The Vapor Bar.....in the News!
E-Cig Sales Rapidly Losing Steam, Tripp Mickle, Wall Street Journal, 11/15 Wall Street Journal Full Article is at the bottom of this page. Link above is for subscribers only
FDA Cloud Hangs Over Vape Shops, Tripp Mickle, Wall Street Journal, 7/15 Wall Street Journal Full Article is at the bottom of this page. Link above is for subscribers only
E-Cig Sales Rapidly Lose Steam
Wall Street Journal, Dow Jones Institutional News, By Tripp Mickle, Tuesday, 17 November 2015, 22:18
Sales of electronic cigarettes have fallen sharply in recent months, bringing an end to five years of triple-digit growth and making the much-touted category look more like a potential fad than real threat to Big Tobacco.
Growing dissatisfaction among customers, inventory backlogs, new state laws and rising safety concerns are expected to cut the rate of e-cigarette growth in half next year to 57% from its compound annual growth rate of 114% over the past five years, according to the research firm Euromonitor International. Because of the rapid sales declines, Euromonitor research analyst Eric Penicka said he is preparing to "pull back that forecast" even further.
The slowdown has been most noticeable among Big Tobacco's "cigalike" devices, which look like cigarettes. Sales of those fell 21% and volume dropped 11% during the 12-week period ended Oct. 31, marking the first quarterly decline in sales and volume, according to Nielsen data cited by Wells Fargo.
Reynolds American Inc., the nation's second-largest tobacco company behind Altria Group Inc., said in September that it would post $100 million in asset write-downs and exit charges to consolidate its e-cig manufacturing. In July, Reynolds told investors it would miss its goal of making its Vuse e-cigarette brand profitable in the second half of the year.
Sales of vaporizers--the bigger, refillable devices sold at independent vape shops--along with the liquid nicotine used to fill them, have decelerated in recent months, too. The segment is expected to grow just 51% next year, down from an estimated 126% this year and 455% from 2013 to 2014, according to Euromonitor.
"Consumers are disenchanted right now with these products," said Bonnie Herzog, an analyst with Wells Fargo who estimates the e-cigarette market totaled $2.5 billion last year. She said e-cigs need to mimic cigarettes or users won't switch. She added, "It's not that different from diet soda."
The current devices fail to deliver nicotine into the bloodstream as quickly as cigarettes and lack the same so-called "throat hit" that cigarettes offer. Many e-cigarette users have found them so disappointing that they have returned to cigarettes, Ms. Herzog said. The $100 billion U.S. tobacco industry estimates that cigarette volumes are down 0.5% so far this year, far better than the more typical recent declines of 3% to 4% annually.
Reynolds and Altria recently finished a national rollout of Vuse and MarkTen e-cigs to more than 100,000 stores. They offered promotions that gave consumers coupons for free starter kits or packets of cartridges for $1.
Delores DeMaria, a 31-year old stay-at home mother from Lake Wales, Fla., tried Reynolds's Vuse after getting a coupon. She said she choked the first time she used it but continues to take two puffs daily and credits it with cutting her daily cigarettes to two from six. She keeps smoking because cigarettes are easier to inhale than Vuse vapor, which is "so strong and so different that I'll start coughing."
Nick Pepper, a 31-year-old waiter in Providence, R.I., had a similar experience with the Blu e-cigarette brand owned by Imperial Tobacco Group PLC. He had to draw "really, really hard on it to get the vapor out." He's back to smoking a half pack of cigarettes a day.
Consumer feedback like that is leading retailers to reduce inventory. Some retailers like Texas grocer and tobacco-shop operator Brookshire Brothers Ltd. have begun requiring that suppliers guarantee that they would buy back products that don't sell.
David Woodley, executive vice president of sales and marketing at the convenience-store chain Sheetz Inc., said much of the e-cigarette categories' growth was sales to retailers--not customers. He added, "That is beginning to normalize and you are starting to see what the business looks like."
Many vape shops say they are seeing the slowdown. The shops aren't tracked by Nielsen, but vape shop owner Schell Hammel said the number of smokers--who often become new customers--visiting her store in McKinney, Texas, has dropped to about one a week from five a week last year--and 50 in 2013. She lobbies the state government on behalf of 110 vape shops across Texas--all of which she says are reporting sales declines this year.
Part of the problem is confusion about the devices' safety, she said. Most researchers have agreed that e-cigarettes are less harmful than traditional cigarettes because they don't combust and release carcinogens, but the long-term effects of e-cigarettes remain unknown. A January study in the New England Journal of Medicine found the devices can release cancer-causing formaldehyde.
New taxes on e-cigs in cities like Washington, D.C., are damping sales, as are new regulations, like measures passed this year in Indiana that require manufacturers to secure permits and list ingredients.
The industry also is awaiting final rules from the Food and Drug Administration, which could require federal approval for nearly all flavored liquid nicotine juices and e-cig devices.
"That's creating stagnation," said Dimitris Agrafiotis, chief operations officer at Mountain Oak Vapors, referring to the relative safety of his products when compared to cigarettes. "We have a big uphill battle if we can't accurately describe our product."
Write to Tripp Mickle at Tripp.Mickle@wsj.com
FDA Cloud Hangs Over Vape Shops
New FDA rules are expected to require approval for nearly all liquid nicotine juices and e-cig devices
The FDA is expected to complete rules requiring federal approval for nearly all flavored liquid nicotine juices and e-cig devices sold in vape shops. PHOTO: ANDREW SPEAR FOR THE WALL STREET JOURNAL
July 6, 2015 7:00 p.m. ET
ATLANTA—Tige Mercer quadrupled his income when he quit audiovisual freelancing to open Vape Atlanta, in this city’s funky Little Five Points area. He expects his income to rise another 50% after he opens two more e-cigarette stores in nearby cities this summer.
But federal regulations due to be unveiled this summer threaten to ruin his plans.
Within the next two months, the Food and Drug Administration is expected to complete rules that would require federal approval for nearly all flavored liquid nicotine juices and e-cig devices sold in vape shops like Mr. Mercer’s.
The approval process could cost anywhere from $2 million to $10 million to collect data and put forward an application for each item, according to the regulatory consulting company SciLucent LLC.
It’s a price tag Mr. Mercer, who co-owns a liquid-nicotine producer, could never afford. If that happens, he would exit that part of the business, which accounts for about 40% of revenue, and buy more expensive nicotine from an outside supplier. He probably wouldn’t be able to afford the planned expansion.
“It’s hard to make moves under this hovering cloud,” said Mr. Mercer as a white cloud of cotton-candy smelling vapor billowed around him. “Worst-case scenario for me, I fire all my employees, go back to one shop and work myself.”
Mr. Mercer would be one of the luckier vape-shop owners, according to the Smoke-Free Alternatives Trade Association, a lobbying group representing vapor shops and manufacturers. After the FDA finalizes its rule, the association estimates that 99% of the industry will go out of business.
“We call it vapocalypse,” said Daniel Walsh, chief executive of PureBacco USA LLC, a Gaylord, Mich.-based maker of a liquid nicotine called Flavorz.
In April 2014, the FDA proposed rules that would require e-cigarettes, including liquid nicotine and devices, to be approved by the agency. That would be a challenge, e-cigarette manufacturers say, because the FDA has never approved a new tobacco product.
Companies would have six months after the FDA completes its rules to register products and ingredients with the agency, and two years to complete the process of seeking approval—which they may or may not get.
The regulations are expected to cut the supply of liquid nicotine and drive up costs for shop owners and prices for vapers. The big winners likely will be Big Tobacco. Companies like Altria Group Inc. andReynolds American Inc., which have their own e-cigarette brands, are better able to afford the approval process, said Kevin Altman, a consultant to the Council of Independent Tobacco Manufacturers of America.
Meanwhile, small vape businesses fret. “I can’t think of a manufacturer or a retailer it doesn’t keep up at night,” said Schell Hammel, a former smoker and hospital administrator who opened her first vape shop in McKinney, Texas, in 2011.
The FDA’s proposal has made Ms. Hammel’s plans to open more shops an “internal struggle.” She has negotiated leases that allow her to close her seven shops if new government rules damage business. She worries FDA rules would bring an end to the shops’ line of liquid-nicotine brands, which she recently spent more than $45,000 to test. But she plans to operate as long as she can.
“I’m not going to leave the business for financial reasons,” Ms. Hammel said. “That makes me crazy, I know.”
Some of the fiercest advocates of e-cigarettes are those like Ms. Hammel, who used them to kick a 24-year smoking habit. Researchers agree e-cigarettes are less harmful than traditional cigarettes, which release more than 60 carcinogens through combustion, and some studies have shown they can be effective in helping smokers quit.
But e-cigarettes, which arrived in the U.S. around 2008, are so new that their long-term effects remain unknown. Health officials, antitobacco groups and lawmakers have grown concerned about them because cases of nicotine poisoning in children from e-cigarette products have increased, and the Centers for Disease Control and Prevention released a study in April indicating teen e-cigarette use tripled in 2014. Health officials and antitobacco groups are concerned e-cigarettes could become a gateway to traditional cigarettes.
The FDA said in a statement that the new rules will help it “learn more about these products and ultimately ensure that newly regulated products cause no worse harm to users.” The agency added that it plans to provide small businesses time to comply with a final rule.
Not everyone in the vapor industry opposes regulation. Vapeology L.A. owner John Hartigan, 54, said the absence of regulation today puts the onus on him to ensure the liquid nicotine he sells comes from manufacturers blending in controlled environments and doing chemical analysis. “The idea that you won’t have people out there putting juice together without a chemistry background is a good thing,” Mr. Hartigan said.
In the absence of regulation, more than 8,500 vape shops have sprung up in strip malls and stand-alone stores across the country.
Many have become places where former smokers congregate, learn about new devices and try different juices. The clientele ranges from tattooed millennials like Jeff Eldred, 34, a property maintenance worker from Wylie, Texas, to Jerry Davis, 53, a small-business owner in Atlanta.
Mr. Davis was dressed in a golf shirt and khaki shorts last month when he stopped by Vape Atlanta to sample a variety of liquid nicotine flavors like Fruit Loop-cereal inspired “Tucan Slam.” He said he has kicked his three-pack-a-day cigarette habit and estimated he is saving $8,000 a year in health insurance because he stopped smoking.
Vape shop owner Cheryl Richter, who smoked for 32 years, said helping people like Mr. Davis is why she opened Vape Den last year in Port Chester, N.Y. About 70% of the shop’s business comes from its liquid nicotine juices. If FDA rules force her to close the shop, she said she would return to her life as an advertising copy writer or the acting career she once pursued.
“It’s really a matter of just how crazy they will make it for this industry to exist,” Ms. Richter said.
Some liquid nicotine manufacturers are investing in the research tools necessary to apply for FDA approval.
Mr. Walsh, the CEO of PureBacco, estimated it sank $500,000 over the past year into upgraded manufacturing facilities and analytics equipment for his Flavorz juice brand. Five Pawns Inc., a California-based liquid-nicotine company, hired a half-dozen advisers to assist with regulatory, scientific, manufacturing and legal issues related to regulation.
“It’s going to become very expensive to play in the game,” said Five Pawns Chief Executive Rodney Jerabek. “This could mean the end for a lot of small companies.”
Write to Tripp Mickle at Tripp.Mickle@wsj.com