The Electronic Revolution (cover story)

C S P November 201352

Are e-cigarettes the spoils of another gold rush

or a harbinger of transformation

for the tobacco category?

[cover story]

TheElectronic Revolution


The revolution did not start in the c-store channel. It started out quietly,

from your home, where you, the customer, browsed the Internet

and found vendors from the Asian continent and Western countries

selling something different, something revolutionary, something not

found in your local c-store or drug store: electronic cigarettes.

C S P November 2013 53C S P November 2013 53

By Melissa Vonder Haar and Erik Martin

[email protected]


Just a few years ago—about the time

Twitter and Facebook were starting to

attract serious attention—this battery-

charged product was beginning to make

its way to trade events such as The NACS

Show, largely relegated to small booths far

removed from pedestrian traffi c.

How times have changed. Since only

2010, e-cigarettes have:

▶ Ballooned to an estimated $1 bil-

lion business in the United States, with

prospects of topping $2 billion by 2014.

▶ Captured the attention of the

tobacco arm of the Food and Drug

Administration (FDA).

▶ Penetrated nearly 100% of all

c-store chains and most independents.

▶ Mushroomed to more than 200

suppliers, who, like salmon swimming

upstream, are fi ghting to be among the

select few who survive and thrive.

▶ Piqued the interest of Big Tobacco,

with Lorillard, Reynolds and Altria all

now fully entrenched in the e-cig game.

▶ Made countless headlines across

consumer and trade publications. Most

recently, Time magazine proclaimed

e-cigs “the future of smoking”—fueling

a hot debate on whether e-cigs are truly a

revolutionary cessation device, the salva-

tion of anti-smoking advocates or the

gateway for a new generation of smokers.

How did a product barely on our minds

and mouths only five years ago become

one of the most hotly discussed, polarizing

products in recent memory?

“The e-cigarette segment could be the

most transformative thing to happen to

this industry since the invention of the

automatic cigarette-making machine in

the 1890s,” says Ron Tully, vice president

of public affairs for National Tobacco Co.,

Louisville, Ky. “What we are seeing with this

segment is a true cigarette alternative for

adult smoking consumers seeking to switch

from a combustible tobacco product.”

Modest BeginningsA true cigarette alternative was exactly

what Chinese pharmacist Hon Lik had in

mind when he developed the technology

that would serve as the foundation for

the electronic-cigarette movement. Lik’s

2003 invention was reportedly created in

response to the death of his father, a heavy

smoker who died of cancer.

It would take more than three years for

electronic cigarettes to make their way to

the U.S. market, where they began retailing

both online and in mall kiosks. It wasn’t

what you’d call a sales boom: These early

versions were almost exclusively sold as

rechargeable kits that cost upwards of

$150.

Both regulatory offi cials and the public

at large were understandably perplexed:

Was it a tech product? A slick new form

of tobacco? A cessation device that truly

addresses all aspects of smoking addiction?

The FDA suspected the last option

and in 2009 began seizing shipments

of electronic cigarettes as unapproved

drug-delivery devices. Early pioneers of

the segment—including Scottsdale, Ariz.-

based NJOY—fought back, obtaining an

injunction against these seizures on the

grounds that they were not making any

therapeutic claims.

“Had the FDA succeeded,” says NJOY

The e-cigarette segment could be the most transformative

thing to happen to this industry since the invention of the

automatic cigarette-making machine in the 1890s.“ ”


Pandering to Kids?: Anti-smoking groups such as the Campaign for Tobacco-Free Kids claim celebrity-driven ads are trying to attract minors to e-cigarettes. (See sidebar, p. 58.)

C S P November 2013 55

CEO Craig Weiss, “all such products would

have been forced off the market, pend-

ing a multimillion-dollar, years-long FDA

approval process that would have effec-

tively prevented the industry from ever

getting off the ground.”

The U.S. Court of Appeals upheld

NJOY’s injunction in 2010, finding that

the FDA could regulate electronic ciga-

rettes only as tobacco products. The ruling

not only gave this nascent segment a legal

classifi cation, but it also opened the door

for the convenience channel—the largest

retailer of tobacco products in the United

States—to become the brick-and-mortar

destination for the electronic revolution.

Seemingly overnight, electronic ciga-

rettes stormed the industry, with everyone

from 7-Eleven to single-store owners now

solidly committing to the segment. Big

Tobacco joined the rush: Lorillard was

fi rst, with its $135 million purchase of blu

eCigs in 2012; it was followed shortly by

other established tobacco players, includ-

ing Swisher, Kretek and National Tobacco.

By the end of 2012, e-cigarettes had

matured from niche novelty product to

what many retailers believe could become

the single largest in-store category by 2020.

“Tobacco for a long time had this taint

of being a ‘dying category,’ ” says William

Slattery, tobacco category manager for

Dallas-based Alon Brands Retail. “That

there’s now some true potential growth

for retailers in this business is great. How

long has it been since a tobacco category

manager could get excited about a new

product?”

From Prospect to PotentialDespite the excitement, despite the

entrance of trusted tobacco players into

the space, many retailers were skeptical.

This was especially true in the fi rst years

of electronic cigarettes, when the field

was flooded with unknown companies

with little experience in the retail world,

hawking products of dubious quality.

“Early on, we saw products that

couldn’t be supported, whether it be with

merchandising or day-to-day support,”

says Jason Healy, founder of Charlotte,

N.C.-based blu eCigs (now a part of

Lorillard Tobacco Co.).

Even retailers who saw e-cigarettes’

potential took their time to properly edu-

cate themselves on a product unlike any-

thing else in the tobacco category—and

perhaps unlike anything else in the entire

c-store channel.

Though Steve Monaco, director of

category management for Rockland,

Mass.-based Tedeschi Food Shops, was not

skeptical of electronic cigarettes, it wasn’t

Supplier StandoutsAmid a multitude of players on the market, here’s how some of the more successful

electronic-cigarette companies are distinguishing themselves:

▶ Going “Big”: Admittedly, Big Tobacco was late to the e-cig game: R.J.

Reynolds, Winston-Salem, N.C., and Altria Group Inc., Richmond, Va., are only just

now testing their proprietary Vuse and MarkTen offerings, respectively. Wells Fargo

analyst Bonnie Herzog doesn’t think their late arrival will hinder their success, thanks

to the companies’ deep pockets and established success in the retail environment.

Altria spokesperson Brian May echoed Herzog’s sentiments: “Electronic ciga-

rettes are an extremely competitive category, but we’ve had a long track record in

the tobacco category of being able to best meet the preferences of adult smokers.”

▶ Hiring “Big”: Alternatively, brands such as NJOY and Logic Technology have

stocked their management teams with tobacco industry veterans: NJOY executive

vice president Roy Anise and senior vice president of sales and distribution Vito

Maurici previously held positions at Philip Morris USA, and Logic president Miguel

Martin once served as a senior vice president for Altria.

▶ E-Cig-Tobacco Partnerships: Rather than develop their own product, other

tobacco companies have opted to work with an established player. Like Lorillard

Tobacco Co., which acquired blu eCigs in April 2012, National Tobacco Co. saw

a benefi t to a partnership and began working with Miami-based v2 Cigs in April.

“Tobacco companies are not e-cigarette companies and e-cigarette companies

are not tobacco companies,” says Ron Tully, National Tobacco’s vice president of

public affairs. “That knowhow cannot be developed overnight.”

▶ “We’re Not Big Tobacco”: Given the mixed feelings about contracts and

squeezed cigarette margins of recent years, some retailers may prefer partnering

with independent electronic-cigarette companies, which some may fi nd more

fl exible in terms of contracts and pricing, according to Tony Vecchie, senior vice

president of sales and distribution for Northbrook, Ill.-based Eco-Cigs Inc.

John Wiesehan III, vice president of sales for Ballantyne Brands, maker of Mistic,

agrees that not having strong ties to Big Tobacco “can actually work in a brand’s

favor, given the negative perceptions among the tobacco industry.”



until last April that he jumped into the

e-cig segment with both feet.

“[Our] hesitation was based on obtain-

ing as much knowledge about the category

as possible before we would roll it out,”

Monaco says. “That way we were able to

share this knowledge with our store opera-

tors, who in turn could talk intelligently

with the consumer.”

Because electronic cigarettes are argu-

ably as much a tech product as a tobacco

product, there’s plenty for retailers to

learn. Thus, when Slattery took over Alon’s

tobacco category last year, he “immersed”

himself in the segment.

“I’ve probably learned more about

electronics over the course of the last year

and a half than any other category I’ve

managed in the last three years,” he says.

“It’s amazing how much there is to know

about these products and the companies

who make them.”

To stay on the safe side, many retail-

ers have opted to dip their toes in the

metaphorical waters by bringing in an

established leader such as NJOY or blu.

Nielsen shows blu as a dominant force in

the c-store channel, earning 45.3% dollar

share and 37.2% unit share as of Sept. 28,

2013, followed by NJOY at 22.5% dollar

share and 20.1% unit share. These compa-

nies, along with others such as Logic and

Fin, were among the fi rst to grab the retail

stage. They continue to use their national

presence as a competitive advantage.

“Choosing which brands wasn’t that

diffi cult because NJOY and blu were the

only ones who called on us,” says John

Strickland Jr., president of Goldsboro,

N.C.-based Wayne Oil Co. “They both

seem to be very interested in marketing

the product, they talk to us frequently and

they’re interested in reviewing our scan

data.”

Strickland is far from alone: NJOY’s

products are sold in 70,000 retail loca-

tions nationwide, including Sheetz and

7-Eleven stores, while blu is merchan-

dised in chains such as 7-Eleven, Circle

K, Speedway and Chevron.

Lou Maiellano, president of TAZ Mar-

keting & Consulting Group, Sevierville,

Tenn., champions a strategy that features

more national brands coupled with local

and/or regional players.

“Just because a manufacturer has

broader distribution, that doesn’t mean

they’ll be a top seller in your stores,” he

cautions.

Indeed, it’s becoming rare to see retail-

ers carrying only one or two brands.

“Major retailers are carrying the key

brands, and many c-store operators are

taking on new brands and SKUs because

the category is giving them growth and

margin opportunities,” says Bonnie

The FDA faces a difficult task in regulating a product evolving at a rate more

like cellphones than cigarettes. “Regulating e-smoking products in the context

of traditional tobacco is somewhat akin to regulating airplane technology using

regulations framed around automobiles,” says Ron Tully, vice president of public

affairs for Louisville, Ky.-based National Tobacco Co. “What regulators seem to be

attempting to do here is drive a square peg into a round hole.”

Yet FDA regulations are undoubtedly on the way, with varying degrees of

acceptance and support from electronic-cigarette companies and retailers alike:

Widely Supported:

▶ Minimum purchase age

▶ Best manufacturing practices/product quality standards

▶ Online sales ban or limitations

Widely Opposed:

▶ New product approvals/substantial equivalence

▶ Advertising bans or limitations

▶ Blanket application of cigarette regulations

Supported by Some, Opposed by Others:

▶ Flavor Ban: While companies such as NJOY and Logic offer only tobacco and

menthol products, others, including blu, offer a variety of fl avors. Public health

advocate Michael Siegel believes e-cig flavors provide additional incentive for

tobacco smokers to make the switch.

▶ Backbar Placement: Many retailers believe this is inevitable, but others believe it

would stifl e growth. Steve Monaco, director of category management for Tedeschi

Food Shops, Rockland, Mass., says, “To be effective, the product needs to be

displayed in direct line of sight to the consumer at the cash register.”

▶ U.S. Manufacturing: Nearly all e-cigarettes are made in China, which keeps

costs low but creates doubts about product quality. While some manufacturers,

such as CB Distributors, make regular trips to ensure manufacturing practices,

others, including Reynolds and Ballantyne Brands, are considering a manufactur-

ing move to the United States.

Potential Regulations



Herzog, managing director of beverage,

tobacco and convenience store research

for Wells Fargo Securities LLC, New York.

John Geoghegan, director of strategic

planning and brand development for

Moorpark, Calif.-based Cig2o manufac-

turer Kretek International Inc., agrees

that carrying a variety of brands is a

smart move. “When consumers enter a

retail store, they expect three to fi ve dif-

ferent brands, as well as disposable and

rechargeable SKUs,” he says.

Kyle Sloan, tobacco category manager

for Oklahoma City-based Love’s Travel

Stops & Country Stores, is following

this strategy, carrying NJOY, blu, Fin

and Nicotek products—and constantly

watching the market for additional

opportunities.

“There is a possibility for brand

expansion,” he says. New product innova-

tions, he says, would drive his decision to

bring in a new brand or product.

Fielding a similar mix, Alon’s Slat-

tery turned to an unlikely source—the

Internet—when looking for a fi fth brand.

There, he discovered Green Smoke, which

traditionally sells its products online.

“When you look at who’s buying and

where they live, we have a lot of their

customers in our area,” Slattery says. “It

made sense to chase after them. Those

consumers are already there.”

And as the segment continues to

evolve, more retailers are carrying a mix

While many scientists are touting the potential of electronic

cigarettes, anti-smoking groups aren’t buying into the hype. As

early as 2009, organizations such as the Campaign for Tobacco

Free Kids, American Cancer Society, American Heart Association

and the American Lung Association have called for an outright

ban on electronic cigarettes.

The Center for Disease Control and Prevention (CDC) is

seemingly fueling the anti-e-cig fi re: The release of a Septem-

ber National Youth Tobacco Survey loudly proclaimed that the

percentage of high school students who had tried electronic

cigarettes had doubled from 2011 to 2012. The CDC’s coverage

failed to acknowledge that the number of youths actually using

e-cigarettes has not substantially increased and is holding at the

low fi gure of 0.5%. It also failed to track how many teens were

trying electronic cigarettes as a cessation device (as the majority

of adults do). But that didn’t stop the president of the Campaign

For Tobacco Free Kids from using the study to blast electronic

cigarettes and the tobacco industry as a whole.

“This jump in youth e-cigarette use comes as marketing for

e-cigarettes has skyrocketed and increasingly uses the same

slick tactics long used to market regular cigarettes to kids,”

Matthew L. Myers said in a release. “This explosion of e-cigarette

marketing threatens to undo decades of efforts to deglamorize

smoking to kids.”

Myers also contended that the entrance of Altria and Reyn-

olds will only worsen the situation, hitting on a possible explana-

tion for why anti-smoking groups are so opposed to electronic

cigarettes: an ingrained mistrust of Big Tobacco.

“The tobacco industry is not a hero in the public health

world,” says Charles Connor, former American Lung Associa-

tion CEO. “I think that the entry of Big Tobacco into electronic

cigarettes is going to present some optics issues for how the

public health community views this segment.”

Big Tobacco or not, Michael Siegel—a former researcher for

the CDC who now actively supports electronic cigarettes—says

the scientifi c evidence simply does not support the regulations

anti-smoking groups are calling for.

“This is one of the most baffling observations in my entire

public health career,” Siegel says. “The only explanation I can think

of is that the ideology is so strong that these groups cannot bring

themselves to endorse any activity that even looks like smoking. I

think it is an example of ideology triumphing over science.”

The Other Side


The Great Placement Debate: While electronic cigarettes may ultimately be limited to the backbar, many retailers and suppliers support a front-counter placement to help raise awareness.


of brands and of products. Disposables

took an early hold in the value-conscious

c-store channel, but as consumer aware-

ness has grown, so have sales of more

profi table starter kits and cartomizers.

“The rechargeable product has

been our dollar driver and is starting to

mature,” Sloan says.

Selling Is BelievingWhether early to the segment or a recent

entrant, whether carrying one brand or

fi ve, retailers overwhelmingly are starting

to believe in the segment’s potential.

“The margins are pretty good,” says

Strickland. “[And] interestingly, we have

not seen a fall-off on our cigarette sales,

and we continue to grow electronic sales.

I don’t think we’ve reached that point yet

where one segment is going to cannibalize

the other.”

Besides profi t-friendly margins, the seg-

ment is clearly far from a plateau. Strick-

land started carrying electronic cigarettes

only in the first quarter of this year but

is already seeing results. “It’s one of the

few items we sell that’s having consistent

double-digit growth,” he says.

The same goes for retailers who jumped

in early. Alon has been carrying four brands

for nearly two years, with Slattery reporting

that “sales have not slowed down one bit;

these products continue to do great for us.”

With Nielsen just beginning to report

on sales of electronic cigarettes, it’s been

a challenge for retailers to establish what

exactly constitutes the “great” numbers

described by Slattery. Pittsburgh-based

Management Science Associates Inc.

estimates the national average of distribu-

tor-supplied products to be 11 electronic-

cigarette-equivalent units (i.e., a mix of 11

disposable units or cartomizers) per week,

though given the rapid growth of the seg-

ment, that fi gure is constantly in fl ux.

The dollar-sales data is even more

promising: Herzog reports up to $600

million in annual brick-and-mortar

e-cigarette sales, with c-store dollar sales

growing 156.3% in the period concluding

Sept. 28, driven by 95.5% unit growth and

a 31.3% increase in the selling price. (The

average price per cartomizer was $6.28 vs.

$4.79 a year earlier.)

FDA on the WayIt’s true that electronic cigarettes have

been growing by double digits since they

burst onto the retail scene, and they’ve

prompted comparisons to energy drinks.

But remember: Energy drinks never faced

strict regulations from the FDA that

could limit marketing and innovation.

One of the most striking advantages

e-cigarettes have enjoyed over their

cigarette brethren is the complete lack

of regulations in the subcategory. Unlike

other tobacco products, electronic

cigarettes can be advertised virtually

anywhere—NJOY ran TV ads during the

Super Bowl and Oscars—and do not need

FDA approval to bring a new product to

the market.

For now, that is. With an announce-

ment on deeming regulations having been

expected in October and several federal

and state legislators proposing e-cig excise

taxes, plenty of challenges are pending.

Can the segment thrive in a regulated,

taxed and consolidated world?

While it’s generally agreed that elec-

tronic cigarettes will be regulated in

some way, no one is certain whether the

agency will impose the same strict restric-

tions currently on tobacco cigarettes or

acknowledge the products’ potential

health benefi ts. (See sidebar on p. 55 for

potential regulations.)

Herzog believes it’s likely that the FDA

will limit or ban online sales and enact



tighter restrictions as a way of preventing

youth access. All of these measures “could

slow growth trajectory a bit, but then it will

continue,” she says.

Clearly, an online ban and minimum

purchase age are supported by the c-store

channel, because most retailers already

practice age verification and would benefit

greatly if electronic cigarettes could be sold

only by brick-and-mortar retailers.

It’s a different story if the FDA decides

to limit youth access by forcing electronic

cigarettes to be merchandised behind

the sales counter. While some retailers—

including Slattery—believe this move is

inevitable and have thus incorporated

electronic cigarettes into the backbar,

others believe this could create harsh

obstacles.

“We’ve seen a particular retailer [do

this], and this change caused total sales

to drop by nearly 50%,” says Greg Doyle,

CEO of Metro brand parent Nicotek LLC,

Wheat Ridge, Colo. “This product line is

too raw to hide. We have consumers to

educate, and we will not be successful in

continuing this rapid growth by hiding

the product.”

Another critical question is whether

consumers will turn away should e-cigs be

hit with the excise taxes that affect most of

the current tobacco set. Put bluntly, could

taxation kill this exciting new segment?

The federal government has not yet

passed a tax on electronic cigarettes, but

Strickland and others see it as just a mat-

ter of time. Minnesota became the first

state to enact an e-cig tax, applying the

95% tobacco products tax to the whole-

sale cost of disposable units. So now, if a

product wholesales at $5.90, a tax of $5.60

is applied, resulting in a cost of $11.50—

which brings the suggested retail price of

a single disposable e-cigarette to $16.89.

“It’s been a challenge for us operation-

ally,” says Sloan, who has stores in Min-

nesota. “This influences the way we can

set pricing, it makes things much more

complicated and it’s definitely hurt our

sales.”

And if sales begin to dwindle, how

long will it be before retailers are forced

to sacrifice their margins in order to grow

the category?

“It could change the value equation

between electronic and combustible ciga-

rettes and force e-cigarette manufacturers

to reduce prices and margins,” says Kretek’s

Geoghegan. “I don’t think they can take a

big hit all at one time from federal taxes at

an equivalent rate to cigarettes.”

Those are the questions that are beyond

retailers’ control. Then there’s the question

most operators privately ask themselves:

With about 250 electronic-cigarette com-

panies flooding the market, what happens

if one of my brands goes under?

“I don’t know how long the industry

can withstand however many vendors

there are on the market right now,” Strick-

land says. “I do think you can make a

case for how many of these companies

will actually answer the phone once these

regulations get stamped.”

According to Carlos Bengoa, president

of CB Distributors Inc., Beloit, Wis., not

only are there too many companies, but

there are also too many companies making

subpar products.

“There are too many brands in the

market that don’t meet the minimum

standards to be taken seriously by any large

chain,” says Bengoa, whose company pro-

duces 21st Century Smoke. “Many [e-cig-

arette manufacturers] lack real liability

insurance or at least adequate coverage, as

well as quality control. They use cheap and

unreliable batteries and manual [e-liquid]

injection.”

FDA regulations—along with the



entrance of Big Tobacco—will likely

accelerate consolidation, weeding out

pretenders from contenders, says Miguel

Martin, president of Logic Technology,

Livingston, N.J.

“The FDA will wipe out a lot of these

[e-cigarette] companies that don’t have

financial stability and solid production

capacity and who focus on online sales and

fl avors,” says Martin. “[Success] starts with

having a high-quality product consistently

manufactured in an FDA-compliant way.

That’s hard and expensive to do.”

Promise for the FutureIt’s absolutely true that electronic cigarettes

are in their infancy, with lots of unknowns

about the future and which companies will

survive. However, early scientifi c evidence

is giving both health experts and retailers

reasons to be optimistic about the segment,

even in the face of regulatory and tax-based

challenges.

“There is a growing body of scientific

evidence that indicates electronic cigarettes

may have a very meaningful potential to

reduce the harms associated with tradi-

tional cigarette smoking,” Dr. Richard

Carmona, the former U.S. Surgeon Gen-

eral who recently joined NJOY’s board of

directors, told CSP in a rare email interview.

Carmona specifically cites evidence

that electronic cigarette vapor could be

signifi cantly less toxic than tobacco smoke

because of the lack of combustion, which

“generates the carbon monoxide and most

of the thousands of toxicants to which

traditional cigarette smokers are exposed.”

Health advocates such as Keith Ablow

are also encouraged that electronic ciga-

rettes not only deliver nicotine in a healthier

way than combustible cigarettes, but also

address the behavioral aspects of cigarette

smoking commonly ignored by traditional

nicotine-replacement therapies.

Ablow, a psychiatric expert and TV

personality, saw these results fi rsthand in

a clinical study funded by Logic, in which

Ablow monitored the habits of traditional

tobacco smokers who were given the option

of electronic cigarettes.

After three months, 70% of participants

were no longer consuming tobacco, and

47% of those stopped using electronic ciga-

rettes as well.

“I’m convinced,” Ablow says, “that elec-

tronic cigarettes represent the most power-

ful way we have to reduce peoples’ use of

tobacco—or eliminate it altogether.”

Like Ablow and Carmona, the FDA—

specifi cally Mitch Zeller, the new director

of the agency’s Center for Tobacco Prod-

ucts (CTP)—is intrigued by a less harmful,

potential cessation device. The potential for

harm reduction speaks to Zeller’s vow that

any tobacco regulations proposed on his

watch must be supported by science and

benefi t public health.

“In an effort to create lasting regulations,

FDA decisions must be based on the stron-

gest possible science,” Zeller said in July.

“In doing so, our policies will strengthen

the legal precedent and change the tobacco


A Big Presence: Although Altria is just testing its MarkTen e-cig, many believe it will have no problem dominating the fi eld once it takes its product national.


marketplace as we know it.”

While this comment was in response to

an advance notice of proposed rulemaking

(ANPRM) on menthol, Zeller addressed

electronic cigarettes specifically during

an appearance at this year’s NATO Show.

“Products like e-cigarettes are very inter-

esting,” Zeller said. “You can look at them in

the abstract from a harm perspective and

say: If it’s not tobacco, if it’s not combust-

ing, then does it make sense to look at it as

something that might be potentially much

less harmful than any combustible tobacco

product that’s out there?”

But the FDA does not regulate in the

abstract. Zeller continued that any regula-

tions would have to look at how the public

is using electronic cigarettes. It’s one thing

if smokers are using electronic cigarettes

as a cessation device or a replacement for

cigarettes; it’s another if they are being used

as a substitute in places where smokers can-

not use tobacco cigarettes.

“These are complicated questions of

behavior, complicated questions of public

health, and e-cigarettes raise all of these

questions,” Zeller surmised.

As complicated as the questions may

be, it appears as though enough have been

answered to start the regulatory process. It’s

been rumored that before the government

shutdown, the FDA had provided proposed

deeming regulations to the Offi ce of Man-

agement—the last step before making a

public announcement.

In the Year 2018 …Though it’s impossible to get a clear picture

of the future before these regulations are

announced, the entrance of Altria, Reynolds

and Lorillard has made it easier to envi-

sion what the segment may look like in fi ve

years’ time.

“With Reynolds and Altria joining the

mix in the next nine to 12 months, consum-

ers will begin—if they haven’t already—to

accept this form of obtaining nicotine in a

less harmful manner,” says Monaco. “Big

Tobacco will play a huge role in the seg-

ment’s success.”

That’s especially true when it comes to

the retail environment, where companies

such as R.J. Reynolds have ruled supreme.

“We are focusing distribution efforts within

this channel because we believe c-stores

provide the best opportunity to gain prod-

uct awareness and trial by adult tobacco

consumers,” says Richard Smith, commu-

nications lead manager for Reynolds.

Herzog predicts that the big manufac-

turers will likely win the e-cigarette war,

because they have the advantage thanks to

a treasure trove of cash to invest, further

enhanced by billions of dollars from non-

participating manufacturer credits and the

discontinuation of the Federal Buyout Fee.

“They also enjoy large sales forces and

distribution networks, and they are obvi-

ously well entrenched in the retail and

c-store channel,” says Herzog. “In addition,

they have a vast database of (smoker) cus-

tomers and they know these customers very

well.”

Though Big Tobacco knows how to

market and distribute tobacco products,

Logic’s Martin contends that it’s not a

foregone conclusion that they’ll dominate

electronic-cigarette trade—especially with

tobacco retailers’ negative image in the eyes

of both the public health world and many

retailers bitter over strict cigarette contracts.

“There will probably be three to four

national brands that demand 70% to

75% of the business and six to seven other

brands, including regional brands,” he says.



“Clearly there’s room in this environment

for well-funded, thoughtful independent

electronic-cigarette companies.”

Of course, retailers are probably more

invested in how electronic cigarettes are

performing than how many companies

are succeeding in the next fi ve years. Her-

zog predicts that e-cigarette consump-

tion could outpace traditional cigarettes

over the next decade, with margins for

the former surpassing the latter by 2017.

Five years from now, Herzog believes a

$10 billion e-cigarette market is entirely

possible, even in the face of taxes and

regulations.

“I don’t like to speak in defi nites, but

this segment absolutely has the poten-

tial to be a long-term life-saver for the

category,” says Slattery. “This could be

the beginning of what I view as a trans-

formation for tobacco. I think it could be

something that turns the category around

for the long term.”

In truth, the segment is still in its crawl-

ing stage. “It’s a new and emerging category,

and time will tell how it is going to evolve,”

says Altria spokesman Brian May.

That’s evident in the growing popular-

ity of e-liquids, which allow consumers to

create their own blend of nicotine “juice”

to vape. Though newer to the market than

electronic cigarettes, vapor lounges are pop-

ping up across the country to cater to the

high-end vapers of e-liquids.

“Some have suggested that the future of

the business is in e-liquids,” Maiellano says.

“I’m not saying that’s the case, but there’s

still so much up in the air. Where will we be

when the vapor clears?”

It’s an important reminder that e-cig-

arettes are not just tobacco products, but

also a part of the tech world. Just look at RJ

Reynolds’ new, highly digitized Vuse, which

gauges every puff. And the tech world inno-

vates at a much faster rate than tobacco.

“Electronic cigarettes are like iPhones,”

Herzog says. “We’re only on version one.”

Perhaps a more appropriate description

would be Apple’s iPhone predecessor, the

iPod: As technology advanced, it went from

a music player to a video player, then to a

video-playing version that also surfs the

Web, eventually evolving into the iPhone

and the iPad.

The notion of making phone calls from

an electronic cigarette may seem laughable.

But 10 years ago, who could have predicted

that we’d be charging cigarettes on a com-

puter? The possibilities for innovation are

endless. ■



Brand enhancements NJOY www.njoy.com

The newly improved NJOY King lasts approximately 50% longer than the current product, according to the company. It features new patent-pending technology, an improved fl avor formulation for a smoother taste and a new TriPort tip for an improved draw. NJOY King e-cigarettes are available in Gold Menthol, Bold Menthol, Bold and Gold varieties, and feature fl ip-top cases.

Female-targeted e-cigs V2 Cigs www.v2cigs.com

At this year’s NACS Show, V2 Cigs launched Vapor Couture, geared at female consumers with a slim and elegant design, according to the com-pany. The ultra-thin Vapor Couture e-cig features a crystal that glows with each puff, and is available in brushed platinum, deep purple and rose gold. Flavors include Rodeo Drive (American tobacco), Passion Fruit and Arctic Mint, all in 1.2% nicotine. The company is focusing the coming year on steering its more than 1 million online customers into c-stores.

New e-cig display Logic Technologies LLC www.logicecig.com

Logic premium e-cigarettes sets itself apart by featuring revolutionary technology that delivers a realistic smoking experience, according to the company. Logic e-cigs can be used virtually anywhere, eliminating the lingering smell, tar and ash of tobacco cigarettes. Logic aims to give cus-tomers the most realistic experience with an easy draw, thick vapor and rich fl avor. A new countertop display features fi ve SKUs from the brand’s product portfolio.

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Black-barrel e-cig Kretek International Inc. [email protected]

Available in a 24-count variety merchandiser, the Cig2o Black Label Premium Disposables line offers an eye-catching designer black barrel equipped with dual LED lights. Delivering on taste, vapor, smoothness and quality charac-teristics, the brand is available in eight full fl avors, two rich tobacco and two cool menthol tastes. Contact the company at [email protected].

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[special e-cig product section]


Soft-tip e-cig Mistic www.misticecigs.com

Known for comfort and ease of use, Mistic Black disposables are designed with soft-tip technology, enabling a fl exible plastic tip to offer more “give,” and making the variety feel more like a traditional cigarette. Mis-tic Black’s surface has a paper-wrap texture similar to tobacco cigarettes, further adding to the familiar feel, according to the company. Available in tobacco and menthol fl avors, its suggested retail price is $5.99.

Soft-tip e-cig, new display 21st Century Smoke www.21stcenturysmoke.com

21st Century Smoke Genuine Soft Tip Disposables King Size Disposables represent a replica of a real cigarette minus the additives, according to the manufacturer. Featured in an eye-catching 40-count, two-tier display, the package features three 10-count displays of regular traditional tobacco fl avor and one 10-count offering of cool menthol. The individual dispos-able fl ip-top box provides extra space, because the two-tier display can be positioned at the counter or placed on the backbar. The manufacturer offers six displays to a case.

Rechargeable e-cigarettes R.J. Reynolds Vapor Co. www.rjrvapor.com

Banking on technology to ensure consistency from fi rst to last puff, Vuse features a stainless-steel rod with battery and electronics, as well as a cartridge with liquid that includes nicotine with fl avorings. It is sold in Solo and System packages, with cartridges available separately in regular and menthol styles. It comes in a rechargeable format, providing the af-fordability and convenience of a disposable with ongoing cost savings and reduced environmental impact.

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E-cigs Wholesalefund Inc. www.wholesalefund.com

The disposable Henley e-cig is offered in top-tier venues, from high-end ca-sinos in Las Vegas to trend-setting hotels in lower Manhattan, according to the manufacturer. The variety features robust fl avor and “big vapor,” provid-ing users with the pleasure of traditional tobacco minus tar, smoke, ash or odor. Available in Original Blend, Tobacco and Menthol, the product lasts as long as an entire pack of traditional tobacco cigarettes.

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New e-cig brand Nu Mark/Altria www.nu-mark.com

MarkTen e-cigarettes are designed to appeal to both current adult smokers interested in tobacco alternatives to cigarettes and current adult “vapers,” offering the latter a familiar draw with an appealing taste, the company says. The product is based on Four Draw technology, designed to provide a more consistent experience. MarkTen comes in two varieties—classic and menthol—and can be used as a disposable or rechargable e-cigarette.

Soft-tip e-cig and e-cigar Swisher International www.e-swisher.com

Swisher International’s e-Swisher e-cigarettes and e-cigar now feature soft tips to provide a more realistic look and feel. Soft tips are 30% lighter than current e-Swisher products, and the fl exible tip is more comfortable to smoke, according to the company. The soft-core fi lter also ensures the cap stays on. E-Swisher e-cigarettes and e-cigars come in both disposable and rechargeable options.

E-cig counter display Nicotek LLC www.metroecigs.com

Retailers can drive impulse sales higher with counter merchandising dis-plays for Metro E-cigs King Soft Tip variety. The displays feature a small footprint and are known to integrate well alongside current offerings. Re-tail customers can select from four exclusive display designs. A low-cost introduction into electronic cigarettes has the capability to signifi cantly boost point-of-purchase sales, according to the company.

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E-cigs Wholesalefund Inc. www.wholesalefund.com

Green Smoke Electronic Cigarettes feature Flavormax cartridges, made with natural tobacco extracts for long-lasting, robust fl avor. A wide variety of fl avors include Absolute Tobacco, Red Label Tobacco and Menthol Ice. Ad-vanced technology enhances fl avor, smoke volume and battery life, accord-ing to the company. The GreenSeal technology retains freshness, and new reusable acrylic packaging offers additional value.

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E-hookah stick Vapor Corp. www.ivaporx.com

Powered by a manual push button, Hookah Stix features a jewel-cut tip and uses a dual LED system. Lasting up to 600 puffs, the product provides an authentic vaping experience supported by the manufacturer’s Flex Tip soft fi lter, which helps provide a more authentic smoking experience, ac-cording to the company.

E-cig and e-liquids International Vapor Group www.internationalvapor.com

South Beach Smoke has launched new branding and products under the South Beach Smoke Wave line. Instead of disposable cartridges, Wave is a re-fi llable e-cig with an accompanying line of e-liquids in 10 fl avors with three nicotine strengths. These vaporizers, which fi t into the palm of the hand, make for a more personal experience, according to the company. Also, new company branding highlights the Art Deco aesthetics of South Beach.

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Bold and mild e-cigs FIN Branding Group LLC www.fi ncigs.com

FIN has added to its e-cig portfolio with Bold and Mild varieties. Joining the existing offer with 1.6% nicotine by volume, Bold features 2.4% nico-tine by volume, and Mild contains 0.8% nicotine by volume. Both Bolds and Milds are available in the company’s Rich Tobacco and Cool Menthol fl avor profi les and can be purchased in either non-rechargeable or carto-mizer formats.

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‘Starter Pack’ e-cigs Lorillard Technologies Inc. www.blucigs.com

The new blu eCigs on-the-go rechargeable Starter Pack is an affordable, convenient option that offers a choice of tobacco, menthol or a variety pack. The Starter Pack provides a lower price point for e-cig consumers, according to the company; it is viewed as an option between disposable singles and premium rechargeable packs. Starter Packs feature a superior battery man-agement system to ensure long-lasting usage, and an ultra-portable design.

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E-hookah Eco-Cigs www.eco-cigs.com

Sapphyre Hookah represents a new line of fl avored electronic hookahs. Featuring a metallic fi nish, a Sapphyre Crystal tip and 600 puffs of zero-nicotine fl avor, the product appeals to a wide range of adult customers. Featured fl avors include Blueberry Mint, Mango Tango, Green Apple, Strawberry Fields, Peach Passion, Grape Explosion, Watermelon Heaven and Chocolate Mint. Packaged 20 per self-merchandising box, each in-cludes fi ve each of four fl avors with an SRP of $8.99.

Playboy branded e-cigs Playboy Enterprises Inc. www.playboyecigs.com

Rolling out this fall is a premium collection of Playboy-branded electronic vapor products featuring disposable and rechargeable e-cigarettes and hoo-kahs in a variety of fl avors. Offered via a licensing agreement with United Convenience Supply LLC, the e-cig line offers disposables, both with and without nicotine. A rechargeable kit contains a cigarette device, two car-tridges and a USB charger, as well as a rechargeable, refi llable premium vapor device.

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Flavored e-cigarette White Cloud Electronic Cigarettes www.whitecloudelectroniccigarettes.com

Calling it the boldest, most complex fl avor it has launched yet, White Cloud Electronic Cigarettes has announced the newest fl avor on its ros-ter: Atlantic Cut. Inspired by the taste of fl ue-cured tobacco, Atlantic Cut provides subtle hints of caramel, apple, Canadian rye whiskey and maple. Available in ClearDraw cartridges, Atlantic Cut is offered in Light, Full, Xtra and XXtra nicotine strengths.

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Improved cartridge Zemo LLC www.zemocigs.com

Zemo has improved the design features for its rechargeable and disposable e-cigarettes with a pull-off sticker to seal the mouthpiece, minimizing leaks from the cartridge. Also being introduced is a smaller, more fi tted rubber cap to cover the thread, making it easier to insert the cartridge into the starter pack kit. Updates promote and preserve freshness; each cartridge is now individually packed to protect cartridges and keep the fl avor fresher, according to the company.

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The Electronic Revolution (cover story)

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