New Year for Vapor

Pod vaping systems and e-cigarettes face a new round of federal intervention.

By Anne Baye Ericksen, Contributing Editor

News of JUUL ruled 2018. First, sales of the pod vaping system delivered unheard of growth. In fact, it ended 2018 with a 304% year-over-year increase in dollar sales for the four weeks ending Dec. 29, according to Nielsen and Wells Fargo Securities data from all retail channels.

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The 52-week period concluded with a whopping 590% increase in dollar sales and nearly 674% in unit sales.

Those figures cast an enormous shadow over the competition. NJOY was a very distant second with dollar sales for the same four weeks posting 40% and unit sales reaching 34.5%. Other brands, including former frontrunner contenders blu and Vuse, either reported single-digit growth or losses.

However, JUUL’s dominating performance boosted the category for many convenience store chains.

“We finished ahead of the previous year, up double digits for the category as a whole. We were fortunate that when JUUL was at its hottest, they could not open new [retail] customers, and because of that, it solidified us as a chain for them in our region,” said Anna Bettencourt. As senior category manager for VERC Enterprises, Bettencourt oversees the category for the company’s 24 c-stores in Massachusetts and two in southern New Hampshire.

FEDERAL OVERSIGHT
Of course, JUUL dominated the headlines for other reasons, too. Throughout the year, the brand was in the crosshairs of multiple anti-tobacco/vaping groups with news of its popularity among underage users.

“Going into 2018, I expected it to be the year of JUUL hysteria, but even by my expectations, the amount of vitriol directed at the industry has been a bit surprising. Certainly, it was a whirlwind toward the end of 2018,” said Gregory Conley, president of the American Vaping Association.

In September 2018, the U.S. Food and Drug Administration (FDA) requested JUUL and all major electronic nicotine delivery systems (ENDS) manufacturers submit detailed plans to curb youth access to their products, including limiting advertising aimed at younger demographics, or face possible removal from the market. JUUL responded by deleting its presence on social media.

“[That] was a shame because its Twitter and YouTube accounts housed some great stories of adults who switched to their products,” said Conley. “In fact, the vast majority of marketing in this industry is completely appropriate. JUUL was not a product that caught on because of marketing. It went viral without the involvement of the company.”

This past November, FDA Commissioner Scott Gottlieb announced a proposal to restrict flavored e-cigarette and vaping products other than mint, tobacco and menthol to 21-plus retail outlets, such as vape shops, excluding convenience stores.

The National Association of Convenience Stores (NACS), said, “NACS does not support the FDA’s proposed restriction because it represents a government agency choosing winners and losers in the marketplace. NACS believes convenience store retailers should be allowed to continue selling flavored e-cigarettes as long as they are legal products on the market.”
The industry intends on complying with the current law.

“We have and will continue to comply with manufacturer guidelines on 21-plus, flavors and purchase quantities,” said Tim Greene category director of general merchandise and tobacco of the Cigarette Store Corp. “Through our point-of-sale system and signage, we immediately implemented 21-plus and quantity restrictions on flavors. We are positioned and prepared to take the next steps when the FDA or any manufacturer implements further policy.”

Having the technology to electronically age verify and implement policies quickly, the chain feels well positioned to meet these restrictions to “serve the adult vaping community and have a successful 2019,” Greene said.

The Boulder, Colo.-based company operates more than 100 Smoker Friendly, Tobacco Depot stores and Gasamat c-store sites in five states.

JUUL announced it was ceasing sale of its four flavors at more than 90,000 stores. Fontem/Imperial Tobacco, maker of blu, confirmed it would tighten its flavor segment but would not concede to complete removal.

“At the time JUUL pulled its flavors, I wish I’d had more inventory than what I did because of the demand,” observed Bettencourt.

By mid-December, Altria indicated it was discontinuing its MarkTen and Green Smoke brands.

“MarkTen had struggled to gain or even hold market share in 2018, so it’s not surprising Altria ultimately looked to go in another direction,” said Greene.

According to Nielsen and Wells Fargo Securities research, MarkTen hadn’t breached 15% in dollar share since 2014, experiencing steady declines all of last year.

“We do a good job of educating staff about the products, and they will help redirect MarkTen customers to another product that might suit them, such as Vuse, blu or Logic,” Bettencourt said. “Also, we are fortunate that we can transfer inventory between stores if we know one store has loyal MarkTen customers.”

INDUSTRY CONSOLIDATION
As if that wasn’t newsworthy enough, Altria closed out the year by purchasing a 35% stake in JUUL for $12.8 billion. Under the agreement, JUUL remains an independent entity, but now has access to the tobacco manufacturer’s sales infrastructure. That new relationship grants the pod system, and its nicotine salts, access to valuable shelf space next to the company’s combustible cigarettes in its 230,000 retail locations.

Additionally, JUUL can tap into Altria’s logistics and distribution resources, and work with its regulatory affairs experts to advance product development.

“We weren’t necessarily surprised by either move, but more so at the speed of which everything happened,” said Greene. “Altria’s interest in JUUL has been rumored for a few years, things obviously accelerated this fall and the two were able to find an agreement.”

SHORT-TERM STRATEGY
Although it’s too early to assess how 2018’s tumultuous ending will impact this year’s category performance, convenience store owners and operators cautiously await future fallout.

“I feel like we had everything settled in the category, but things change quickly, now more so than ever,” said Bettencourt. “I plan to change my planograms this month, but it’s far from a long-term plan because so much is pending whether it’s at the manufacturer level or from the FDA.”