Wicked Wizard E liquid Vuse overwhelming e cig competition". Winston-Salem Journal
Vuse overwhelming e cig competition
There were some initial scoffers when Susan Cameron, Reynolds American Inc.’s chief executive, described the company’s first electronic cigarette, Vuse, as a “game changer.”
After all, Reynolds appeared late to the e cig market with its internally produced product, particularly given the head start of blu e cigs, the top-selling brand acquired by Lorillard Inc. in April 2012.
However, almost a year after Vuse’s national rollout in June 2014, it’s clear Cameron wasn’t just bragging.
According to Nielsen data as of May 16, Vuse has a 35.7 percent U.S. market share as measured by all distribution channels for e cigs. Vuse is available in more than 100,000 retail outlets nationwide.
Blu e cigs was second in market share at 22.7 percent, while Logic was third at 13.8 percent. Logic was bought recently by Japan Tobacco.
Nielsen data focuses primarily on convenience-store sales. Data includes vaporizers, or open vapor products, but those are more frequently bought in vape shops and tobacco outlet stores.
When it comes to unit market share, Vuse already is approaching Marlboro-esque status at 46.9 percent, followed by blu e cigs at 17.4 percent and Logic at 8 percent. “Unit market share” represents the percentage of units sold by a company compared to total units sold in the market. “Market share” measures a company’s revenue compared to the market.
Reynolds has not created a separate financial-reporting line for Vuse revenue, instead including it within its “all other” category, which had fiscal 2014 sales of $263 million, up 37.7 percent from fiscal 2013.
Lorillard reported blu e cigs sales were down 28.3 percent to $165 million in fiscal 2014, although officials are confident the next wave of blu e cigs products will gain traction with smokers.
What has made Reynolds officials so confident in Vuse is their claim that it provides “the perfect puff, first time, every time” because of technology that includes a digital microprocessor. That device works in conjunction with a memory chip to control key elements from vapor delivery to battery management.
What’s also telling in the latest Nielsen data is that MarkTen, the e cig product of Philip Morris USA subsidiary NuMark, continues to struggle to gain market share even though it went national about the same time as Vuse.
MarkTen is at 6.1 percent in all-channel distribution and 7.6 percent in unit market share.
Wells Fargo Securities analyst Bonnie Herzog estimates that overall industry e cig revenue will increase up to $10 billion by 2017.
She also predicts Reynolds will have $4 billion in revenue from e cigs in 2021, compared with $3.9 billion from traditional cigarettes. That's compared with minimal e cig revenue and $6.4 billion in traditional cigarette revenue for 2013.
“We remain encouraged that category dollar sales continue to grow, driven by Big Tobacco’s national e cig rollouts,” Herzog said. “We believe the trial and awareness generated by Vuse and MarkTen should help elevate the entire category and drive incremental trial.”
The industry is focused on Reynolds’ pending $29.04 billion acquisition of Lorillard’s Newport, the No. 2 traditional cigarette and top-selling menthol brand. With preliminary Federal Trade Commission approval given Tuesday, the deal is expected to close by June 30.
In a related development, Imperial Tobacco Group Plc has agreed to pay Reynolds $7.1 billion for four traditional cigarette brands and blu e cigs.
If the deal is completed, Philip Morris is projected to have 51 percent U.S. traditional cigarette market share, while Reynolds would be at 33-to-34 percent holding Newport, the No. 3 brand in Camel and the No. 4 brand in Pall Mall.
Under current trends, Vuse, along with top-selling moist snuff brand of Grizzly and the premium top-10 traditional cigarette brand of Natural American Spirit, could allow Reynolds to take the reins as the industry’s top overall company within the next decade.
Herzog predicted in May 2014 that Philip Morris could see its overall industry market share drop from about 47 percent now to 32 percent by 2023. Reynolds, at 25 percent now, could jump as high as 36 percent.
The scenario is based on a premise that Philip Morris won't buy a smaller e cig competitor -- though analysts say it certainly has the money and motivation to do so.
Reynolds committed in May 2014 to adding 200 jobs at its 2 million-square-foot Tobaccoville plant as part of ramping up production of Vuse beyond a contractor facility in Kansas. It plans to add 70,000 square feet of production space. It said the ramp-up could take up to four years.
Vuse is likely to go global as part of an expected Reynolds technology-sharing agreement with British American Tobacco Ltd. as part of BAT’s $4.2 billion additional investment in Reynolds to maintain its 42 percent ownership stake.
One cautionary note is the growing popularity of vaporizers, which offers far more nicotine liquid flavor choices and options from zero nicotine up to 24 milligrams of nicotine.
However, analysts recognize vapor marketers may have a narrow window of opportunity as the Food and Drug Administration has begun its formal review of all products in the category.
It is expected to release its latest round of regulatory proposals in June that could include limiting Internet sales, as well as current marketing efforts that include television and social media, and curtailing flavorings, such as candy and fruits, that anti-tobacco advocates say make e cigs appealing to youths.
Some analysts believe the FDA will opt to limit, if not ban, open-fill vapor cartridges for public health reasons.
Vuse’s nicotine liquid is in a closed setting, designed so that only its battery can be used in one of its cartridges.
“I expect Reynolds and Altria to follow Lorillard and Logic by releasing closed tanks that contain 2 milliliter or more of e liquid, slightly largely batteries, and some flavor choices,” said Gregory Conley, president of the American Vapor Association.
“Unfortunately, rather than focusing on real innovation that will make a difference for consumers, many of these companies are just looking to recycle ideas and wait for the FDA to remove their small business competitors’ products from the U.S. market.”