Vaporizers: A Case of the Vapors

Personal vaporizers becoming more than a wisp of the electronic segment

By
Melissa Vonder Haar, Tobacco Editor

The Henley Vaporium in New York’s SoHo neighborhood lets vaping enthusiasts and newbies experiment with new products and flavors.
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Only a few years ago, the electronic-cigarette segment was barely a consideration in retailers’ product sets. And now that it’s one of the hottest subcategories in the industry, some of its offshoots are also catching fire.

Last summer, RBC Capital Markets tobacco analyst Nik Modi noticed a distinct shift away from these cig-alike products and toward the larger, often more expensive personal vaporizer units (also known as tanks and eGo units) that allow consumers the luxury of customizing and filling their own flavored e-liquids.

Sure enough, a Google Trends search of “electronic cigarettes” and “vape shops” confirmed Modi’s suspicions: While searches on electronic cigarettes are starting to decline, searches on vape shops are surging.

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

Beyond online searches, Modi reported that RBC’s own research shows this segment is far more than just a niche trend.

“Based on the consumer work we’ve done so far in this area, it’s catching on like wildfire,” he said.

Vaping-centric lounges and shops have been taking advantage of this growing opportunity; Modi estimates that 3,000 such establishments have popped up across the United States. But the convenience channel has been hesitant to embrace it.

“That will never sell in a c-store”; “It’s too expensive”; “It’s too complicated”: These are just a few of the protests heard by Lou Maiellano, president of Sevierville, Tenn.-based TAZ Marketing & Consulting Group, when he brings up the vaporizer segment. The protests are similar to what Maiellano heard when electronic cigarettes first burst onto the scene.

“[A retailer who says this] is putting themselves in a box—the same box we experienced in 2008 with e-cigarettes,” Maiellano says.

One of the biggest misconceptions about vaping products is the cost. As with electronic cigarettes, technology advancements have allowed the once-high price point of tank systems to drop significantly.

“Vapor kits used to sell for about $100 to $150,” says Kevin Fija, CEO of Vapor Corp., Dania Beach, Fla. “Until recently, we were one of the only companies to bring them down to under $50.”

While Vapor Corp. has been in the tank business with its Vapor X line for about two years, many of the e-cig companies that c-store operators already do business with are now developing vaporizer lines. 21st Century Smoke has Vapin Plus, and Crown 7 has the Gladiator. V2 CEO Andries Verleur hinted that his Miami-based company will also enter the vaping market.

“A significant number of electroniccigarette companies and tobacco companies that are in the industry are seriously taking a look at this segment,” says Maiellano.

As co-founder of the New York-based Henley Vaporium—one of the many vapor lounges making millions off the segment’s popularity—Peter Denholtz is not at all surprised to see this trend becoming more mainstream.

“It’s going to become its own category; it really is,” he says.

But how big will that segment really be? Are these vaporizers the next evolution of the electronic industry, or merely a fleeting fad?

Tank Appeal

One reason behind the confidence Denholtz and others have is the number of perks vaping products offer consumers. Somewhat surprisingly, being more economical is one of the segment’s biggest benefits.

Yes, there’s an initial investment for the units themselves. But Maiellano doesn’t see this as a barrier, especially as the public becomes more educated about vaping.

“Consumers have already proven they’re willing to spend on this segment,” he says. “They already spend $34.99 on a blu kit.” And that initial price point is dropping: Vapor Corp. now has a tank kit that retails for just $20.

“The consumer really gets their money back within the first month,” Frija says, “because the e-liquids are that much less than the cartomizers.”

As much as rechargeable electronic cigarettes offer a better value than disposable units, e-liquids go that much further. While price points vary depending on the amount of nicotine and quality of the juice, Frija estimates it costs about $3 for a cartomizer replacement as opposed to $1 to refill a tank. (Like cartomizers, a tank refill typically represents about two packs of cigarettes.) Denholtz’ high-end liquids cost roughly $2 per refill.

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