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    Vapor Products Show Strength in Tobacco Category

    NEW YORK -- Wells Fargo Securities LLC's latest Tobacco Talk survey showed promise for the category but also highlighted the threat vapor products present to electronic cigarettes and traditional cigarettes.

    The survey, which includes tobacco retailer and wholesaler contacts representing 35,000-plus convenience stores in the United States, found that despite a slowdown in the e-cigarette category, the growth outlook remains robust for the segment, with a forecasted 15-percent annual growth. In addition, retailers are looking forward to the national expansion of Reynolds American Inc.'s VUSE and The Altria Group Inc.'s MarkTen, according to Bonnie Herzog, managing director of beverage, tobacco and consumer research.

    "We believe Vuse and MarkTen could help re-accelerate growth and re-invigorate the e-cig category," she said.

    However, vapors/tanks/mods (VTM) have been making a strong plea for space and pose "the greatest threat" to e-cigarettes and combustible cigarettes, Herzog noted.

    "We have been keeping a close eye on the VTMs sub-segment of e-vapor and believe VTMs are growing at twice the rate of the overall category. Shelf space devoted to VTMs has increased 30 percent and 65 percent of respondents said vape shops are either currently or soon could be impacting c-store traffic," she said, adding 2014 will be a pivotal year for the e-vapor category.

    As for traditional cigarettes, Tobacco Talk found that volume declines held steady sequentially in the first quarter. According to Herzog, the competitive environment heated up a bit in the first quarter with 63 percent of survey respondents indicating a slightly more competitive environment -- up from 51 percent in the fourth quarter of 2013. In addition, 44 percent of respondents indicated that downtrading increased, which was up vs. the previous quarter.

    "Though these dynamics are unfavorable for pricing power, they bode well for volume trends, despite the increasing displacement of combustible cigs to e-vapor," she said.

    Herzog added that tobacco companies are expected to take a cigarette list increase in early June. Wells Fargo Securities' contacts put the increase at approximately 6 cents per pack with Philip Morris USA leading the way the week of June 2.

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