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    The Big Picture on Vapor Products

    Global demand tops $6B as industry awaits word on pending regulations.

    Amid intense public debate over health benefits and risks, and looming government regulation, more smokers are using electronic cigarettes and other vaporizing devices than ever before.

    U.S. convenience store sales of “electronic smoking devices” topped $711.3 million for the 52-week period ended June 14, 2015, an increase of 16.6 percent over the previous year’s sales during the same period, according to Information Resources Inc., a Chicago-based market research firm.

    Moreover, the global vapor tobacco industry nearly doubled in size to just over $6 billion from 2013 to 2014, strategic market research provider Euromonitor International reported. With $2.8 billion in 2014 sales, the United States accounted for about half of all global vapor sales, including e-cigarettes and e-liquids, followed by Italy, the United Kingdom, Holland and France.

    “Barring a very destructive set of regulations worldwide, Euromonitor believes that the vapor products market could reach about $50 billion by 2030,” said Shane MacGuill, senior tobacco research analyst for Euromonitor. “However, over the short- to medium-term, barring a product revolution, vapor products will remain a fraction of the total tobacco market and cigarettes as a category will continue to dominate.”

    Bonnie Herzog, a senior analyst for Wells Fargo Securities LLC, went a step further. While she remains “cautious near-term given slowing category growth and regulatory uncertainty,” she is “bullish long-term, continuing to believe consumption of vapor and other non-combustibles [heat-not-burn] could surpass consumption of combustible cigs in the next decade [by 2025].”

    According to Herzog, c-store retailers are excited about regulation and innovation in the category, but concerned about SKU proliferation and over-saturation of vapor products.

    “Many retailers conveyed their ‘excitement’ for ultimate regulation of the category, as regulatory clarity should help stabilize the overall vapor market, set product standards and clarify the ‘long-term stance’ on flavors,” Herzog observed in Wells Fargo’s most recent "Tobacco Talk" U.S. Vapor Retailer Survey. “Importantly, regulation should help to improve public perception of the vapor category, which has been deteriorating according to almost 30 percent of our contacts — up from approximately 26 percent in Q4.”

    Proposed Regulations Await Approval

    In April 2014, the Food and Drug Administration (FDA) released its proposed “deeming rule,” which would extend the agency’s regulatory authority over a variety of tobacco products, including electronic cigarettes, cigars, pipe tobacco and hookah tobacco.

    Among other requirements, the regulations — not yet approved — would require that makers of newly deemed tobacco products:

    • Register with the FDA and report product and ingredient listings;
    • Only market new tobacco products after FDA review;
    • Only make direct and implied claims of reduced risk if the FDA confirms that scientific evidence supports the claim and marketing the product will benefit public health as a whole; and
    • Not distribute free samples.

    Additionally, there would be minimum age and identification restrictions to prevent sales to underage youth; requirements to include health warnings; and a prohibition on vending machine sales, unless in a facility that never admits youth, for newly deemed tobacco products, according to the FDA.

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