NEW YORK -- Bonnie Herzog picked a precipitous day to host a "Tobacco Talk" conference series with Logic Technologies Inc. president Miguel Martin: the Wells Fargo senior analyst featured the first interview with Martin after news that the Pompano Beach, Fla.-based company had overtaken the long-leading blu in convenience store volume.
"We're very proud to announce that today, according to Nielsen's c-store data, Logic is the No. 1 company in the U.S. in terms of units," Martin said of Logic's 24.3% share. "That is a big deal for us and a big deal for the category."
It was a bit of good news amidst data that is suggesting a downward trend in the category overall, something Herzog described as "quite frankly, a concern."
"A lot of the data we receive is through Nielsen and suggests the growth of the e-cig market has been decelerating," she continued. "It's actually been on a decline on a year-over-year basis in terms of c-stores."
"The quick answer is we don't see the deceleration," Martin said, acknowledging that this might be specific to just Logic.
Martin said the Nielsen data only paints a partial picture of what's occurring as it draws from a panel of specific retail locations. To capture a broader picture, companies like Logic also look at data from Management Science Associates (MSA), which is gathered from wholesale-to-retail shipments.
"MSA trends tell a little bit of a different story than what Nielsen has told." MSA, he explained, shows e-vapor up over 50% this year in each of the major retail outlets. "We look at it as a very healthy sign that e-vapor growing volumetrically. Put another way, one should no longer focus exclusively on electronic cigarettes but on the entire e-vapor market."
Additionally, the entrance of both new trade channels (such as mass merchandise) and new retailers in existing trade channels (such as convenience stores) suggests there's ample opportunity for further growth. According to MSA, 140,000 outlets are currently selling e-vapor products, compared to 350,000 selling cigarettes.
"I think there's more growth out there," Martin said. "I believe any store that sells cigarettes responsibly to adult smokers is a viable place to sell electronic cigarettes. From a distribution standpoint, there's a lot of opportunity."
Another prominent topic of conversation was the entrance of Reynold's Vuse and Altria's MarkTen.
"One of the questions I know that's been out there is how effective can companies like Logic be against all of the prowess and power that the major tobacco companies have," said Martin, who formerly worked at Altria. "I think the best way to predict the future is to look back on what happened with blu."
Martin reflected on how Lorillard purchased blu and quickly catapulted the brand to a 40-plus market share. "Without being critical, that share has come down a little since then," Martin said, referencing blu's current 23.0% unit and (still leading but down) 31.9% dollar share.
"I think you're going to see a similar thing with Vuse and MarkTen."
Indeed, we're already seeing the sudden catapult of these two behemoths. According to the Nielsen report ending Aug. 2, Reynolds was third in terms of unit share (15.6%) and fourth in dollar share (10.8%), while Altria was fourth in units (13.1%), third in dollar (14.0%). This before either brand has been fully rolled out nationally.
Of course, both Reynolds and Altria are reaping certain benefit from strong price discounting. And there's also the question, Martin suggested, of whether these products are benefitting from being the new players on the block.
"The reality is those companies have world-class sales and marketing organizations," said Martin. "One of their skills is getting very quick distribution and generating a lot of trial through their adult-only consumer databases."
"I think what we haven't seen yet, is the consumer reaction to those products," Martin continued. "Whether through couponing or discount work, a lot of people who maybe aren't in the category will have the opportunity to try MarkTen and Vuse. Question is, once they've tried it, how do those products hold up against other products currently on the marketplace? We think the best products will win."
Martin holds firm that more than the size of the manufacturer, it will be the best products that ultimately will thrive, primarily because e-cig users, perhaps more than any other consumer base—are interested and willing to try several products, especially those who have already made the change from cigarettes.
Martin added that, when looking at Logic's core market on the East Coast (where the company boasts anywhere from a 60% to 66% share), recent expansions by Big Tobacco may have eroded Logic's volume and dollar shares, but the company's total sales and units are up overall.
"What we see is that even though we can see a little bit of share degradation in our core market, the fact that our units and dollars are up, I think demonstrates great strength and loyalty towards our products," Martin said. "We're okay with the concept that we may lose a little bit of share in the short-term, as long as the overall volume and trial goes up, which is what we see from those offerings."
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