'A Glowing Marketplace'

Large tobacco companies legitimize electronic cigarette market

Published in CSP Daily News

CHICAGO -- The growth prospects for the electronic cigarette market are compelling with the entrance of the large tobacco companies legitimizing product beyond the perception of a passing fad, according to a Fitch Ratings report, E-Cigarettes: A Glowing Marketplace.

E-cigarette sales estimates for the U.S. marketplace are reaching $1.5 billion in 2013, compared to less than $10 million in 2007. Demand, given mainly from current tobacco users, has essentially doubled every year since the first e-cigarette products were introduced in 2006. The United States remains the world's largest e-cigarette marketplace.

The large tobacco companies have introduced their own e-cigarette products, competing with a multitude of smaller companies. The tobacco industry is highly experienced at brand building to grow awareness of the category while expanding access and availability through an extensive retail channel.

Most participants in the highly fragmented market use the Internet as their main distribution channel given the lack of scale to compete in the retail setting; however, the landscape is evolving, as large tobacco companies with strong retail expertise have entered the marketplace having a distinct advantage versus smaller competitors. Current tobacco retailers and a rapidly growing base of entrepreneurs are providing an expanding brick-and-mortar presence for e-cigarette manufacturers, especially those hindered by scale.

Fitch noted that government rules for the e-cigarettes industry vary considerably by country including outright sales and marketing bans. Two key markets, the United States and Europe, are now determining oversight of the new category. Recent parliamentary changes to the European Union tobacco directive regulate the products similar to tobacco cigarettes, including advertising restrictions and banning sales to minors.

In the near-term, the U.S. Food & Drug Administration (FDA) is seeking to alleviate safety and efficacy concerns as well as the potential influence on youth smoking initiation from use of the currently unregulated vapor cigarettes. Fitch also noted that advertising for e-cigarettes is currently unregulated, unlike tobacco products.

There are also legitimate concerns relating to the lack of understanding of the effects on individual health over the long-term of inhaling the small number and amount of ingredients found in e-cigarettes.

View the full report on the Fitch Ratings website with registration.