Vapor Lounges: Friend or Foe?

What the emergence of vape shops means for the c-store channel

By
Melissa Vonder Haar, Tobacco Editor

NEW YORK -- Last summer, RBC Capital Markets tobacco analyst Nik Modi began to suspect the public’s interest was moving away from electronic cigarettes and toward pricier personal vaporizers (also known as tanks or eGo units). Following his hunch to Google Trends, a search of “electronic cigarettes” and “vape shops” showed that the searches on “electronic cigarettes” are on the decline, whereas “vape shop” searches are surging.

“You can see a significant cross around June of 2013, where the interest in vape shops actually outpaced the interest in e-cigarettes,” Modi said during a December CSP-hosted Tobacco Update webinar.

Wells Fargo’s senior tobacco analyst Bonnie Herzog also tracked the vape-shop phenomenon when talking to retailers in a recent “Tobacco Talks” survey.

“A number of vape shops have been opening up around the country,” Herzog wrote in a research note. “Although they are not (yet) a threat for c-store retailers, these new shops are definitely on retailers’ radar screens.”

While the vapor trend was on retailers’ radars, the operators Herzog spoke with were divided on whether the shops were good, bad or indifferent for their own tobacco business: 47% said vaping shops and lounges were negatively impacting business; 33% said they were seeing no impact.

Some actually expressed positive views about the emerging vapor channel. One retailer reported: “I think the added vapor shops will help grow the product and awareness for all retailers.”

Before retailers can determine whether these lounges will be good or bad for business, it’s important to understand just what such establishments entail. Both vape shops and vapor lounges allow consumers to test a wide array of vaporizing devices and liquids before purchase. Vapor lounges—as suggested by the name—tend to offer additional amenities to encourage vapers to stick around, including wi-fi and coffee bars. The lounges have become all the more popular as cities like New York, Chicago and Los Angeles have banned indoor e-cig usage except in vaping-centric establishments.

“We feel that we’re creating a destination for that customer,” said Kevin Frijja, CEO of Vapor Corp. The Fort Lauderdale, Fla.-based company manufacturers vaporizers and also owns several vaping lounges.

Peter Denholtz, co-founder of New York’s Henley Vaporium, agreed that a welcoming destination or “vibe” has been central to long-term success. Henley’s original SoHo location, which opened in 2013, hosts everything from informative political debates to comedians and acoustic musicians.

“These aren’t things we charge for,” Denholtz said. “We just want people to come in and enjoy the space.”

Urban lounges like Henley’s may not seem like they’d attract the same clientele as your typical convenience store, but Denholtz reported a true mix of consumers, spanning all ages, genders, ethnicities and economic backgrounds.

Part of the reason for cross-section popularity of vapor lounges has been the cost benefit. Depending on the liquid, it costs $1 to $2 to refill a vaporizer; an electronic cigarette cartridge costs roughly $3; and a pack of cigarettes averages as high as $14.50 in New York.

The price differential—along with the emergence of vapor-centric establishments—has led to the growing awareness and acceptance of tank and vaporizer units described by Modi and Herzog. This in turn has prompted more mainstream electronic cigarette companies, including Nicotek, Crown 7 and CB Distributors Inc., to develop their own vaporizer lines.

“A couple of years ago you couldn’t give away a vaporizer because the consumer was looking for something that felt like a conventional cigarette,” said Carlos Bengoa, president and CEO of Beloit, Wis.-based CB Distributors. “Now people have accepted the e-cig idea, and they are looking for lots of vapor and the easiest draw.”

Even vaporizer pioneers have been wowed by the emergence of the segment. San Francisco’s Ploom Inc., whose Ploom and Pax products vaporize loose tobacco as opposed to e-liquids, was founded in 2007, well before electronic cigarettes entered the U.S. market.

“Today we’re excited to see that the mainstream consumer is much more familiar with vaporization technology,” said Ploom’s CEO and co-founder James Monsees. “People are becoming aware that there are other technologies in the tobacco space that are available to them.”

Like the public, c-store retailers are catching on; Herzog’s survey showed 36% of retailers were already carrying vaping products, with an additional 36% saying they planned to enter the segment.

Bengoa has seen that opportunity become a reality for many retailers since the launch of CB’s Vapin Plus vaporizer pen. He reported that several stores have re-ordered after as little as one week.

“The c-store consumers are accepting it with open arms,” he said. “Now they don’t have to go to a specialty shop looking for vaporizers, but they can go to their trusted local convenience store.”

Which comes back to the central question: As more and more c-stores enter the vaping segment, will the success of vapor lounges help them or poach their consumers?

Denholtz acknowledges that, as more and more retail channels get in on the vapor game, lounges will have to stay innovative in order to remain competitive.

“We must embrace the vaping enthusiast as our core consumer and remain part education center,” he said. “It’s a very high bar to go after.”

However, as part education center, lounges and shops will continue to introduce new consumers to vaping, which stands to benefit c-store retailers, who often do not have the resources to offer the kind of education and trial necessary to grow the profitable segment.

Or, as Frijja put it, “I think lounges are very viable and are going to help the business.”