BARRINGTON, Ill. – Sales of electronic nicotine devices (ENDs) rose in convenience stores, according to the latest Balvor Retailer Composite (BRC). Dollar sales were up 7.1%, while retail units sold grew 26.4%.
The March sales growth rate is dramatically lower than Balvor’s 4Q14 analysis that showed December sales grew more than 25% year over year, said David Bishop, managing partner of Balvor.
He shared two market observations that help explain the slowdown. More than 90% of the retailers now sell Refillables, also known as open-systems, up from 50% last year during March. This means consumers have more options today in terms of where to buy these products.
Reynolds American Inc.'s Vuse is still expanding nationally with approximately 70% of the retailers reporting sales during March 2015 period. As a result, sales growth is negatively impacted for retailers who aren’t selling this brand yet.
In terms of system types:
- Disposable continues to decline versus last year both on a sales and units basis. It now represents less and one third of the category’s dollar sales versus over half in 2014.
- Rechargeable has extremely strong sales and unit growth year-over-year due to significant product innovation and promotional support from manufacturers. It accounts for over half of the dollar sales, up from one third last year.
- Refillables are experiencing mixed results with sales down and units up as sales shift toward the E-liquid segment which has lower price points. And, while sales are down, it dollar share is up this year almost 6 percentage points to nearly 16%, driven by greater availability at retail.
Balvor expanded its analysis this quarter to include profitability measures.
“Understanding profits is vital to growing the business more effectively and we now have that missing piece,” Bishop said. The BRC revealed that weighted average gross margin for the category is 40.4% during March, down around 60 basis points from 12 months ago.
“Although no one likes margin compression, there aren’t many, if any tobacco segments where retailers are able to generate on average more than $3.50 per unit sold,” Bishop said.
Beyond the END category, Balvor also completed parallel analyses of cigars and smokeless tobacco.
The composite is based on item-level data from 14 convenience retailers, representing retailers of different size and from various regions across the United States. Balvor uses custom segmentation and equalizes chain-wide data to an “average per store week” (APSW) basis. This approach removes much of “noise” associated with changes in store count between periods, minimizes sample bias that would skew toward larger-store operators, and provides more actionable insights.
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