Vapor Trends To Watch
Don Burke outlines key opportunities, warning flags for 2014 and beyond
CHICAGO -- As volatile as the tobacco category--or more accurately, the total nicotine category--can be, it remains a crucial part of the convenience store channel. And vice versa. According to Management Science Associates (MSA) distributor data, the channel accounts for 72% of total nicotine delivery product volume.
This symbiotic relationship between convenience and tobacco is part of the reason why MSA senior vice president Don Burke said it’s important for retailers to pay attention to how different tobacco and nicotine products are performing across all retail channels--especially when it comes to the burgeoning e-vapor market.
Some of Burke’s bigger takeaways on the segment included:
Though convenience has long-reigned supreme in owning tobacco and nicotine sales, it’s no surprise that other retail channels are making a run at the illusive tobacco shopper. Burke has often spoken about the impact mass merchandise retailers like Dollar General are having on c-store cigarette sales (read the full story here) – but that impact is no longer limited to just cigarettes.
In 2013 70% of e-vapor volume came through c-stores; that percentage has fallen to 64%. Tobacco outlets are also feeling the pain, going a 20% share of all e-vapor volume to 14%.
“While convenience was one of the first channels to embrace e-vapor (after tobacco outlets), it’s now growing in the other outlets,” Burke said.
Consider it a case of mass merchandise striking again; however, Burke says it’s not just dollar stores after the profitable e-vapor segment, but more traditional mass merchandise operators like Walmart as well.
“This is something to watch,” Burke warned. “You don’t want to lose your edge in this possibly strong category.”
Volatile Vapor Data
When attending retailers were asked what they most hoped to get out of this year’s meeting, understanding vapor was one of the most prominent answers. It's a concern Burke shares, considering even research firms like MSA don’t quite understand what’s going on with the segment thanks to the lack of concrete data.
“Data source is critically important,” he said. “When you look at data, you really need to understand what is being measured in order to understand what it means.”
MSA’s data focuses on wholesale shipments to retail. This is highly problematic when looking at vapor, which is distributed in many different and nontraditional ways. Burke estimates 60% of the segment is distributed through traditional wholesalers, 20% online and 20% through direct-to-store shipments. Because online sales and direct-to-store shipments are not tracked by MSA, Burke readily acknowledged that it wasn’t a complete picture he was presenting.
“The data I’m showing you covers just 60% of the market,” he said. “It may give you indications, but may not necessarily be accurate. In fact, today no one really knows what in accurate in the e-vapor category. It varies so much and is very tough to measure.”
While wholesale data is better than no data (while Nielsen and IRI track electronic cigarette sales, neither company measures vaporizer or e-liquid sales), it can be very easily skewed, as we’re currently seeing with big pushes of Vuse and MarkTen. Relying only on wholesaler data, it would appear that Reynolds’ and Altria’s e-cigarettes arecompletely crushing the vapor category; but Burke pointed out that this doesn’t necessarily mean that customers are buying the products, just that a ton of stores are carrying them.
“It’s too early to get re-order info,” said Burke of both Vuse and MarkTen. “Right now, they’re getting a huge distribution deal that’s going to throw off this category.”
With all the attention on vaping, it’s easy to understand why many retailers have questioned whether it’s worth staying in the “traditional” electronic cigarette, or cig-alike, business.
“Everyone says cig-alikes are dying,” Burke said. “But we’re not seeing sales going down.”
Quite the opposite. MSA shows cig-alike volumes are up 8%.
Granted, e-liquids are growing by roughly three times that rate, but Burke believes it’s an issue of technology, not a preference for larger devices.
“What we are finding is that many consumers who try the product aren’t getting as quite the level of satisfaction in a cig-alike as they may be getting from this liquids and vaporizers,” he said. “But as technology improves in cig-alikes, I wouldn’t rule them out. As that satisfaction level increases, I think sales may go back up. They’re still more convenient.”