The Electronic Revolution

Are e-cigarettes the spoils of another gold rush or a harbinger of transformation for the tobacco category?

By
Melissa Vonder Haar, Tobacco Editor

Erik J. Martin, CSP Correspondent

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The revolution did not start in the c-store channel. It started out quietly, from your home, where you, the customer, browsed the Internet and found vendors from the Asian continent and Western countries selling something different, something revolutionary, something not found in your local c-store or drug store: electronic cigarettes.
 
Just a few years ago—about the time Twitter and Facebook were starting to attract serious attention—this battery-charged product was beginning to make its way to trade events such as The NACS Show, largely relegated to small booths far removed from pedestrian traffic.
 
How times have changed. Since only 2010, e-cigarettes have:
 
  • Ballooned to an estimated $1 billion business in the United States, with prospects of topping $2 billion by 2014.
  • Captured the attention of the tobacco arm of the Food and Drug Administration (FDA).
  • Penetrated nearly 100% of all c-store chains and most independents.
  • Mushroomed to more than 200 suppliers, who, like salmon swimming upstream, are fighting to be among the select few who survive and thrive.
  • Piqued the interest of Big Tobacco, with Lorillard, Reynolds and Altria all now fully entrenched in the e-cig game.
  • Made countless headlines across consumer and trade publications. Most recently, Time magazine proclaimed e-cigs “the future of smoking”—fueling a hot debate on whether e-cigs are truly a revolutionary cessation device, the salvation of anti-smoking advocates or the gateway for a new generation of smokers.
How did a product barely on our minds and mouths only five years ago become one of the most hotly discussed, polarizing products in recent memory?
 
“The e-cigarette segment could be the most transformative thing to happen to this industry since the invention of the automatic cigarette-making machine in the 1890s,” says Ron Tully, vice president of public affairs for National Tobacco Co., Louisville, Ky. “What we are seeing with this segment is a true cigarette alternative for adult smoking consumers seeking to switch from a combustible tobacco product.”
 

Modest Beginnings

A true cigarette alternative was exactly what Chinese pharmacist Hon Lik had in mind when he developed the technology that would serve as the foundation for the electronic-cigarette movement. Lik’s 2003 invention was reportedly created in response to the death of his father, a heavy smoker who died of cancer.
 
It would take more than three years for electronic cigarettes to make their way to the U.S. market, where they began retailing both online and in mall kiosks. It wasn’t what you’d call a sales boom: These early versions were almost exclusively sold as rechargeable kits that cost upwards of $150. 
 
Both regulatory officials and the public at large were understandably perplexed: Was it a tech product? A slick new form of tobacco? A cessation device that truly addresses all aspects of smoking addiction?
 
The FDA suspected the last option and in 2009 began seizing shipments of electronic cigarettes as unapproved drug-delivery devices. Early pioneers of the segment—including Scottsdale, Ariz.-based NJOY—fought back, obtaining an injunction against these seizures on the grounds that they were not making any therapeutic claims.
 
“Had the FDA succeeded,” says NJOY CEO Craig Weiss, “all such products would have been forced off the market, pending a multimillion-dollar, years-long FDA approval process that would have effectively prevented the industry from ever getting off the ground.”
 

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