Hailed by many as an emerging threat to the tobacco cigarette industry, electronic cigarettes have provided smokers with an alternative to traditional tobacco-based smoking. These battery-operated devices simulate the experience of traditional cigarette smoking by supplying the user with a nicotine delivery system, the appearance of smoke upon exhalation and the hand to mouth familiarity of smoking, while remaining free of the many harmful toxins found in traditional tobacco products.
For 2012, according to Wells Fargo, e-cigarette sales generated roughly $300 million at retail. But that number is expected to grow exponentially—developing into a $1 billion category as early as 2013 and offering gross margins comparable to traditional cigarettes, within a decade. While Wells Fargo’s figures didn’t differentiate between sales of disposable and rechargable e-cigarettes, one thing is for sure: the opportunity for new sales is boundless.
“It’s a fairly new category, and that’s what I find so exciting,” said Bonnie Herzog, senior market analyst at Wells Fargo. “I’m making some pretty big predictions. I think it’s possible that consumption of e-cigarettes could surpass that of traditional cigarettes within the next decade.”
The category got its biggest boost to date in April 2012 when Lorillard became the first of the big three tobacco companies to leap into the e-cigarette business with its acquisition of blu ecigs. RJ Reynolds joined the fray several months later when it launched e-cigarette Vuse in limited test markets in Virginia and North Carolina. British American Tobacco announced in December that it had purchased CN Creative, which makes the Intellicig e-cigarette brand. Phillip Morris has repeatedly declined to discuss its plans for the e-cigarette category, but given the popularity of the products, it’s safe to say they are keen observers of the sales trends.
New Product Excitement
Convenience stores are a natural outlet for e-cigarettes. New products like NJOY Kings and Logic are garnering more and more retail space. Tedeschi Food Shops in Rockland, Mass., has been testing disposable and rechargeable e-cigarette brands at 15 of its 190 stores, and is also testing the refill cartridges. “I believe electronic cigarettes and cigars are here to stay and will become more dominant as the year goes along,” said Stephen Monaco, director of purchasing for Tedeschi.
