Dec 07, 2012
Vapor CEO Talks Electronic Cigarettes
By Melissa Kress
NEW YORK -- Cigarettes still rule the roost when it comes to the tobacco category, but there is some buzz that electronic cigarette consumption could surpass consumption of traditional cigarettes in the next 10 years.
E-cigarettes arrived on the scene a few years ago and were immediately labeled a fad. However, with developments in the industry and improvements to the product, it is becoming clear that e-cigarettes are here to stay, according to Kevin Frija, CEO of Vapor Corp. Frija was the speaker during this week's Tobacco talk conference call series hosted by Bonnie Herzog, managing director of beverage, tobacco and consumer research at Wells Fargo Securities LLC.
Vapor Corp. could be a snapshot of the industry as a whole. The company launched four years ago with four employees and has grown to 45 employees to date. Talking dollars and cents, Vapor Corp. was an $800,000 company in its first years and ended last year at $16 million in sales, Frija said.
"The industry in the past four years has grown leaps and bounds," he said, noting that in addition to the brands found in retail outlets there are 200 to 300 websites offering e-cigarettes.
According to Frija, 75 percent of retailers today who carry cigarettes are carrying at least one electronic cigarette brand. The growth, he explained, initially came from the wholesale side which led retailers to offer the product which makes it available to consumers to buy. "It's the evolution of growth," he added.
The tobacco industry is a $90-billion industry; by comparison, the e-cigarette industry stands at half a billion dollars, Frija said. Even if the e-cigarette industry only gained 10 percent of the tobacco industry it would still be a $9-billion industry, he added.
When it comes to describing the electronic cigarette consumers, Frija summed it up in one word: smokers. Originally the price points of the electronic cigarette kits topped $100 so early adopters of the product were consumers who could afford that. Today, however, the prices have dropped considerably with rechargeable kits selling for less than $20 and disposable e-cigarettes selling for as low as $5, he said.
"Disposables and rechargeable kits go hand in hand," Frija explained. "Consumers may try disposables first and if they like them they will switch to rechargeable. And people who use kits purchase disposables."
Since the early brands hit the market, the electronic cigarette industry playing field has become crowded with competitors -- which Frija said he encourages. However, the industry is not for everyone. "At first glance it seems the barriers to entry are not that tall," he said, adding that may be true for someone looking to sell online or at local retail outlets.
However, retailers have limited space to cede to new products. "Will retailers accept it and have space for it in their stores -- that's the real barrier," he noted. "Retailers are definitely opened to [electronic cigarettes] and there is consumer demand; that is undeniable."
However, Frija said retailers prefer to carry national brands and at this stage of the game there is not one "true" national electronic cigarette brand.
He added building an e-cigarette brand takes perseverance, persistence and never "taking your eye off the ball."
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