Fad No More

Retailers at NATO Show see e-cigs achieving mainstream status, with robust trajectory

Published in CSP Daily News

By  Mitch Morrison, Vice President & Group Editor

Michael Shannon (left), Rick Staley

LAS VEGAS -- "It's a little bit like the wild, wild West," said Michael Shannon, Lorillard Inc.'s vice president of external affairs. "It's been very exciting and, as they say in politics and policy, it's evolving."

"It" is electronic cigarettes. And, for Shannon, a policy specialist for the country's third-largest cigarette maker, with Newport as its beacon, e-cigs are creating a fresh landscape.  

It was a year ago that Greensboro, N.C.-based Lorillard repositioned e-cigarettes from a thrilling fad to a credible trend. It was then, at the 2012 NATO Show, that word emerged of Lorillard's acquisition of blu e-cigs. And in the 12 months since, the soaring e-cigarette sector has seen sales surge to more than $1 billion, according to some estimates, with anywhere from 200 to 300 manufacturers fighting for brick-and-mortar and online space.

"Is it a fad? Is it going to be around?" Shannon asked rhetorically. "We believe e-cigarettes are here to stay."

Shannon spoke at the 2013 NATO Show, joined by Rick Staley, merchandising manager for 75-store Tri Star Energy LLC, based in Nashville, Tenn. Their session was titled "Demystifying Electronic Cigarettes," and they tackled numerous concerns, including how they classify e-cigs within the total tobacco set, what role they believe the U.S. Food & Drug Administration (FDA) will take; whether e-cigarettes are a tobacco-cessation product or a less-harmful extension of cigarettes; and how many brands and SKUs a retailer should carry to be considered invested in the e-cigarette segment.

Shannon, for his part, considers e-cigarettes a harm-reduction product, not one that boasts therapeutic solutions to tobacco addictions, but rather an entity that is meant for recreational purposes and is clearly less dangerous than tobacco-based products.

"There is an advantage of taking people from a more risky product down the ladder to less risky [products]," Shannon said. And to that end, he was encouraged to hear Mitch Zeller, new head of the FDA's Center for Tobacco Products (CTP), express "interest" in e-cigarettes during an earlier session at the NATO Show.

"Everyone has acknowledged that cigarettes are the most harmful because of the combustion," Shannon said. E-cigarettes, on the other hand, may look like cigarettes and distribute vapors, but are free of the most harmful components found in cigarettes.

As for Tri Star, Staley said the company continues to ramp up its e-cigarette set and is expanding its space at the expense of some single cigars. "Right now, we treat it as its own category," he said. "But in the future, we see it as a line extension of cigarettes."

That positioning may be somewhat controversial over time, some suppliers and operators told CSP Daily News, as the industry lobbies the FDA that e-cigarettes are far safer than cigarettes and not a gateway to lure e-cigarette users to actual cigarettes.

That said, Staley, like other operators, acknowledges the company is still assessing e-cigarettes' long-term positioning and placement. Today, Tri Star offers a three-tier pricing scheme, with blu as its premium brand retailing at $9.99, the regional Clayton e-cigarette at $7.99 and a third line at $5.99.

"We definitely want to make a stand," Staley said in underscoring the company's investment in e-cigarettes. He expects the Daily's and Twice Daily stores to eventually carry as many as five or six brands and 20 to 30 SKUs.  

Also, Staley pointed out that e-cigarettes are actually growing total tobacco revenue, as opposed to cannibalizing from other segments. "This is a new customer coming in [to our stores]," he said. Tri Star's leading e-cigarette demographic is the 18- to 24-year-old male, followed by the 25- to 34-year-old male.

Some vendors privately shared that their data also shows a high percentage of older, traditional cigarette smokers testing e-cigarettes.

By Mitch Morrison, Vice President & Group Editor
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