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NEW YORK — Electronic cigarettes may not be the traditional tobacco killer some once thought they would be. According to a new consumer research report from Cowen and Co., the e-cigarette segment is attracting new users — particularly those who are new to nicotine.
Dubbed The New Nicotine Enthusiast, New York-based Cowen and Co. updated an earlier report it issued in October that surveyed 1,500 next-generation/vapor consumers. The latest installment found that six months later, "the category is increasingly sourcing from nicotine naïve consumers," said Vivien Azer, director and senior research analyst at Cowen and Co. "This reinforces our confidence in traditional tobacco's staying power over the next five-plus years."
The updated research surveyed another 1,500 consumers: approximately one-third were repeat respondents and approximately two-thirds were new respondents. By breaking up the respondent base, Cowen and Co. aimed to evaluate both the evolution of the consumer, as well as the preferences and impact of new consumers entering the category.
According to Azer, next-generation tobacco sales have quadrupled to roughly $2 billion over the past two years, accounting for roughly 2 percent of tobacco industry sales. Over that same timeframe, tobacco profit pool growth increased 6.9 percent in 2014, with cigarette volume declines easing considerably.
"Next-gen's growing appeal with non-tobacco users helps explain the robust growth we are seeing in traditional tobacco, and also reinforces our conviction around the defensibility of the category," she said.
Azer added that even if the next-generation category grows at a 50-percent compound annual growth rate (CAGR) over the next five years — vs. 54 percent last year — it would still account for less than 15 percent of total industry revenues, assuming a modest 3-percent CAGR for traditional tobacco products.
In the latest survey, Cowen and Co. saw a 550-basis-points increase in the percentage of non-tobacco users in the next-gen category (to 22 percent), relative to its survey six months ago. Among new respondents to the survey, 25 percent were non-tobacco users.
This higher incidence of non-tobacco use is largely being driven by the vapor category, where 31 percent of consumers are non-tobacco users, roughly two times the rate seen for electronic cigarette or dual users, Azer said.
"Not surprisingly, it is younger adult consumers that are driving this trend," she noted. "Among all 18- to 24-year-olds we surveyed, 35 percent were non-tobacco users — and among vapers, a remarkable 45 percent are non-tobacco users."
Vaping continues to grow in popularity among nicotine naïve consumers; however, electronic cigarettes also continue to generate interest. Specifically, e-cigarette-only use fell just 100 basis points across the survey universe in the last six months.
"We believe this reflects the success that Reynolds American Inc. and The Altria Group are having in terms of engaging new/disenchanted e-cigarette consumers, where among consumers [aged] 25 and older, 90 percent are former tobacco users," Azer explained. "As such, while vaping looks to be bringing in a new consumer altogether, it would seem Big Tobacco is doing a reasonably good job of appealing to their core consumer."