Through the Mist
Influx of e-cigarettes is leaving retailers to their own devices.
If you ask Autumn Jones, assistant manager of Schoon’s Pump ’N Pak in Brookings, S.D., about e-cigarettes, she might pull a bottle of sanitizer out from behind the counter to actually wipe down her own for you to try. (Let’s hope you like honey peach, her flavor of choice these days.)
Originally from tobacco-rich Kentucky, she jokes that you can tell from her voice that she’s a longtime cigarette smoker. But she’s become an e-cig enthusiast since she started waking up without “that heavy feeling” in her lungs—and she can’t say enough good things about them.
That enthusiasm has turned into a boon for the shop. When it first started stocking the Shamrock Vapes and Cig2O brands last year, it could hardly keep them in stock—going through about $2,000 in inventory in two weeks. According to an Associated Press story in June 2011, estimates put U.S. sales of e-cigarettes and accessories at $200 million to $250 million annually.
“We always have somebody here that knows the product and is willing to stand around and chat with somebody about it, and then they’re really easy to sell,” Jones says.
Jones’ willingness to share her own e-cigarette “in a heartbeat” helps her store conquer what many say is the biggest challenge for the category: educating customers.
For one thing, not everyone understands how e-cigs work. Glenn Kassell, president of San Clemente, Calif.-based Freedom Smokeless, says, “Quite frankly, in our warranty department, we even get some back periodically that people have tried to light on the end, and you see a burn mark.” Freedom even prefers to call its sales staff “educators,” according to Kassell: “They educate the retailer on the difference between the companies and the differences between the products that are out there.”
“People don’t understand how easy it is to use, how convenient it is,” adds Andrew Evans, director of branding and public relations for Mistic Ecigs, Rock Island, Ill. He suggests allowing clerks who smoke to use the e-cigs while they work, to let people know that they can even be used in public. “You’re going to get questions about what it is and how it works; you’re going to sell a lot more product,” he says.
The educational barrier is par for the course with any newer product, according to Steve Montgomery, president of Lake Forest, Ill.-based b2b Solutions LLC. “One of the things you have to do is run an educational campaign internally to make sure that your employees are knowledgeable enough to be able to help the customer make a decision,” he says.
But while a clerk in a tobacco shop might readily have the time and knowledge to provide that assistance, c-stores are known for high turnover, as well as the speedy churn of customers. “We historically have not been an industry as good at selling products as we are exchanging products for money. They bring it up to you, they put it on the counter, you take the money and they leave,” Montgomery says.
Even though explaining the product takes time and education, he advises retailers do just that: “At minimum, you want to offer the opportunity for the product to be successful. Why else would you have invested your money?” Montgomery suggests having handouts ready with answers to commonly asked questions, which can be given to curious customers until a clerk is available to have a conversation. “Obviously, if somebody came in and you had the downtime, you want the employees to at least know what’s on that brochure,” he says. “What is it going to cost me for the original, how do I recharge it, can I get refills here, what are people saying about it—those kinds of questions.”
Montgomery also says that retailers should ask vendors to supply information, and maybe even take time out of an employee meeting to allow vendors to explain the products, so employees can more readily provide answers to e-cig questions.
Cowboys and Horses
When the U.S. Food and Drug Administration earlier this year decided to regulate e-cigarettes as tobacco products, rather than the more strictly regulated drug-delivery devices that were being confiscated on import, the floodgates have opened for new e-cigarette manufacturers.
To listen to e-cigarette industry stakeholders talk, you might think you were at a rodeo. Jason Healy, president of Charlotte, N.C.-based blu Cigs, says, “The big change that we have seen is that while they are regulating, they still have to write legislation—so we’re in a gray area for a while.” That gray area has hurt the industry, with the number of “cowboys popping up, and people just looking to make a quick buck,” he says.
“It’s also helped,” he continues, “in that it’s brought the industry and the product to the forefront a little more—but I think we won’t see the full effect of that until they finish writing that legislation.”
With so many e-cigs to choose from, retailers are left to decide “which horse to back,” according to John Geoghegan, director of strategic planning and brand development for Moorpark, Calif.-based Kretek International Inc. “There are many brands out there right now; most of them will be gone by the end of next year.”
He suggests stocking more than one brand and watching how the business develops regarding disposable vs. rechargeable e-cigs to make future decisions. “At this point, disposables are about 20% of the market, but nobody knows yet whether this is trial and switching to rechargeable, or disposable growth based on convenience,” Geoghegan says.
Kassell estimates that there are two to three e-cig companies forming each week in this rodeo scenario—many of which have products imported from the same companies, but branded differently. “It’s a very confusing buying experience right now,” he says. “There’s no real market leader, just tons of different companies.”
To cut through the clutter of products available, Montgomery advises looking at actual sales numbers being generated for each by other retailers, and determining whether those numbers match internal rates for new items. He suggests a list of questions retailers can ask suppliers, including: How many are you selling? Who can I call to determine what they’re doing? What are the difficulties in making customers aware of this new product? Where can I display it? What does it cost originally? How does the e-cigarette get recharged? What do the cartridges cost? (See sidebar beginning on p. 119 for an in-depth view of some suppliers.)
He advises retailers to think of it as “another other smoking category,” rather than lumping it in with the standard other tobacco product (OTP) category, partially because the products typically contain nicotine but not actual tobacco. Retailers should create a display case behind the counter to call attention to them, he says.
Geoghegan of Kretek says that, like every other product/category, e-cigarettes must prove three things: that their productivity (velocity and profit) merit space vs. other front-of-store categories; that there is a viable user audience among their shoppers; and that the current price points and product configurations are sustainable in the face of coming merchandising and tax regulations.
According to many interviewed for this article, cartridges/refills are the bread and butter of building that velocity and profit in the category. While Jones of Schoon’s Pump ’N Pak says the store might make a “couple of bucks” from the e-cigarettes themselves, the e-liquid for the Shamrock Vapes she sells, for example, might cost the store $4, but they sell for $10.
Kassell compares it to a “printer and ink” scenario, wherein purchasing that printer means purchasing the matching ink: “If we do a good job and have a great smoking experience, we’re going to keep that customer for a long time—and they’ll keep coming back and buying those cartridges.”
He explains one issue with refills, however: how some competitors handle the category. “They force the consumer to go online and register their product, and then they solicit that customer for specials that are a lower price than the retailer can offer. All of a sudden, the retailer has lost the consumer back to their supplier.”
Although Healy’s blu Cigs are available on the Internet, he says his company emails customers to suggest local retailers (by ZIP code) that carry the product.
“We don’t view getting on the shelf as the win,” he says. The company’s biggest customer, Walgreens, doesn’t display the product visibly, but it sells 3,500 units a day through the email push. “We hit those customers up within their region, saying, ‘Hey, not only can you get your order online now, you can get your blus here.’ ”
Healy also suggests retailers ensure that a product they want to stock has the wherewithal to handle returns or exchanges. “It’s an electronic product; you’re going to have problems,” he says. “It’s not like cigarettes—no one brings a pack back and says they didn’t work.
Since the FDA decided to regulate e-cigarettes as tobacco products, rather than the more strictly regulated drug-delivery devices, e-cig competition has heated up. Here is just a sample of the plethora of brands available (in alphabetical order):
blu Cig: The company has launched a smart pack, which is “socially aware,” according to Jason Healy, president. Although all the features aren’t yet available, the pack will tell you if there’s another user or retail location that sells the product nearby; by the end of next year, it will ask you if you want to connect to others via Twitter or Facebook. “And there’ll also be monitoring of your purchasing for you,” Healy says. “So it will remind you: ‘Hey, in two days, by the way you smoke, you’re going to run out. You can either order online and I can place that order for you, or I’ve noticed that you walk by these three retailers quite often and they stock the product.’ ” Upgrades to the new features will be provided to customers who have already purchased the product. About 500 independent c-stores alone are moving about 1,000 units per day. Retailers: Walgreens, Sheetz and independent convenience stores
Cig2O: John Geoghegan of Kretek International Inc. says that as far as he knows, his company is the only e-cigarette importer and marketer that is licensed to import tobacco products, as well as licensed to sell tobacco products, in all 50 states. The company offers a two-piece rechargeable stick design and a disposable version. Retailers: a “long list” of c-stores, including Schoon’s Pump ’N Pak
Crown Seven: Ron MacDonald, president of Crown Seven, says the company is one of the longest running in e-cigs, dating back to 2007. The company’s offerings are packaged similarly to a pack of cigarettes, so cartridge refills are two to a package the size of a pack of cigarettes. Because they can fit in cigarette slots, it “keeps it streamlined.” Retailers: Smoke N Go and Midwest petroleum
Finiti: Russell Stone, president of Finiti Branding Group, Northbrook, Ill., says the company focuses on offering a disposable product. “We feel that the initial barrier to entry for some of the consumers is price point, so we focused our line revolving around the disposable unit.” He says Finiti’s “unibody” construction means no leakage, and that the company is averaging 2.5 sticks per store per day. Retailers: CoGo’s, Dandy Mini Mart, Timewise Food Stores, Handee Marts and independents
Freedom Smokeless: While many e-cigs are made overseas, Freedom is made in the United States at an FDA-registered facility. Glenn Kassell of Freedom says it costs sometimes double what manufacturers pay in China, but the company still makes efforts to compete on price. The company uses the same solution for both its disposable and rechargeable offerings, he says, to provide a consistent experience to customers. C-stores selling Freedom products average about $350 a month in sales. Retailers: some 7-Elevens, Daily’s, Freedom Valu, Smoker Friendly and other locations Mistic: Andrew Evans of Mistic says the company’s eCigs have stainless-steel cartridges, rather than plastic, so they are more durable. The filters also have color-coded bands to allow customers to discern the “strength” of the e-cig, as well as tell theirs apart in a multi-user household. Retailers: Pilot Travel Centers, Flying J, Road Ranger, Love’s Travel Stops and independents
NJOY: NJOY’s products are manufactured in food-grade “good manufacturing practice” facilities, which have been certified by SGS Group, the world’s largest control and inspection company, according to Sottera Inc. president Craig Weiss. NJOY also retained a U.S. scientific consulting firm to conduct a chemical analysis and assessment of the aerosol from the NJOY products. The consulting firm determined that the tested products deliver nicotine without significant exposure to other toxicants that would make NJOY’s product unsafe for human consumption. Retailers: 7-Eleven, RaceTrac, Hess, The Pantry, Sunoco and Chevron
PureSmoke: According to Derald Andrews, vice president, the company’s prepriced single-unit disposable requires less time to explain and is easier to use, resulting in faster transaction times. The company also provides a display that uses a minimal footprint and can be displayed behind or on the checkout counter. Retailers: Xtra Mart, select 7-Eleven stores, select Circle K stores, Timewise Foods and Kwik Stop
Vapor Corp.: Adam Laufer, attorney for Vapor Corp., said the company’s lifetime warranty is one of the differentiators for the company, which includes Fifty-One, Krave, EZ Smoker, Smoke Star and Green Puffer brands. For the fiscal year ended 2010, the public company had $10.9 million in sales, and already for the six months ended June 30, 2011, it’s had $9.3 million in sales. Retailers: select 7-Eleven stores, Rite Aid, Alliance Energy locations and independents