Price Gap Between E-Cigs, Cigarettes to Widen

Published in Tobacco E-News

Wells Fargo survey suggests pricing, packaging innovations will further drive demand

By  Melissa Vonder Haar, Tobacco Editor

NEW YORK -- While Wells Fargo's most recent "Tobacco Talk" survey suggested that cigarette prices will increase in May or June, the vast majority of respondents believe electronic cigarette prices have stayed the same or decreased so far in 2013. Of the approximately 45,000 retail locations surveyed, 59% reported e-cig prices have held steady; 23% reported prices had declined between 1-10%.

"The more economical e-cigs become they more willing customers are to try, hence the success of the disposables," said one survey respondent.

"E-cigs are too immature of a category to have a unified pricing theme," responded another. "I expect pricing to plummet over the next year."

Based on these types of responses, Wells Fargo senior analyst Bonnie Herzog predicted retail prices for electronic cigarettes will fall in 2013--if not by a per unit basis, by a per-cartomizer basis. With rechargeable starter kits typically offering five cartomizers and companies like NJOY experimenting with 5-pack disposable kits, the perceived value of the segment should continue to increase.

"Packaging changes are creating a more favorable dynamic in the e-cig market as technology improvements are resulting in smaller, sleeker, less bulky and less wasteful packaging in disposables and rechargeable e-cigs," Herzog wrote. "A few respondents noted increases in multi-cartomizer pack interest as consumers more fully adopt e-cigs. These packs results in a much lower per-cartomizer cost."

While the retailers surveyed were mixed on whether disposables or rechargeables will ultimately serve their markets best, the vast majority of respondents agreed that new and innovative packaging has helped the e-cig category.

"There is a wide variety of packaging, but I think it's clear that the kits have all become smaller with the improvement in technology," said one respondent. Another noted that ""manufacturers [are] trying to mimic cigarette packaging. It appears consumers are more accepting of e-cigs with the packaging changes."

Herzog surmised that the "terrific eye-appeal" of the new disposable packaging had driven consumer interest and acceptance of the products.

"The improved packaging of e-cigs appears to be driving incremental consumer awareness and trial to the category," she wrote. "For rechargeable kits in particular, more efficient packaging of multi-cartomizer packs is likely driving the affordability gap wider of e-cigs versus traditional cigs, and this makes us that much more bullish on the category."