The Electronic Revolution
Are e-cigarettes the spoils of another gold rush or a harbinger of transformation for the tobacco category?
The U.S. Court of Appeals upheld NJOY’s injunction in 2010, finding that the FDA could regulate electronic cigarettes only as tobacco products. The ruling not only gave this nascent segment a legal classification, but it also opened the door for the convenience channel—the largest retailer of tobacco products in the United States—to become the brick-and-mortar destination for the electronic revolution.
Seemingly overnight, electronic cigarettes stormed the industry, with everyone from 7-Eleven to single-store owners now solidly committing to the segment. Big Tobacco joined the rush: Lorillard was first, with its $135 million purchase of blu eCigs in 2012; it was followed shortly by other established tobacco players, including Swisher, Kretek and National Tobacco.
By the end of 2012, e-cigarettes had matured from niche novelty product to what many retailers believe could become the single largest in-store category by 2020.
“Tobacco for a long time had this taint of being a ‘dying category,’ ” says William Slattery, tobacco category manager for Dallas-based Alon Brands Retail. “That there’s now some true potential growth for retailers in this business is great. How long has it been since a tobacco category manager could get excited about a new product?”
From Prospect to Potential
Despite the excitement, despite the entrance of trusted tobacco players into the space, many retailers were skeptical. This was especially true in the first years of electronic cigarettes, when the field was flooded with unknown companies with little experience in the retail world, hawking products of dubious quality.
“Early on, we saw products that couldn’t be supported, whether it be with merchandising or day-to-day support,” says Jason Healy, founder of Charlotte, N.C.-based blu eCigs (now a part of Lorillard Tobacco Co.).
Even retailers who saw e-cigarettes’ potential took their time to properly educate themselves on a product unlike anything else in the tobacco category—and perhaps unlike anything else in the entire c-store channel.
Though Steve Monaco, director of category management for Rockland, Mass.-based Tedeschi Food Shops, was not skeptical of electronic cigarettes, it wasn’t until last April that he jumped into the e-cig segment with both feet.
“[Our] hesitation was based on obtaining as much knowledge about the category as possible before we would roll it out,” Monaco says. “That way we were able to share this knowledge with our store operators, who in turn could talk intelligently with the consumer.”
Because electronic cigarettes are arguably as much a tech product as a tobacco product, there’s plenty for retailers to learn. Thus, when Slattery took over Alon’s tobacco category last year, he “immersed” himself in the segment.
“I’ve probably learned more about electronics over the course of the last year and a half than any other category I’ve managed in the last three years,” he says. “It’s amazing how much there is to know about these products and the companies who make them.”