E-cigarette revenue is expected to double to over $1 billion in 2013.
“If the technology continues to innovate the way that it has been, in 10-15 years from now, we are the replacement to big tobacco,” says Andries Verleur, CEO and co-founder of e-cigarette maker V2 Cigs.
By now, you’ve probably seen someone puffing on an e-cigarette – a plastic tube which lights up as it turns a liquid into water vapour to simulate smoke, providing the nicotine and sensation of smoking. With revenue from e-cigarettes expected to double this year to over $1 billion and up to $1.7 billion by some estimates, the makers of these plastic addiction sticks are gradually burning away at the $80 billion sales of tobacco, with e-cigarette sales predicted to pass traditional cigarette sales by 2047, according to Bloomberg Bloomberg Industries.
Although the health effects of e-cigarettes are still to be determined – the Food and Drug Administration is reportedly preparing to regulate the devices – smokers have not been deterred from buying the light-up devices.
V2 Cigs expects to exceed $100 million in net sales and claims to be the world’s largest online retailer of e-cigarettes. NJOY, which raised $75 million in funding from the likes of Peter Thiel and Sean Parker currently controls 40 percent of the U.S. electronic cigarette market, its CEO told Bloomberg.
Most e-cigs are produced in China, where pharmacist Hon Lik, founder of e-cigarette maker Dragonite claims to have invented them a decade ago.
“Our products are usually about a third of the cost [of traditional cigarettes],” said Verleur, who tried his first e-cig in Prague before co-founding V2 in Miami, Florida, growing it from three people to 200 staff. “It is possible there could be further taxation which could level the playing field, but in 90% of markets that has not occurred.”
E-cigarettes are hooking customers with low price tags and increasingly pervasive advertising campaigns – for the first time in 43 years, cigarette ads will return to TV as second-largest tobacco U.S. manufacturer Reynolds American Reynolds American Inc. plans a national rollout of its Vuse e-cigarette.
Despite impending regulations, analyst suggest it’s a growing industry – according to ratings agency RPT-Fitch, consumption is expected to grow 40%-50% in the next year, while Citigroup Citigroup predicts e-cigarettes will have a $3 billion market segment by 2015.
“We went from a 0% share in the tobacco market to a 2% share in the U.S.,” Verleur reflected. “This will be our fourth year of pretty much tripling sales year over year.”
V2 is now expanding into European distribution centers to serve customers in the EU, India, Africa and Middle East – critical expansion considering the region’s appetite for the products, with over 1.5 million Britons smoking electronic cigarettes according to the Guardian. Locally, V2 will also be expanding into 35,000 stores, including Hess gas stations in the U.S.
“Whereas in 2012, our business was 80% online, by the end of this year online will probably only generate between 60-65%,” Verleur predicted. “I would project by summer of next year online would be less than 50% of the business, not because online is retracting but because retail is growing even faster.”
Despite Verleur’s sunny forecast, the glory days may be numbered for these small players, as big tobacco hopes to smoke out the vapor upstarts. In April 2012, Lorillard Inc, the third-largest tobacco manufacturer in the U.S. purchased Blu ECigs for $135 million and has since boosted distribution of the product to more than 80,000 stores, according to the Wall Street Journal. This August, the largest cigarette maker in the U.S., Altria Group Inc., started selling its MarkTen e-cigs, reports Bloomberg. Imperial Tobacco Group Plc., Europe’s second-biggest tobacco company, recently announced plans to buy Dragonite International Ltd. (329)’s electronic cigarette unit for $75 million.
And with big tobacco comes big ad money. According to the New York Times, Blu eCigs brand spent $12.4 million on ads in major media for the first quarter of 2013, compared with $992,000 in the same period a year ago. Lorillard intends to spend $30 million on marketing and celebrity endorsements this year for Blu eCigs.
To the concern of parents, e-cigarette use has doubled among teens. Last year, 10% of high school students said they tried e-cigarettes, up from 4.7% in 2011, according to the National Youth Tobacco Survey released by the U.S. Centers for Disease Control and Prevention.
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