A Big Inhalation

Retailers take in ideas on regulations, e-cigs, importance of tobacco shopper.

By
Melissa Vonder Haar, Tobacco Editor

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The big appeal of a private e-cigarette company comes down to a very important factor for consumer products such as e-cigs: brand. And though Lorillard, Reynolds and Altria may have more money and established relationships, many electronic-cigarette players have years on Big Tobacco when it comes to brand development.

“I certainly give some of the private companies a lot of credit for building some strong brands already,” said Herzog. “I think it’s ultimately very important to have a strong brand. That will be the key to success. This category is a consumer product; don’t underestimate that.

“There’s still certainly plenty of room for some of the other players we all know of,” she continued. “It will be interesting to see how that all shakes out.”

Pre-K Plan Warning

Playfully introduced as a true “superhero of our industry,” NATO executive director Briant has developed a stellar reputation for educating tobacco retailers on state and local tobacco regulations threatening their business. However, this year, Briant’s cautionary tale was not local, but national.

Briant put the spotlight on President Obama’s pre-K expansion proposal. And like Herzog on e-cigs, Briant is certainly interested to see how this plan “shakes out.”

Announced earlier this year, the initiative would expand preschool education to all low-income 4-year-olds. The $75 billion project would be funded by a 93% increase in both the cigarette and OTP federal excise taxes. Cigarette and little-cigar taxes would go up by 94 cents per pack, from $1.01 to $1.95; chewing tobacco would go up to 97 cents per pound and moist snuff to $2.91 per pound; pipe tobacco would go from $2.83 per pound to $5.64; and RYO would be devastated, going from $24.78 per pound to $47.82 per pound.

“These are significant increases, almost doubling tax rates across the board,” Briant said.

One need look no further than 2009 to glimpse how such increases could cause significant problems for tobacco retailers. When cigarette excise taxes were raised by 62 cents per pack, the Federal Trade Commission (FTC) reported that volumes fell by 13% through 2010.

“The president almost doubling the tax is going to have an even more significant impact on cigarette and OTP volume,” said Briant. “It’s just an estimate, but the increase would probably result in more than a 13% [volume] decline across the board.”

While most retailers are aware that doubling excise taxes will have a definite effect on their business, there are plenty of aspects about Obama’s pre-K initiative the public is not aware of.

‘What’s not widely reported is the fact that the states have to pay a significant percentage [of the pre-K funds],” Briant said. “It increases every year. In years one and two, a state needs to contribute 10% of the federal funds they receive for this program. By year 10, the states have to put in three times the amount the federal government’s putting in. And after year 10, it’s all up to the states.”

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