NEW YORK — On a monthly basis, the jockeying among the top five e-cigarette companies in the convenience store space may seem marginal. But what is revealing--at least until RJ Reynolds and Altria ramp up their programs--is that no one seems to be bumping out any of these companies.
Nielsen’s latest data, obtained by CSP, once again show Lorillard’s blu as the No. 1 player in the convenience channel in both dollars and units sold. And, similar to October, Logic and NJOY each could boast being No. 2, with 21st Century and Nikotek assuming fourth and fifth place in a channel flooded with over 200 electronic cigarette brands.
In the 52-week period ending Nov. 23, blu garnered a 36.1% unit share in the c-store sector, Nielsen transaction data shows. Logic is now in second place (20.8% unit share), having recently passed NJOY (currently third at 17.7%); 21st Century and Nikotek rank fourth and fifth (respectively, 7.3% and 4.6% unit shares).
Over the same period, blu earned a 44.8% dollar share (up 35.1 share points year over year). NJOY maintained second place (20.6% dollar share), followed by Logic (18.5%). 21st Century and Nicotek round out the top five (with, respectively, 4.2% and 3.0%).
And more important to convenience operators, e-cig dollar sales soared 92.8% in the period.
The numbers suggest approximately $700 million in annual sales in Nielsen-tracked channels, which also include the expanded all outlets combined channel (e.g., grocery, drug, mass merchandiser, and membership club stores), according to Bonnie Herzog, senior tobacco analyst for Wells Fargo Securities LLC in New York. She expects retail e-cig sales (including non-Nielsen tracked channels) to approach $1 billion by year end and approximately $1.8 billion with online sales included.
While e-cig growth remains a big story, there is a bit of caution in Herzog’s assessment.
“The growth of the e-cig category seems to actually be decelerating a little in the last few months, which is a bit surprising,” she said. “It shows that innovation needs to improve. But we have a lot of smaller manufacturers bringing new technology to the market soon, which will help.”
Judy Hong, tobacco and beverage analyst with Goldman Sachs in New York, said she’s surprised by how quickly the e-cig market appears to be consolidating at the top. “You have three players—blu, Logic and NJOY—now accounting for more than 80% of the market in terms of dollar share.”
In recently leapfrogging NJOY for second place in unit share within c-stores, Logic has also impressed experts.
“Logic has done a very good job of further penetrating retail accounts, which has helped the company move up in unit-share rankings. Also, customers seem to relate to the brands’ premium positioning,” said Herzog, who added that the battle between NJOY and Logic for unit/dollar shares “highlights the competitiveness of the category.”
Looking ahead, the entry of e-cigs from big manufacturers, namely Reynolds’ Vuse and Altria’s NuMark (which began testing MarkTen rechargeables last August) will increase the visibility and awareness of the e-cig category, which Herzog believes could bolster the entire sector.
“Given (Reynolds’) strong relationship with retailers and in-depth understanding of the tobacco category and smokers, I expect the national rollout of Vuse to be successful,” said Herzog. “However, barriers to entry and costs could increase, which could present bigger risks and challenges for smaller manufacturers. Nevertheless, there’s room for both (small and large e-cig makers).”
Herzog noted that while the Nielsen data provides an insightful snapshot, it’s not easy to track e-cigarette sales in the c-store channel, as the category is still new.
“It’s very difficult to know from a usage standpoint if products are being counted accurately,” she said, “because there are different sizes and some are being sold in (multi-pack) kits—how are those being captured? There’s some discrepancy there.”
Hong agreed, adding that analyzing same-store sales data is challenging, as many brands are still building distribution. Also, it’s hard to define equivalent unit measure, which can distort unit share figures.
Indeed, measuring e-cig sales is complicated when you consider there are the three main product delivery methods: wholesale to retail (roughly estimated to currently represent 50%-60% of sales, per Management Science Associates projections); direct-store delivery (approximately 20%-25% of sales); and online (approximately 20%-25%). Considering that online sales (not tracked by Nielsen data) are unable to be gauged accurately and that it’s challenging to gather data on direct-to-retail sales, measuring the e-cig category remains an imprecise science.
One of the ways Management Science Associates (MSA) reports e-cig data is based on equivalent volume units (one unit is counted as one refill cartridge; a refill pack with three cartridges, for example, would count as three units and a disposable containing one cartridge counts as one unit). In reporting shipments from distributors to retail, MSA differentiates sales in three categories: refill cartridges, disposables and kits.
“Like Nielsen, we don’t currently have a complete picture of the e-cig marketplace; no data source does,” said Don Burke, senior vice president of MSA in Pittsburgh. “But if e-cigarettes will be coming under increasing legislative scrutiny, as is the widespread belief in the industry today, then it’s likely that a far greater percentage of the product in the future will be wholesale to retail—which is what we track—versus direct store shipments or Internet sales. As states begin to regulate and tax these products, we believe more retailers will have to go through distributors because the distributors have the expertise to manage a regulated product.”
While many regulatory, tax and industry uncertainties remain, c-store retailers should collect all the available data they can to make more informed decisions about which products to stock.
“For retailers, deciding which brands to carry and allocating space in relatively limited real estate is always a challenge,” said Hong of Goldman Sachs. They should focus on brands that have comparatively higher dollar sales per point of distribution.”
It’s also important for convenience retailers to look at regional numbers to understand which brands seem to be gaining traction, Herzog said.
In addition, Burke urged operators to pay attention to refill/rechargeable products, as the latest MSA data shows they comprise 53% of e-cig volume sold (across all retail channels), based on equivalent volume share.
“Several leading SKUs in terms of velocity are (refill) cartridges, so perhaps that may indicate that the market is shifting more to rechargeables, although it’s still too early to judge,” Hong said.
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