V2's Virtual Reality Goes Real

From online to bricks and mortar, Miami-based e-cig company growing penetration

Mitch Morrison, Vice President of Retailer Relations

Andries Verleur

NEW YORK -- With the Big Three cigarette makers now officially in the rapidly emerging game of electronic cigarettes, can a nontraditional break into the brick-and-mortar world of convenience stores?

That's the $1 billion question, and the country's largest online purveyor of e-cig products said it is well equipped to take on Altria, RJR and Lorillard, as well as the more established e-cig concerns like NJOY, Logic and 21st Century.

"We're going to hold a substantial market share because we have a committed customer base," V2 Cigs CEO and co-founder Andries Verleur predicted Monday during an interview with Wells Fargo tobacco analyst Bonnie Herzog.

(Read Mitch Morrison's Twitter coverage @CSPSccop.)

Founded in 2009, Miami-based V2 Cigs has built an online customer base of more than one million patrons in the United States. And at the 2013 NATO Show, it entered into a partnership with National Tobacco Co., the maker of roll-your-own (RYO) and other tobacco products, paving the way for a traditional retail strategy.

Since then, the digital-to-bricks strategy is yielding dividends, Verleur shared with Herzog in a conference called Tobacco Talk, held for investors and media and other interested concerns.

The partnership with National Tobacco, he said, "is something we're excited about and fulfills an answer on how we make a competitive move into traditional retail. … In almost every way the partnership has exceeded our expectations."

In just six weeks, V2 has received commitments to distribute its e-cig products to 10,000 retail locations. And Verleur predicted it would exceed 35,000 by year end.

ECigs Speeding Up

It was in late April at the NATO Show in Las Vegas, when V2 Cigs announced its strategic partnership with National Tobacco Co. (NTC), the maker of Zig-Zag and Beech-Nut tobacco brands. V2 Cigs would work via NTC to distribute its disposable model, along with rechargeable Express Kits and refill cartomizer products.

Since then, the two largest makers of traditional cigarettes--Altria and Reynolds American Inc.--have rolled out their own e-cig lines for test markets with hopes to launch nationally in 2014. And Lorillard, maker of menthol powerhouse Newport, was actually the first cigarette brand to invest in e-cigs with last year's acquisition of blu.

With the cast of hundreds competing in the e-cig market, tobacco analyst Herzog's forecast is not surprising. "We now anticipate the e-cig market will hit $2 bilion by end of this year." And, she boldly predicted, consumption of electronic cigarettes will surpass conventional cigarettes by 2017.

Verleur covered a number of other items during the wide-ranging interview that also included questions from investment groups and even the American Cancer Society:

  • Regulations: More than even restrictions from the U.S. Food & Drug Administration (FDA), Verleur said he is most worried about local and state regulations. "Our greatest concern [on the state level] is taxes … and that we not be placed in the same category as traditional tobacco."
  • FDA: Verleur said his company is teaming with other manufacturers to educate and communicate with Mitch Zeller, head of the FDA's Center for Tobacco Products. Verleur expects some federal action this year. "We know we are to become a regulated industry. The FDA will likely be issuing a deeming regulation this year. This deeming regulation is not a death sentence." He expects regulation to bring consolidation and hoped the FDA would not seek to curb innovation within the e-cig segment.
  • Online vs Retail Sales: The rising popularity of e-cigs in c-stores and tobacco shops is not crimping activity online. To the contrary--Verleur said online sales of V2 products has actually increased three-fold over the past five to six months. He added that e-cigs recently ranked in Yahoo's Top 10 search words and phrases.
  • Innovation: Enhancements will continue in product development, taste and vapor quality. "How do we deliver experience that is comparable and gives the same level of satisfaction as traditional tobacco? That is going to continue to evolve." 
Mitch Morrison Winsight CSP By Mitch Morrison, Vice President of Retailer Relations
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