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NEW YORK -- Electronic cigarettes are still a relatively young product for the convenience channel. But a new Wells Fargo Securities Tobacco Talk survey found that retailers and wholesalers think e-cigs are here to stay.
The interest from major tobacco companies could be a driving a force behind the positive attitude toward e-cigs. Last month, Lorillard Inc. became the first of the big three tobacco giants to enter the e-cig arena with its acquisition of blu ecigs for $135 million, as CSNews Online previously reported. In addition there is speculation that Reynolds American Inc. will be the next to make a move, according to Bonnie Herzog, managing director, beverage, tobacco and consumer research at Wells Fargo Securities.
"The majority of our respondents indicated that they believe e-cigarettes are not just a passing trend but that they are here to stay, with several noting [Lorillard's] purchase of blu ecigs lending credibility and legitimacy to the entire category," she said. "We continue to believe [Lorillard's] e-cig acquisition is very positive and expect [Reynolds American] to be the next mover into this growing category, most likely organically, but we wouldn't rule out a potential acquisition."
Herzog noted that Lorillard CEO Murray Kessler pegged the e-cig industry at approximately 300 million in revenue currently at retail and it is estimated that the figure could grow to $1 billion in the next few years with attractive margins. In addition, there are no federal or state excise taxes levied on e-cigs at this point so they remain relatively cheap compared to traditional cigarettes, she added.
She did point out that Wells Fargo Securities does expect some consolidation within the industry, which appears fragmented with dozens of brands in the marketplace.
The electronic cigarettes industry is still waiting for the Food and Drug Administration to issue regulations. In April 2011, the agency said it would regulate them like tobacco products but, more than a year later, there has not been any movement to that end. To date, regulations have come at the state and local levels, with many municipalities adding e-cigs to smoking bans that are already on the books.
"We think e-cigs are to tobacco what energy drinks are to beverages. In other words, similar to energy drinks, e-cigs are profitable, growing quickly, gaining shelf space and consumer acceptance; therefore e-cigarettes are an important new niche category for retailers," Herzog explained.