The E-Cig Factor

The E-Cig Factor

Perhaps the biggest story of the year has been the impact that e-cigarettes and related prod-ucts have had, and continue to have, on the convenience distribution industry. While 46 percent of survey respondents said their traditional cigarette unit sales had declined in 2013, 54 percent said their electronic cigarette sales increased by more than 20 percent, and interviews with individual distributors indicated that in many cases the increase is far higher than that. Fifty-four per-cent said they were carrying six or more brands of those products.

Josh Altman, vice president of purchasing and marketing at Mountain/Service Distributors, South Fallsburg, NY, said his company is carrying 15 brands of e-cigarette products and that 2013 sales of those products “will triple what we sold in 2012.” “There has been tremendous growth and right now the profit margin is holding,” Altman told Convenience DistributionTM. “It can be anything from 9 to 20 percent.”

“It just keeps going up and up,” said Gummer. “The business keeps changing from what came out a couple of years ago with the new varieties of vaporizers and related products. They take up no space in the store; they can be put on the counter, and profit margins are higher for the retailer than anything else we sell.”

“E-cigarettes are definitely increasing,” said Chad Owen, vice president of business affairs at Chambers & Owen Inc., Janesville, WI. “It is a healthy category with new products being introduced and new customers coming in every day. Companies are coming out with different promotional programs that we’ve been able to take advantage of.” Chambers & Owen now carries five brands of e-cigarettes, but expects to increase to at least eight in 20014 as Altria, R.J. Reynolds and Liggett introduce new e-cigarette products. Currently, he said, the most popular brand is blu.

At Pine State, Canning said the company increased its e-cigarette sales five-fold in 2013 over 2012, and the opportunity for continued growth continues. “In my opinion, we’ve only really tapped the surface,” he said, noting that Pine State sells tobacco to about 3,000 stores and only about 1,500 purchase e-cigarette products so far.

Although Louisiana is a low tax state when it comes to taxing cigarettes, Hugh Raetzsch Jr., president, Lyons Specialty Co., Baton Rouge, LA, agreed that as volume shifts towards e-cigs the category could potentially become an impor-tant profit contributor given the much healthier margins than typically found in the cigarette and tobacco category.

“It will be very interesting to see how this goes over the next few years,” Raetzsch added, noting that the Food and Drug Administration is expected to initiate some form of regulation on the products. That, he and other distributors acknowledge, could cause product sales and attendant profits to soften. Focus on High Profit Items “We’re all trying to diversify to sell more profitable items as a whole,” Raetzsch said. “Our industry continues to struggle with declining gross profits, and we have to do something to turn that around. Short of going out and raising prices, the only way to do it is to sell more profitable items.” In his view, e-cigarettes, vaporizers, paper products and foodservice all offer higher profit opportunities.”

From all of the feedback from many of the best convenience store distributors in the US, I conclude that the e-Cig and e-Vap industry, yes, the e-Cig factor, is here to stay.  It is the right category niche at the right time…and profitable.  A winning combination for the c-store industry.

Source: Convenience Distribution Jan/Feb 14