Wells Fargo predicts that vapors/tanks/mods pose the “greatest new threat” to e-cigarettes and combustible cigarettes.
Wells Fargo Securities LLC recently conducted a “Tobacco Talk” survey of its tobacco retailer and wholesaler contacts representing 35,000+ convenience stores in the U.S., which revealed that the competitive environment has heated up in the first quarter of 2014.
Some 63% respondents indicated a slightly more competitive environment in the first quarter (up from 51% in Q4) and 44% of respondents indicated downtrading increased, which was up compared to Q4.
“Though these dynamics are unfavorable for pricing power, they bode well for volume trends, despite the increasing displacement of combustible cigs to e-vapor. We anticipate industry volume (underlying & shipment) was down -4.5% during Q1,” noted Bonnie Herzog, managing director, Beverage, Tobacco & Convenience Store Research for Wells Fargo Securities LLC.
Despite a slowdown in the e-cig category (consistent with scanner data), Wells Fargo reported that the growth outlook remains robust for e-cigs (+15% annual growth) with 18% more shelf space. “Slower growth notwithstanding, retailers seem incrementally more positive/excited by Reynolds American Inc. (RAI)’s Vuse and Altria Group Inc.’s MarkTen nationwide expansions; in fact, >40% of retailers are holding off carrying extra e-cig brands in anticipation of Vuse and MarkTen. We believe Vuse and MarkTen could help re-accelerate growth and re-invigorate the e-cig category,” said Herzog.
Wells Fargo further predicted that vapors/tanks/mods (VTMs) pose the “greatest new threat” to e-cigarettes and combustible cigarettes. “We believe VTMs are growing two times the rate of the overall category. Shelf space devoted to VTMs has increased 30%, and 65% of respondents said vape shops are either currently or soon could be impacting c-store traffic. Bottom line, we see 2014 being a pivotal year for the e-vapor category,” Herzog said. She added, “We believe consumption of e-vapor will eclipse consumption of combustible cigs over the next decade as technology improves, resulting in accelerated conversion.”