In response to my article “Are E-Cigarettes Getting Stubbed Out?” and specifically to my comment that slowing imports could be a sign of slowing product demand, Pascal Culverhouse of Electric Tobacconist wrote a thoughtful reply. Mr. Culverhouse can certainly speak with authority on the subject; he happens to be the proprietor of an online vaping retailer based in the UK. He notes that his sales continue to grow at a rather brisk pace of 10% per month.
Here’s my take on your imports theory:
Two years ago, the model (in the US & UK) was that people would buy cigarette-style ecigs, followed by unique cartridge refills which weren’t interchangeable across brands. These cartridges were usually made in China, meaning that the majority of the products needed to be imported.
Fast forward two years and the bottom has fallen out of that side of the market. From occupying around 80% of our sales this time last year, it is now around 20%. Nowadays people are more interested in the ‘tank-style’ liquid kits which can be filled up with any e-liquid of their choosing.
This fact has the following implications:
- Liquid can be blended anywhere and the public is starting to favour domestically-made stuff (instead of bulk-made Chinese liquid), hence reduced imports.
- Tanks last longer, so less hardware is required. Again, meaning less importation of hardware.
- Brands find it harder to tie the customer down because the ‘cartridge refill’ model is all but dead.
There have been many reports about the slowing of the industry, but my feeling is that these reports come off the back of skewed statistics. If you measure the growth of, say, the five biggest brands in the US/UK then you will see their growth curve slowing (this is what we have seen among the major brands we carry – blu, NJOY, VIP, Vapestick etc), but the industry itself is dispersing and growing at a rapid rate.
So from an investment point of view, Big Tobacco has its work cut out, as the ecig industry is becoming more like the wine industry where from one day to the next a customer might want to try a ‘tipple’ of Five Pawns Bowden’s Mate, and then the next they might want some NJOY Samba Sun. I can’t see how punters are going to be tied down in the way they are with tobacco. Vaping is now akin to having a wine glass and the freedom to fill it up with whatever wine you want [Emphasis Charles] — bad news for anyone looking to dominate the industry.
I genuinely feel we are one of the few companies who can truly offer an insight into the market, as we are the only company which covers everything from Big Tobacco, to major independents to quirky start-up brands.
Thanks to Pascal for his thoughtful comments.
I reasoned in my article that Big Tobacco might be better positioned than the smaller upstarts to withstand the inevitable legal and regulatory onslaught facing the industry. But beyond this, Big Tobacco really has no clear competitive advantage over the upstarts, and Pascal’s experience would seem to confirm this.
For those still unfamiliar with the ins and outs of electronic cigarettes, Pascal’s site will give you a good sampling of the market: www.electrictobacconist.com.