E-Cigarettes Shift Focus of Tobacco Retailing

NEW YORK -– The month of June is expected to bring big news to the electronic cigarettes market -- news that is likely to have a significant impact on the already changing face of tobacco retailing.

Winston-Salem, N.C.-based Reynolds American Inc. will host its Investor Day on June 6, and many are predicting the company's e-cigarette Vuse will make a big splash during the event.

That affair will be followed by Richmond, Va.-based The Altria Group Inc.'s Investor Day on June 11, which is anticipated to reveal details of the tobacco company's own version of an electronic cigarette.

"Clearly, there is a lot going on with new players," said Bonnie Herzog, managing director of tobacco, beverage and consumer research at Wells Fargo Securities LLC, noting that new players bring more products, SKUs, competitive pricing and evolving technology.

The increasing number of e-cigarette players will also cause "things to get more cloudy," but time will tell how things shake out in the retail space, Herzog said during a conference call this morning with Andries Verleur, CEO of Miami-based electronic cigarette company V2 Cigs.

According to Herzog, who will win ultimately -- and she believes there could be more than one winner -- will be successful in building a brand. Superior technology and repeat purchases will also be key factors to succeeding, she explained.

As the battle for the e-cigarette consumer heats up, retailers are already allocating more space to the emerging segment. This is part of an overall trend of retailers opening up more space for all other tobacco products, which typically deliver higher margins.

When it comes to defining the electronic cigarette consumer, Herzog said retailers are mostly seeing current cigarette smokers who are looking for an alternative and attracted to the price of an e-cigarette.

Verleur added that, geographically speaking, the customer base is pretty evenly spread across the United States -- though slightly higher in the Southeast. In addition, more than 70 percent of e-cigarette users are between 30 and 55 years old.

"Consumers are more concerned with smoking alternatives as they approach their late 20s, so there is less of an appeal to the younger [demographic]," he said.

Rechargeable electronic cigarettes, a current favorite among online consumers, are starting to see an uptick in brick-and-mortar retail sales, noted Verleur. As the price point of rechargeables becomes more consistent with disposables, he believes more consumers will move toward rechargeables.