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Electronic cigarettes are smokin’ hot right now.
A relative newbie on the merchandise scene, electronic cigarettes or alternative smoking devices are lighting up sales at convenience stores nationwide and are furnishing convenience store retailers with a full-bodied revenue stream, igniting customer traffic counts and setting new records for both sales and unit volume.
According to figures provided to Convenience Store News by Nielsen, sales of e-cigarettes in the U.S. convenience channel totaled $507.7 million for the 52-week period ended Nov. 23, 2013, constituting a huge 134.5-percent increase over the same period in 2012, when sales advanced a still-impressive 57 percent over the corresponding 2011 timeframe to $216.5 million.
Meanwhile, unit volume for the same 52-week period ended Nov. 23 rose an even more dramatic 160 percent to 46.3 million units, a doubling of the volume recorded during the same timeframe a year earlier. At that time, volume rose 82 percent to 17.8 million units.
For 2014, the CSNews Forecast Study (published in January) is projecting another stellar year for e-cigarettes, which have found a ready audience among consumers who are either looking for an alternative to traditional cigarettes or a smoking cessation option. Sales and volume increases this year are projected to be in the triple digits once again, with total c-store industry sales forecasted to advance 120 percent over 2013, and sales per store pegged to grow an impressive 118 percent. Unit volume per store is targeted to increase a whopping 130 percent this year over last year.
In order to estimate where the e-cigarettes category is headed next, it might be helpful to compare the category’s performance to the recent performance of energy shots — another relatively new c-store category that rose sharply and then plateaued as consumers became fully acquainted with the products and sales saturation was reached.
E-cigarettes appear to be mirroring the same performance trajectory of energy shots, but at a steeper angle. This may be due to the wider variety of e-cigarette options on the market, including disposables (which look like traditional cigarettes), refillables (larger and filled with e-liquid) and voltage variable offerings (devices that create vapor).
According to Nielsen data on new universal product codes (UPCs), the percent of active e-cigarette UPCs that are new rose 32.5 percent for the 52 weeks ended Nov. 23, down from 40.9 percent for the same period in 2012. At least for now, the electronic cigarettes category is still being fueled with a range of new products that continue to support category growth and drive sales. However, if e-cigarettes follow the trend of energy shots, the percent of new products will continue to decline as the category matures.
While it lasts, though, convenience store operators — well acquainted with the dramatic spikes of hot new launches — are welcoming the sales and volume jolts being provided by new e-cigarette products before the category settles into a less-volatile pace.
Looking at the trend in unit volume and dollar sales growth over the last several years for different segments of the tobacco category, it is clear that while e-cigarettes still account for relatively low numbers, the segment’s growth has been striking. While the mature cigarettes and other tobacco products (OTP) segments have generated a steady rate of sales, e-cigarettes have posted huge month-over-month increases, spiking dramatically in the summer and early fall, then dropping to match the growth rates of cigarettes and OTP.
In late 2013, CSNews presented a webcast entitled “E-Cigarettes — The Future of Smoking” that included Bonnie Herzog, managing director and senior beverage and tobacco analyst at Wells Fargo Securities LLC. She stated that “consumption of e-cigarettes could surpass consumption of conventional cigarettes within the next decade.”
Herzog also noted the similarity of e-cigarettes to energy drinks, another category that premiered several years ago with a similar fast-growth trend. Like energy drinks, e-cigarettes are profitable, growing in shelf space and gaining consumer acceptance.
Obviously, electronic cigarettes and other smoking alternatives have been a boon to the nation’s tobacco companies, offering them a growth avenue and a way to mitigate the decline of conventional cigarette sales. Such new products also allow the tobacco companies to spread their business across more categories, helping them to better cope with the vicissitudes of consumer smoking behavior and trends.
According to Nielsen, the top 10 e-cigarette companies for the 52 weeks ended Nov. 23 based on c-store dollar sales were: Lorillard Tobacco Co. (blu eCigs), NJOY Inc., LOGIC Technology Development LLC, CB Distributors Inc. (21st Century Smoke), Nicotek LLC, Ballantyne Brands LLC (Mistic), FIN Branding Group LLC, Spark Industries LLC (Cig2o), Green Smart Living, and Baron Brokerage Corp. (Green Stix).
Lorillard, with sales at U.S. convenience stores totaling $190.8 million and units totaling 15.4 million for the 52-week period, also claimed four of the top 10 e-cigarette products based on c-store dollar sales. These products were: blu Classic Tobacco, 1-count; blu Magnificent, 1-count; blu Starter Kit, 1-count; and blu Classic Tobacco refill, 5-count.
NJOY, with $147 million in sales and 15.8 million units sold during the 52-week period, also had four products in the top 10: NJOY Bold Premium, 1-count; NJOY Premium 3-percent nicotine, 1-count; NJOY Bold Premium menthol, 1-count; and NJOY Premium menthol, 1-count.
LOGIC, with sales of $72.8 million and volume of 5.5 million units, rounded out the top 10 products with its LOGIC Platinum two-pack, 5-count; and LOGIC Platinum two-pack, 1-count.