Vapor Migration Causes Cigarette Volume Declines to Accelerate

Vapor Migration Causes Cigarette Volume Declines to Accelerate

Vapor Migration Causes Cigarette Volume Declines to Accelerate

~~NEW YORK -- Electronic cigarettes are taking their toll on traditional cigarette volumes, according to a new survey by Wells Fargo Securities LLC.

In its latest Tobacco Talk survey, Wells Fargo reached out to its tobacco retailer and wholesaler contacts representing more than 30,000 convenience stores. The respondents reported that cigarette volume declines accelerated slightly in the fourth quarter of 2013 vs. the third quarter. The dip was likely driven by the migration to e-cigarette and vapor products, according to Bonnie Herzog, managing director, beverage, tobacco and convenience store research at Wells Fargo.

While e-cigarettes are still experiencing strong growth, it is decelerating a bit. However, vapor products are gaining traction, Herzog said.

"Despite a slowdown in the e-cig category, the outlook remains robust for e-cigs as annual growth is topping 20 percent with 31 percent more shelf space being devoted to e-cigs," she explained. "A key trend that we see emerging is the increasing prevalence of vapors/tanks/open system vapor products, which we think could be somewhat marginalizing the 'cig-alike' e-cigs, but incrementally growing the overall 'e-vapor' category."

She added that a number of vape shops have been opening up around the country and although they are not a threat for c-store retailers -- yet -- these new shops are on retailers' radar screens.

"Bottom line, retailers continue to embrace the e-cig/e-vapor categories and continue to credit blu with driving awareness and growth. We believe consumption of e-cigs will eclipse consumption of traditional cigs over the next decade as e-cig technology improves and conversion continues to accelerate," Herzog said.

Aside from blu, which is owned by Lorillard Inc., the other Big Tobacco companies are still finding their footing in the e-cigarette arena. According to Herzog, the latest Tobacco Talk survey showed a "tepid response" to The Altria Group Inc.'s MarkTen product, while R.J. Vapor Corp.'s VUSE product has garnered "encouraging response by retailers, likely driven by deep discounting and coupons."

Tobacco Talk also revealed that approximately 60 percent of electronic cigarette purchases are repeat purchases. In addition, e-cigarettes are taking cigarette share, according to 92 percent of survey respondents