Vape: It's not your father's tobacco product, as reflected in CSP's first-ever vaping-centric meeting in December in Phoenix. And you know it's not your typical tobacco meeting when you have a marquee sponsor whose mission is to "make cigarettes obsolete" and one of the evenings includes a trendy vaping party.
For all the excitement over vape--Oxford's 2014 word of the year--many convenience-store operators are understandably leery of this atypical tobacco segment. More tech product than tobacco, vaping has a vocabulary all its own. Between that and vaping lounges taking the country by storm, some in the c-store channel are left wondering if it's a segment really worth the investment.
But vaping manufacturers represented during the Vaping Academy's marquee-sponsor panel cautioned against this line of thinking. "Why get into vape?" asked Vito Maurici, senior vice president of sales for Scottsdale, Ariz.-based NJOY. "Because the consumers are taking you there."
Despite the vast amount of product configurations out there, the good news for c-store operators is that most manufacturers agree vaping is very similar to a space the channel has already succeeded in: e-cigs.
“It’s an evolution,” said John Wiesehan III, vice president of sales for Charlotte, N.C.-based Ballantyne Brands. “E-cigs are kind of like the training wheels.”
“Where it gets different is: There’s more power, and therefore more satisfaction, for the consumer,” said Maurici. “Only 50% of disposable consumers report no longer using cigarettes; that number goes up to 60% with rechargeables, but up to 92% with hardcore vapers. It’s similar in that it meets a need, but I think vaping is more satisfying and pleasurable than disposables.”
This satisfaction continuum is why c-store operators can and should be competing in the space—and the fact that, as the top destination for tobacco, c-stores are a natural fit for the smokers who are converting over to vape.
“Seventy percent of tobacco sales are through convenience,” said Ron Vogler, senior vice president of business development for Kretek International, Moorpark, Calif. “It would be foolish to not even try to compete in that arena and just concede without giving it a shot.”
But arguing that vaping is not dissimilar to e-cigs might not be the best selling point for retailers who were burned by earlier generations of cig-alike products. “There’s a lot of retailers out there with a lot of dead inventory from those who tried to ride the e-cig boom,” Wiesehan admitted, pointing out that this is happening across all channels.
The dead inventory isn’t merely an issue of product quality, but of vendors who simply do not have the resources to guarantee product returns when “the next big thing” hits, rendering the last big thing obsolete.
Even more concerning, perhaps, is the number of vaping companies who might not have the resources to meet the costly deeming regulations soon to be imposed by the U.S. Food and Drug Administration (FDA).
“Ask vendors what they’re doing about Pre-Market Tobacco Applications (PMTAs),” said Maurici. “If they look at you like you’ve got six heads, that’s a big problem.”
All of which highlights one of the important keys to retail success in vaping: due diligence in selecting which brands to bring in. Though it might be tempting to partner with companies that are selling e-liquids from the trunks of their cars, often on consignment, Vogler said, successful retailers need to consider which companies are in it for the long haul.
“I think you could probably narrow it down to a dozen or so viable companies that you can trust will be in business in the years to come,” he said. “To forecast where this category’s going is impossible. But there has to be some sort of threshold that a supplier has to pass to meet and qualify.”
CONTINUED: Merchandising Challenges
Though some of the dead inventory plaguing retailers is related to ill-prepared manufacturers, a decent chunk is also due to how rapidly this segment is evolving. What was hot six months ago is now yesterday’s news.
That presents a challenge not only for moving inventory, but also for merchandising it. “Racks are built for the products of today,” Wiesehan said. “This can become very cost-prohibitive as the category evolves.”
Common sense and data suggest that to tackle this challenge, new products such as vapor need to be in the most visible spot. “We’ve found that counter displays have been very successful,” said Jerry Buttrey, regional business manager for CB Distributors Inc., Beloit, Wis. “Liquids make 50% to 70% profits for the retailers vs. maybe a 15% margin [for] a different product.”
Another intriguing option for some retailers is merchandising the vaping hardware on the counter in a self-service display, while keeping the liquids on the backbar.
“We have some retailers who have done well with this: keeping the hardware somewhere the consumer can touch, experience and educate themselves,” Buttrey said.
But for the c-store operator, the front counter is a limited, valuable piece of property. Sure, one liquid display might fit, but what if you’re carrying more than one brand? What about other products? And what about retailers operating in regions where self-service tobacco products are prohibited?
According to Maurici, this is where vaping manufacturers need to step up to the plate. “On the issue of merchandising, we need to be accountable,” he said. “Our key learning has been that you have to be flexible. One retailer’s stores are going to be completely different than another’s.”
Even with flexible merchandising and trustworthy vendors, the issue of lower-than-expected turns is likely to be an ongoing problem in vapor sales. Maurici said it’s not necessarily a matter of getting the turns up to par, but of rethinking how the industry tracks nicotine.
“It’s important to look at equivalized usage,” he said, advocating that the industry track how much nicotine is being consumed, as opposed to simply dollar sales. “If I’m a retailer, my consumer unit sales are 48% disposable, and vaping is maybe 12% to 13% of unit sales. But when you equalize how much nicotine the consumer is actually buying in a 10- or 15-ml bottle (of e-liquids), you see that ... in convenience stores ... 33% to 34% of what you’re selling is vape.”
It’s not just rethinking how we track sales, but recognizing that there are a lot of unknowns related to this segment. The panelists all acknowledged the many surprises that have come with getting into vape.
“I was somewhat surprised that when we rolled out Vapin about a year ago, we saw liquids were making a lot of profit for retailers,” said Buttrey. “But when we ran Nielsen in July to look at SKUs, the top three items were equipment, the pens and the tanks.”
Such surprises are not bad news for retailers or manufacturers, especially those willing to look at nicotine sales in a new frame of mind.
“We’re selling more nicotine than we ever have as a company,” said Maurici. “We need to start thinking about nicotine differently because consumers are looking at it differently. It’s a trend we can’t ignore.”
It may be more than a trend. If you look at the passion and knowledge of hardcore vapers or the fact that 92% of vapers have been successful in eliminating combustible cigarettes from their lives, Vogler said vape is beyond a flash-in-the-pan word of the year.
“This category is not wine coolers; it’s not a fad,” he said. “This is a lifestyle change, and it’s here to stay in one way, shape or form.”
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.