E-Cig 'Turf War'

Pure-play electronic cigarette makers eye tobacco company category moves

Published in CSP Daily News

NEW YORK -- For the past decade, small purveyors of electronic cigarettes have largely had the U.S. market to themselves. Now, with sales projected to double to $1 billion this year, e-cigarette brands with such names as Logic, NJOY and Vapor are "waiting to exhale" as the major tobacco companies begin to invade their turf, said a Bloomberg report.

In August, Altria Group Inc., the largest U.S. cigarette maker, will start selling its new MarkTen e-cigs in an undisclosed Indiana market. Second-biggest Reynolds American Inc. plans a national rollout of its Vuse e-cigarette, beginning in Colorado next month. Lorillard Inc. has boosted distribution of its blu eCigs to more than 80,000 stores since acquiring the brand last year for $135 million.

"We welcome them with open arms as long as they play fair," Eli Alelov, CEO of e-cig maker Logic Technology, told the news agency. "We're hoping they don't tell their customers, 'If you want to carry our cigarettes, make sure you have our e-cigs'."

The tobacco companies' moves come as officials seek to determine if the devices are safer than traditional cigarettes. E-cig users inhale vapor created when a battery-powered tube heats a liquid nicotine solution, giving them a hit without burning or smoke. On June 12, the U.K. government said e-cigs should be regulated as medicines to ensure quality and safety, said the report, and France plans to ban e-cigs from public venues; several U.S. cities have already.

The U.S. Food and Drug Administration (FDA), which regulates tobacco products, has yet to impose rules on e-cigs. Altria CEO Martin Barrington said "harm reduction" would be "good public policy" for the FDA, but the smaller players are more direct in urging the FDA to designate e-cigs as less harmful than cigarettes, the report said.

"If the FDA wants to improve or remove the risk to public health, this is the FDA's dream product," Vapor CEO Kevin Frija told Bloomberg.

Although e-cigs now account for only 1% of U.S. cigarette sales, Reynolds projects industry revenue will double to $1 billion this year and reach $3 billion within five years. Bonnie Herzog, a Wells Fargo Securities analyst based in New York, predicts even faster growth, with sales topping $10 billion by 2017.

"The long-term growth trajectory of the category will be robust," Herzog said in a June 12 report. She and other analysts say FDA regulators may require e-cig makers to disclose ingredient and manufacturing data, imposing research and compliance costs only deep-pocketed players can absorb.

blu's starter kit, which includes a wall charger, two batteries and five flavor cartridges, sells for $80. Flavor cartridges run about $12 for a five pack. Prices will fall through 2014 as big manufacturers try to lure consumers to their new e-cigs, Herzog said.

E-cig makers are working hard to mimic the smoking experience and deliver the nicotine smokers crave. blu features a glowing blue tip, rechargeable batteries and a range of flavor cartridges, including Piaa Colada and Classic Tobacco. Users of NJOY, which is sold in both regular and menthol flavors, inhale and exhale a vapor that looks and feels much like the real thing.

Reynolds and Altria are trying to set themselves apart from rivals. The Reynolds Vuse is stainless steel, and both companies claim their e-cigs contain technology that improves the user experience.

Frija said he sees e-cigs as a classic disruptive technology. "A generation from now, people may forget what a machine-rolled cigarette looks like," he said.