A Category in Flux — Again

C-store retailers are cautiously optimistic about the vapor category despite its challenges

By Renée M. Covino

IT WOULDN’T BE the “e” category without constant eruption. Electronic cigarettes and vapor products are the subject of much attention in tobacco news and regulation, and convenience store retailers are responding with mixed reactions.

On the regulation front, the biggest news revolves around the Food and Drug Administration’s (FDA) still-ongoing decisions for or against the premarket tobacco applications (PMTAs) filed by suppliers for their electronic nicotine delivery system (ENDS) products.

Under the PMTA pathway, manufacturers must demonstrate to the agency that, among other things, marketing of the tobacco product would be appropriate for the protection of public health. The FDA must approve PMTA bids for e-cigarette and vapor products to stay on the market. As of mid-December, the FDA had given the greenlight to just seven products.

The agency handed out its first approval on Oct. 12, authorizing R.J. Reynolds Vapor Co.’s Vuse Solo END system and its accompanying tobacco-flavored e-liquid pods for the U.S. market. The FDA, though, also issued 10 marketing denial orders (MDOs) for the flavored ENDS products submitted under the Vuse Solo brand.

On Oct. 19, the agency granted PMTA approval to four oral tobacco products manufactured by U.S. Smokeless Tobacco Co. LLC under the Verve brand. The products include Verve Discs Blue Mint, Verve Discs Green Mint, Verve Chews Blue Mint, and Verve Chews Green Mint. Verve, however, has been discontinued since 2018.

Before authorizing a tobacco product via the PMTA pathway, the FDA puts it through the lens of: the likelihood that current tobacco users will stop using tobacco products; and the likelihood that current nonusers will start using tobacco products.

The agency received PMTAs for more than 6.5 million tobacco products by its Sept. 9, 2020 deadline. As of late October, the FDA said it was close to wrapping up its sweeping review. The agency is already being sued for several of its refusals.

Retail associations have been pressing the FDA to release a list of the ENDS products given denial orders

to date. In an Oct. 14 letter, five trade groups — NACS, Energy Marketers of America, FMI, NATSO and SIGMA — pointed out that the agency has a responsibility to inform regulated businesses of its decisions.

“Our members do not need any confidential or detailed information about the products; they simply need to know the names of the products so that they can be identified and taken off the market,” the organizations wrote in the letter. “Asking the hundreds of thousands of tobacco retailers to verify the PMTA status of ENDS products with each manufacturer does not fulfill the agency’s responsibility to inform regulated businesses of its decisions.”

The Retailer Perspective

Tim Greene, category director at Smoker Friendly, told Convenience Store News that the chain has taken “a relatively conservative approach as it waits for the fallout of the PMTA process.” Still, the vapor category continues to perform well at Smoker Friendly’s stores, driven by disposables and leading pod-based brands.

The Boulder, Colo.-based chain of 181 tobacco stores operating in eight states has decided to limit its disposable selection to just a handful of brands that it feels meet customer demand and have aspirations of longterm success, Greene said.

“In addition, we are testing a few non-nicotine options in select markets. It’s too early to tell, but early returns are positive,” he noted. “We will continue to monitor the regulatory climate and adapt accordingly as customer demand, regulation and innovation dictate.”

There’s a similar conservative undercurrent at Energy North Group, which owns and operates c-stores, gas stations and car washes throughout New England.

“We are still gun-shy about adding any product that is non-returnable or non-guaranteed,” said Jonathan Ketchum, vice president of retail. “But having a larger assortment makes a bigger impact on the backbar and draws more attention to the category.”

The retailer plans to continue monitoring the category on a weekly basis, and will perform a seasonal reset in the first quarter of 2022 based on consumer trends and spending.

Currently, the category is outperforming total store sales by triple. Additionally, category sales are double 2020 numbers, and up by doubledigits compared to 2019 results, Ketchum said, crediting increased SKU and brand count, albeit conservatively.

At Greenville, S.C.-based The Spinx Co., the vapor category has been consistent when looking at year-over-year performance in both sales and volume, according to Chris Dillard, tobacco category manager. The fourth quarter of 2021 was slated to bring some deep-discount and targeted promotions in the category, with a focus on driving foot traffic and volume through the end of the year.

“I’m cautiously optimistic on the e-vapor category as a whole and believe that post-PMTA, the category will continue to grow.” The Vapor Category’s Pros & Cons

PROS:

• Growth in the global e-cigarette market has accrued due to the changing consumer perception toward combustible cigarettes, a decline in the consumption of cigarettes, an upsurge in the working population, an uptick in tobacco cigarette prices, and peer influence among youths.

• The fastest-growing regional market is the United States due to increasing awareness of safer tobacco alternatives, continuous efforts of anti-smoking organizations shifting tobacco consumers to alternative forms, and increased customer acceptance due to the cost-efficiency of these devices.

• The e-cigarette market is anticipated to benefit from trends such as an upswing in Gen Z income, the emergence of flavored e-cigarettes, the increasing influence of social media, and the rise in technological developments by e-cig makers.

CONS:

• Growth of the e-cigarette market will be challenged by stringent regulations, nicotine exposure in e-cigarettes, and surging concerns over the side effects of e-cigarettes and vapor products.

• The pandemic is causing an adverse disruption through halted production and logistics activities, affecting the demand and supply of e-cigarettes around the world.

“I’m cautiously optimistic on the e-vapor category as a whole and believe that post-PMTA, the category will continue to grow,” Dillard said. “However, we have been very conservative in our e-vapor product expansions, shying away from many of the ‘pop-up’ disposable companies pushing flavors. And given the recent denials from the FDA, we were smart to take this approach, with many of these products now having to be pulled from the market.”

For 2022, Dillard believes the category will see a rise in “synthetic nicotine” and nicotine from fruits in an effort to bypass FDA regulation. He intends to take a conservative approach to all new products, including synthetic.

“We want long-term, consistent growth in the category, offering reliable products and not taking an opportunistic approach to bringing in products and companies that are unproven,” he explained. “I’m all in for new products and testing new subsegments, but it must be done in a methodical manner with reliable manufacturing partners.”

Another retailer expecting an uptick in synthetic nicotine products is Ray Johnson, operations manager for Speedee Mart, which operates 22 stores in Nevada. He says he is keeping category inventories low “cause I’m assuming the switch to synthetic is near; on the horizon.”

Looking Further Out

In early October, the FDA in partnership with the Centers for Disease Control and Prevention (CDC) released the 2021 National Youth Tobacco Survey, which had a major focus on electronic cigarette usage this year.

The survey revealed that an estimated 2.06 million U.S. middle and high school students are using vapor products, down from 3.6 million students in 2020, a drop of nearly 40 percent. However, the study’s authors cautioned that this year’s survey was conducted mostly online, and at home with parents around, and therefore cannot be compared to results from surveys done in previous years collected from classrooms. Nevertheless, a recent Winston-Salem Journal article pointed out that the significant reduction in e-cigarette use so far during the COVID-19 pandemic could play an influential role in how much the FDA opts to further tighten regulations on the product sector. For instance, the survey found flavored e-cigarettes were consumed by 86 percent of high school users, compared with 29 percent using menthol e-cigarettes, so tobacco analysts believe it is likely all flavored e-cigs will be banned.

Meanwhile, misinformation threatens progress toward a smoke-free future, according to a new international survey released by Philip Morris International (PMI). This survey — fielded among nearly 30,000 adults in 26 countries by independent research firm Povaddo and commissioned by PMI — revealed that many adult smokers remain unaware that better alternatives to cigarettes exist, are unable to access them, or are confused by false or misleading information that prevents them from making an informed choice.

“People expect public health bodies and regulators to reach a scientific consensus around innovative smoke-free alternatives and provide adults who smoke with evidencebased information about these products,” said Gregoire Verdeaux, senior vice president of external affairs at PMI. “Misinformation about smoke-free alternatives — often based on opinion — is a persistent issue that is having realworld consequences.”

Nearly half the adults surveyed believe wrongly that e-cigarettes and heated-tobacco products are more harmful than or equally harmful as cigarettes (45 percent and 46 percent, respectively). Asked why they have not considered switching to a better alternative, around a third of smokers surveyed cited lack of information about how these products differ from cigarettes (33 percent), uncertainty about the science (35 percent), and having easier access to cigarettes than alternative products (32 percent).

According to PMI, the survey findings also demonstrate how accurate information about better alternatives can help smokers move away from cigarettes. The vast majority of adult smokers who have switched to a better alternative and stopped smoking (91 percent) confirmed that having accurate information about how these products differ from cigarettes was an important factor in their decision.

Of adults who smoke, 63 percent said they would be more likely to switch to a better alternative (such as e-cigarettes or heated-tobacco products) if they had clarity on how these products differ from cigarettes and the science behind them. CSN

“We will continue to monitor the regulatory climate and adapt accordingly as customer demand, regulation and innovation dictate.”