The Battle for the Electronic Cigarette Market

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Battle for the Electronic Cigarette Market
Battle for the Electronic Cigarette Market

The Growth of the Electronic Cigarette Market

With the electronic cigarette market growing by triple digits almost every year, it is no wonder it has received a lot of attention from the big tobacco companies. Although the market is still relatively small compared to the normal cigarette market (2.7 Billion vs. 80 Billion USD), it is still causing concern to the big tobacco players, as the growth of the market does not look like it will stop. Analyst Bonnie Herzog, from Wells Fargo, has even gone on to say that the electronic cigarette market will overtake the normal cigarette market by as early as 2024. Bloomberg have however made a more conservative estimate saying that e-cigs will overtake normal ones by 2047.

However, 2014 has seen a marked slowdown in sales and this recent period has been described as a critical time for e-cigarettes. The slowdown can potentially be attributed to the increasing pressures of tightened regulations around the world alongside heightened scepticism from public health advocates. Brazil and Australia for instance, have banned electronic cigarettes altogether until more research is done on them and many other countries are looking to enforce stricter regulations. Despite a slight slowdown in sales in 2014 and possible stricter regulations on the horizon, I think the electronic cigarette market is well and truly established and looks like it is here to stay.

Battle for the Electronic Cigarette Market Projection Graph
Battle for the Electronic Cigarette Market Projection Graph

Big Tobacco’s Entry into the Market

The unprecedented growth of e-cigs has not gone unseen by the large tobacco firms. The first acquisitions have led to a battle for the electronic cigarette market whilst the big firms look to enter and establish themselves in an extremely competitive market place. Large tobacco firms realise that this is a product that could possibly render their traditional products obsolete and are therefore desperate not to miss out.

The big tobacco players have taken very different approaches to entering the electronic cigarette market, with some opting to make big acquisitions and others looking to develop their own products. Some people have said that the big tobacco’s products are not as advanced and efficient as the established brands as they lack the technology and years of experience. They do however boast large budgets for advertising and marketing their products and you would think it is only a matter of time until their products become as good as or better than the incumbent firms. It will be interesting to see how their products develop and be sure to check out our reviews of some of the Tobacco owned brands over the next few months. Let us know what you think and if you have tried any of them please let us know what you think of them in the comments section below.

Who Owns What?

Battle for the Electronic Cigarette Market Infographic
Battle for the Electronic Cigarette Market Infographic

We have put together the infographic above of the big tobacco firms and the normal cigarette brands they own and whether or not they have acquired or started their own e-cigarette brands. It is interesting to see who owns what and how each giant is going about entering this new market.

Most recently and perhaps surprisingly, Reynolds American Inc. sold the world’s largest e-cig producer, Blu, to Imperial Tobacco as part of its proposed acquisition of Lorrillard. Imperial Tobacco’s CEO, Alison Cooper, stated that she thought that the purchase was extremely important in the context of the divestiture package with Lorrilard which included the purchase of several normal “third tier” cigarette brands. The big acquisition of Blu, alongside Imperial’s other acquisition of Skycigs in the UK, as well as them producing their own retail focused disposable brand Puritane, marks a strong move into the e-cigarette market. It has propelled them to the head of the market very short period of time. Imperial Tobacco has also made a strategic acquisition of intellectual property owned by the original e-cig patent holder, Hon Lik, through its purchase of Dragonite for $75 million. Intellectual property could be game changer in the e-cigarette market and this seems like a wise move by Imperial Tobacco. So from being the last ones to enter the market, Imperial have now taken what seems like an early lead in the battle for the electronic cigarette market.

Reynolds American Inc. sold the world’s largest e-cig producer, Blu, to Imperial Tobacco

The Blu divestiture leaves Reynolds American Inc. solely reliant on their own brand, Vuse, which has been strongly marketed in the USA. Despite this being their only brand left, it seems to be gaining traction in a competitive US market. We will be reviewing the Vuse product soon to see how it stacks up against other brands. It does however seem slightly odd that they would so easily give up what seemed like an extremely valuable long term asset in Blu, but I guess only time will tell. Interestingly as of this week, Reynolds American Inc. have asked the FDA to ban open tank vaporizing products (egos and mods) stating that “open-system vapor products create unique public health risks and are highly subject to adulteration and tampering”. Oddly, they only sell a cig-a-like product and are calling for a ban on a product they themselves do not have and which is becoming increasingly popular. It seems like a bit of a desperate move by Reynolds and looks like they cannot compete in an ever growing open tank market.

Altria Group Inc. has also made big steps into the market with its purchase of the popular cig-a-like brand Greensmoke for $110 million. They have also created their own brand Markten which they have marketed aggressively in the USA and together with Vuse now own about 25% of the US market.

Philip Morris has made a cautious approach into the e-cig industry and has only made the two relatively small acquisitions of the UK brands, Nicolite and Nicocig. They have also recently announced that they will be launching iQOS, a reduced risk tobacco product that will heat tobacco as opposed to burning it. This innovative product will differ completely from conventional e-cigs. The product will go on sale in Italy and Australia next year.

Japan Tobacco International has also been quite cautious and has purchased the successful Elites brand in the UK alongside developing their own start-up brand called Ploom. Ploom produce a vaporizer product that heats tobacco, similar to the iQOS product by Philip Morris.

British American Tobacco has recently identified their lack of progress into the non-tobacco market as one of their main risks going forward. They currently only have their own brand Vype a UK focused cig-a-like product. Having identified this risk they have announced the launch of a second e-cig product within a “reasonable timeframe”. Of course let us not forget, BAT also own a considerable stake (42%) in Reynolds American, who as mentioned above now only have their own brand Vuse in the e-cig market.

Potential Takeover Targets

There are still many independently or publicly owned e-cig only firms, who have yet to be acquired by the big tobacco firms and own significant market shares in the e-cig market. As shown in the infographic, four non tobacco owned firms made up the top 5 e-cig firms by revenue in 2013.

Njoy are the 2nd largest firm in the US by revenue and enjoy a host of celebrity endorsements including that of Bruno Mars. They pride themselves on providing the most realistic e-cigs, focusing solely on the cig-a-like type product which comes with a soft tip making it feel like a real cigarette. Njoy raised a 3rd round of funding in 2013 worth $75m, and its backers include the famous Facebook president and ex Napster founder Sean Parker. Their revenue in 2013 was around $170m giving them the 2nd largest market share in the US behind Blu.

four non tobacco owned firms made up the top 5 e-cig firms by revenue in 2013

V2 are also another extremely successful privately owned e-cigarette business and are the number one online e-cig provider in the US. They also have a strong online presence in the UK and Europe and are expanding their business into other countries. The V2 brand provides an extensive variety of e-cig products. They provide not only the cig-a-like products but also the more advanced e-go/pen-like models alongside an exclusive women’s range called Vapor Couture. V2’s revenue was around $80m in 2013.

There are also two famously publicly listed pure e-cig firms. These include the International Vaporgroup, who owns the famous brands, Vaporfi (formerly Vaporzone), South Beach and Eversmoke. They boast a good mix of brands focusing on both the cig-a-like products and also the e-go/pen-like products which are becoming the more preferred option for the more advanced vapers. The International Vaporgroup had revenues of $63m last year and their stock is trading at $ 0.0388 on the OTCMKTS. The other large publicly listed e-cig stock is Vaporcorp, who own the brands Smoke 51, VaporX, Alternacig and Krave. Their revenues in 2013 were $26m and their shares are trading at $1.81, down 80% YTD, and are listed on the NASDAQ.

The Future

It will be interesting to see how the battle for the electronic cigarette market develops and if the big tobacco firms stick to their own brands or decide to acquire the other specialist e-cig firms. I think it is only a matter of time until the big tobacco firms put in offers for the likes of the International Vaporgroup and V2. I think both firms have a great mix of cig-a-like products and also the e-go/pen-like products which give them good exposure to a growing and fast changing market. Njoy would also make a good acquisition for any of the big tobacco firms, as it would automatically give them a large market share of the US market. So far though, it seems that the tobacco firms are keen to develop their own products. Apart from the Blu and the Greensmoke acquisitions and a few smaller ones, there hasn’t been much takeover activity. However, I think there will be a significant increase in takeover activity as the e-cig market continues its strong growth, forcing the hand of the tobacco giants over the next few years. Alternatively the big players could play it safe until more research comes out on the safety of e-cigs. However, by that time they will no doubt have to pay a premium for the brands they could snap up for a bargain now. A few bold moves now could be pivotal in the battle for the electronic cigarette market. It will be an interesting few years for sure.

Let us know your thoughts in the comment section below. Will the tobacco firm’s own products rule the market or will the already established brands continue to lead the way?

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Chris Kendell
Chris Kendell is the co-founder of Vaping360. He started the website with his brother and co-founder Alex in 2014, after Alex introduced him to vaping. Chris was immediately won over by the revolutionary and potentially lifesaving impacts that vaping can have on our society. In his minuscule spare time, you can find Chris travelling and exploring new places from his base in Germany, eating delicious food and enjoying a range of different sports.
  • Alan Beard

    Thx for this insight, Is it not the case that open tank systems represent 60-70% of the market as a minimum(UK) and that Tobacco co have a minimal presence here. Also most market analysts like Nielsen + Herzog are unable to accurately assess b+m or internet sales as zero data is available.

    • Hi Alan, the article is now over a year old and since then the market has changed dramatically. You are most likely correct in saying that 60-70% is now dominated by open tank systems, but there is little data available, as you say, to track B&M and online sales.

      • Alan Beard

        thx Chris, unfortunately e-cig opponents were crowing over this article recently (Chapman S) citing the large Tobacco Industry involvement in the overall market (mistakenly)

        • Thanks for the heads up Alan, could you do me a favor and send me a link to the article? I sadly could not find it.

          • Alan Beard

            No, you misunderstand Alex ,Simon Chapman quoted your article in one of his tweets

          • I have found it, thanks!