The E-Cig Space Barrier
Wells Fargo, Vapor Corp. examine the hurdles facing e-cigs at retail
NEW YORK -- There's little doubt within the tobacco industry that electronic cigarette enthusiasm is high. So it makes sense that Wells Fargo senior analyst Bonnie Herzog decided to center her most recent "Tobacco Talk" series around the nascent category, inviting Kevin Frija of Vapor Corp. to share his insights on the segment.
"The retailers are definitely open to [the category]," Hallandale, Fla.-based Vapor's CEO told conference attendees on Tuesday. "There's a consumer demand that's undeniable. They also see that the profit margins are a little better than cigarettes. It's a new product that is driving consumers to the stores."
Still, with a new e-cigarette company seemingly entering the scene every day, choosing the right product can become an overwhelming task; however, despite there may not be as many viable e-cig options as it seems.
"At first glance, it may seem like the barrier to enter is not that tall and that may be correct for someone to develop a brand online or sell a brand locally," Frija said. "However, as we all know, there's limited space in the stores. Anyone can produce an electronic cigarette bring it to market, but will the retailers actually accept it and will they placement in the stores? That's the real barrier for entry at retail."
As it stands today, Frija believes there's only room for about five e-cigarette companies to truly succeed at the retail level. If--as Herzog has often predicted--e-cigs were to surpass traditional tobacco cigarettes in terms of consumption, the number may grow to ten; still far less than the hundreds of companies currently attempting to market the product.
As most tobacco retailers are aware of, the issue is space.
"Most retailers have started out with a small footprint for electronic cigarettes," said Frija, stating that most retailers start out with one or two options. "As they see the sales increasing and customers having repeat purchases, they have opted to have a larger display space."
Currently, the law allows for electronic cigarettes to be sold on the counter--but many believe that regulations will ultimately force e-cigs to off the counter, meaning retailers will have to make room in an already crowded back bar. According to Frija, some retailers are already doing do.
"I would imagine they look at what is giving them marginal business and replacing some of the OTP and accessory products that aren't moving with our products," he said. "We do believe that eventually that back wall will look a lot differently and will probably have space set aside for electronic cigarettes."
With e-cigs only entering into the scene in recent years, the category has already come a long way from the days of bulky $100 kits sold exclusively online: the one certainty is that the segment will continue to evolve, especially at the retail level.