacco category manager for Nouria Energy, which owns and operates c-stores in Maine, Massachusetts, New Hampshire, Rhode Island and Connecticut.
Over the past year, JUUL continued registering near-record earnings month after month. Most recently, it experienced more than 870% growth in unit sales for the four weeks ending April 21 per Nielsen data reported by Wells Fargo Securities. Dollar sales were equally impressive, up by more than 824%. Twelve-week measurements also exceeded expectations—more than 768% growth for unit sales and more than 744% in dollar sales.
Only MarkTen and MarkTen XL Bold, manufactured by Altria Group Inc., showed substantial gains. MarkTen posted 1000% growth in both unit and dollar sales while MarkTen XL Bold units jumped 105% and dollar sales rose by 142% for the same four weeks. However, both products also incurred double-digit price hikes while JUUL prices fell by nearly 5%.
Wells Fargo Securities also examined which e-cigarette brands have lost the biggest market share to JUUL. Not surprisingly, VUSE leads that classification at 39%, followed by MarkTen at 21%, Logic at 18% and all other brands totaling 11%.
While numerous national surveys confirm combustible tobacco use among middle and high school students continues to decline, ENDS use has fluctuated. Current research indicates there’s been an uptick in teen vaping habits, and the U.S. Food and Drug Administration (FDA) announced in April it will be instituting a new Youth Tobacco Prevention Plan focusing on e-cigarettes.
That said, a Centers for Disease Control and Prevention survey released last year indicates a downward trend. The 2015-2016 National Youth Tobacco Survey showed e-cigarette use among middle and high school students fell from 16% to 11%.
“The hysteria surrounding JUUL and teen vaping has not been helpful to moving the issue [of the FDA’s campaign to lower nicotine levels] forward,” said Gregory Conley, president of the American Vaping Association. “Those pushing these stories have a strategic advantage—they claim that usage of the product is so ‘new’ that it has yet to be captured in federal government surveys of teens. Therefore, anecdotes are allowed to control the narrative, while the data gets ignored.”
But even the extensive press coverage hasn’t dampened consumer enthusiasm.
“I would say the negative press has not affected our adult customer from purchasing a product they enjoy,” said DiMambro. “Since we have introduced e-cigarettes, our company has had a strict policy to treat e-cigarettes the same as any other tobacco item. We have an online training system in place to train new hires within the first two days of employment, and retrain all employees quarterly. Our policy is to ID anyone 35 or under, and our registers require us to put in the customers’ birthday regardless of age.”
In addition to its sleek appearance, JUUL differs from previous e-cigarette offerings in that it uses nicotine salts instead of e-liquids. The salts are said to deliver more of a cigarette-like taste and experience, to which industry watchers attach some of the product’s success. Now other ENDS manufacturers are looking to tap into this niche.
In March, Imperial Tobacco hosted an industry showcase for its myblu e-cigarette. The compact pod device utilizes salt e-liquids, which contain half the nicotine levels of JUUL, and will be available in 11 flavors, including Classic Tobacco, Carolina Bold, Gold Leaf, Magnificent Menthol and Polar Mint. The company started testing the new product in U.S. markets in February and plans a full rollout of salt e-liquids next month.
Even with limited exposure, myblu already has recorded $3.8 million in sales for the four weeks ending April 21, according to Nielsen data. Starter kits retail for $19.99 and two salt e-liquid pods are priced at $8.99.
“We came away with our interest definitely piqued as myblu appears to be positioned as a real contender for JUUL with a sleek, aerodynamic design and wide range of attractive flavors,” commented Bonnie Herzog, senior analyst for Wells Fargo Securities.
“I have yet to try the myblu, but I have seen vapers have very favorable reactions to it,” said Conley. “It is heartening to see divisions of tobacco companies producing products that can actually satisfy smokers and help them quit.”
BAT also announced this spring it is increasing investment for next-generation products and ENDS technology. Also, it intends to initiate testing of Raptor this year, the newest product entry in the Vype line of e-cigarettes. Raptor is purported to provide users a stronger nicotine punch. This is in addition to the manufacturer seeking a modified risk tobacco approval for glo, a heat-not-burn device.
“New innovations from Big Tobacco companies and trusted brands [will contribute to the category’s future success],” said Lisa Dell’Alba, president and CEO for Square One Markets Inc. The Bethlehem, Pa, company has 11 stores in five counties of the Keystone state.
She’s also seen vendors increase focus on promotional programs beyond coupons.
“Merchandising plans are getting increasingly better as the combustible category continues to decline,” she explained. “I think this ultimately helps draw attention to the category as a whole and improves the sales process for our team members.”
DiMambro also has taken efforts to increase attention on the OTP subcategory.
“For Nouria Energy, the biggest contributor to the category’s success has been investing in the physical space in our stores,” said DiMambro. “By creating that space and filling it with multiple brands, we have created a place where customers have options. They no longer need to settle on the one product a store may have.”