The Changing Vapescape

Dollar stores growing share; Vape shops not afraid of c-stores

LAS VEGAS -- The landscape of vape is undergoing a critical change.

dollar stores vaping tobacco (CSP Daily News / Convenience Stores / Gas Stations)

We're not talking about the turbulent tide of tanks, mods, liquids and the glut of fresh products flowing into the market each month. We're talking about a relatively new marketer of vaping products--dollar stores.

"Dollar stores are coming on strongly," Don Burke, senior vice president at data specialists Management Science Associates (MSA), shared with convenience-store and tobacco-shop operators at the NATO Show in Las Vegas.

In a fast-paced presentation, Burke explored the evolution of electronic cigarettes and the broader vaping category in tobacco outlets, convenience stores and dollar stores. In addition, he shared preliminary information from a recently launched proprietary survey of vape shops (see highlights below).

The story of dollar stores begins in the broader context of the channel's cautious embrace in recent years of nicotine products--cigarettes, cigars and vaping. With a chart, Burke showed that while tobacco outlets represent only 3% of total retail outlets, the trade sells 8% of nicotine devices in the United States. Convenience stores, making up 47% of total retail outlets, sell nearly 63%.

Accounting for 5% of total retail outlets, the dollar channel, with up to 30,000 stores, sells only 1% of all-sold nicotine in the United States. But here's the rub--nicotine sales in the dollar channel soared 42% last year, while declining 3% in tobacco outlets and growing a modest 1% in c-stores.

That shift, Burke observed, will continue in 2015 and most likely for the coming years. While no one will match the specialization and breadth of nicotine products available at tobacco outlets, Burke could envision dollar stores aiming to emulate c-stores in inventory breakdown, at least for the top-performing segments.

Indeed, a look at c-stores showed premium representing 67% of total tobacco volume, followed by discount cigarettes at 22%. Vaping made up 2%. At dollar stores, cigarettes dominated with premium and discounted accounting for 90%, but with vaping now making up 8%.

In other highlights:

  • Vape shop survey. In early April, MSA launched a survey of vaping shops, reaching out via email to 7,900 units. With comprehensive responses from 66 (the goal is 200), Burke offered several impressions from vape shop operators:
    • Their biggest competition. Online vape sellers and brick-and-mortar vape shops easily ranked as the primary competition, with c-stores and tobacco outlets lagging.
    • Consumer. While many point to millennials as the sweet spot, vape shops say it's Gen X, with customers between the ages of 31 and 50 making up the largest segment. As Burke put it, "It's an older consumer that are going to them." Of the consumers, more than 70% are smokers who are either looking for alternatives or aiming to quit altogether. "Many consumers see [vaping] as an opportunity to quit or, at least, to try something as a less-harmful" nicotine delivery system, Burke said.
    • Cigalikes (e-cigarettes). The major brands are dominating, led by Reynold's Vuse and MarkTen, which is produced by Altria's Nu Mark subsidiary. NJOY, Mistic and Logic also ranked among the major players.
    • E-Liquids. Unlike with cigalikes, no one manufacturer stands out in the plentiful world of e-liquids. As for flavors, tobacco, menthol and fruit capture virtually the entire spectrum. "You don't need to carry thousands of SKUs."
  • Cannabis. Is weed cutting into vape or cigarette sales? In a word, No! "I think this is encouraging news," Burke said. "Where cannabis has been legalized, we do not see an impact on nicotine delivery."

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