Sunday, November 24, 2013

Built-In Advantages Give Big Tobacco an Edge in E-Cigs

The Big Three are now in it to win it. 

If there was ever any doubt that major tobacco companies have designs on the emerging electronic cigarette market, a recent roundup in the Wall Street Journal makes the case with ease, something that eager acolytes of e-cigs are anxious to avoid. No doubt about it, Big Tobacco wants in.

Results from intensive test marketing in Colorado have, like a political primary, provided an early indication of where the popularity lies. Reynolds American, the nation’s 2nd largest tobacco company (Camel), led the, uh, pack with its offering, the Vuse e-cigarette, introduced in July. Vuse racked up a 55% market share in that state. Next in line, with 25%, was Blu, owned by the 3rd largest cigarette maker, Lorillard (Newport). NJOY, an independent company, came in third.  The elephant in the room, Altria Group, the largest U.S. tobacco firm (Marlboro), is still in the test marketing stage with its e-cigarette entry, the MarkTen. Altria began testing the MarkTen in Indiana and Arizona in late summer.

It took Reynolds less than 16 weeks to achieve market dominance in Colorado, and the company made sure that investors heard about it. With 1,800 retail outlets in Colorado, and a database of 12 million tobacco consumers, Reynolds is perfectly poised to benefit from the inherent advantages of being Big Tobacco. The Big Three have three major head starts, the Wall Street Journal reported: “extensive distribution networks, existing customer relationships numbering in the millions, and deep pockets.”

The market for electronic cigarettes has broken a billion dollars, say stock watchers. This magic number seems to have energized the Big Three to take a heavy step into a market that has been around in nascent form since 2006, even though it’s still small change compared to the $100 billion U.S. tobacco market. It was not clear, in the beginning, whether Reynolds, Lorillard, and Altria would attempt to, pardon me, snuff out the competition, or dominate it. That decision now appears to have been made, and the game is on.

Stephanie Cordisco, president of R.J. Reynolds Vapor Company, which markets Vuse, said the marketing tagline in Colorado was: “A perfect puff. First time, every time.” 

So far, e-cigarettes, which heat nicotine-based liquid to create a vaporized mist, have benefitted from the fact that they are not, at present, savagely taxed like regular cigarettes. And e-cigs come in flavors, cherry and pina colada being among the favorites.

In April of 2012, Lorillard broke the e-cig barrier when it acquired Blu Ecigs for $135 million. At the Wall Street Journal, Mike Esterl suggested that the move came “as the Food and Drug Administration weighs a possible crackdown on menthol-flavored cigarettes, which represent about 90% of revenue at Greensboro, N.C.-based Lorillard, owner of the popular Newport brand. The FDA already has banned all other cigarette flavors.”

Reynolds followed Lorillard into the market early in 2013 with Vuse. And the giant Altria Group announced in October that it planned to expand sales of the MarkTen after successful “lead market” sales. It’s too early too say how it will go for the MarkTen, but Altria CEO Marty Barrington said in a conference call reported by the Richmond Times-Dispatch that the company is not overly worried about cannibalizing Marlboro sales: “I can tell you that with respect to who is trying the products in e-vapor generally,” he said, “ we do know that there is dual use. As adult smokers try e-vapor products, we know that some of them are satisfied and others are not. Some of them use [e-cigarettes] situationally.”

That does not sound like an executive rolling out a stop-smoking therapy tool.

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1 comment:

Bob Swann said...

I think if the big cigarette companies and brands want a piece of the pie they're going to have to produce their own version or line of e-cig.

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