New Kid On The Tray

LOGIC-AL PROGRESSION

Logic plans to debut a custom countertop acrylic display for its e-cigarettes in grocery stores this year.

Electronic cigarettes are finding their way into major grocery chains, but retailers and suppliers need to work together to educate consumers on the relatively new OTP.

There once was a time when grocery stores just sold groceries and convenience stores were the place to go for cigarettes, beer and snacks. But that has all changed as consumers look for a one-stop-shop-ping experience.

As the lines between retail sectors continue to blur, it stands to reason that more products that were once considered staples in c-stores are finding a place in grocery stores. The latest to make the move are electronic cigarettes.

Electronic cigarettes have been around for a few years, but technologic advances really brought them to the mainstream in 2009. The products act, look and feel like a cigarette, minus the tobacco, smoke and ash. Instead, as the Washington-based Tobacco Vapor Electronic Cigarette Association explains, an e-cigarette "is simply a battery and five main ingredients (propylene glycol, glycerol, nicotine, water and flavoring) that work in harmony to provide adults with their desired nicotine in a hand-to-mouth ritual."

While most of these products have been typically found in tobacco retail outlets, convenience stores, restaurants and nightclubs, e-cigarette companies are taking the next logical step into the grocery channel.

'Existing Opportunity'

TSC Global sees electronic cigarettes as way for grocery stores to capture more of the other tobacco product (OTP) category as sales of traditional cigarettes continue to slip. The company's Mistic brand is currently available in relational locations such as Walmart, Sam's Club, and TA and Petro Travel Centers.

"Electronic cigarettes give grocery retailers the opportunity to offer an emerging new product as a viable alternative to traditional tobacco cigarettes," explains Jay Galletly, president of Charlotte, N.C.-based TSC Global. "The trend is expanding to the point where customers are expecting to see our product where they shop. The existing opportunity for grocers is to capitalize on this growing trend."

Mistic is a comprehensive e-cigarette product line, Galletly says, adding that the key is the product groupings and packaging. Mistic One offers the customer a rechargeable battery and one cartridge. Mistic Two provides the customers with a starter kit: one rechargeable battery, two cartridges and a USB charger. Mistic Three goes one step further by providing the customer with two rechargeable batteries, one wall charger, one USB charger and three cartridges.

"The attractive yet simplistic approach has made it easy for consumers to work their way from a first-time purchaser to a repeat customer," he says.

When it comes to marketing and promotions, TSC Global takes a two-strategy approach: securing the best possible distribution to quality retailers and marketing the brand name Mistic to the end user, Galletly says. And plans are to step up that approach this year.

"In 2012, Mistic will increase upon those strategies by continuing to expand our distribution and unveiling a national marketing campaign to promote our brand," he says. "We want to be the recognizable brand name of choice, and we are prepared for that type of growth."

On the drawing board are national print and radio ads, an increased Internet presence through the company's website and social media, and increased customer service.

On the retail end, TSC Global offers point-of-purchase marketing, from floor mats and signage to literature and door clings, Galletly says, adding that the company's experience with wholesalers gives it the ability to work with small grocers as well as large chains.

A Growing Grocery Presence

Logic Technologies also sees a place for electronic cigarettes in grocery stores. The Livingston, N.J.-based company's Logic disposable electronic cigarettes can be found merchandised with traditional cigarettes in ShopRite stores. According to Howard Panes, co-founder of Logic, the product is advertised in ShopRite circulars and "is doing unbelievably well."

So well, in fact, that Logic is in talks with other grocery chains to put the company's e-cigarettes on their shelves as well. Panes declines to name those retailers while talks are still ongoing, but there's no indication that the e-cigarettes won't do well in other chains, he says. "Right now, grocery accounts for approximately 20 percent of our business," Panes adds.

To further its grocery efforts, the company is also working on a new custom countertop acrylic display aimed at grocery stores, which is expected to debut this year. Currently, Logic offers 5-foot stands, countertop displays, acrylic stands for literature on electronic cigarettes, countertop change pads and double-sided window stickers.

As for the product itself, Panes says Logic disposable cigarettes taste like a traditional cigarette, and that the company has nine patents pending on its technology, a two-piece system that uses natural oils. The e-cigarettes offer five levels of nicotine, depending on the adult user's preference: Logic Platinum Label (2.4 percent nicotine), Logic Black Label (1.8 percent nicotine), Logic Gold Label (1.4 percent nicotine), Logic Sterling Label (1.1 percent nicotine) and Logic Zero (up to 0.1 percent nicotine).

Logic also offers a choice when it comes to flavor: tobacco or menthol. The Food and Drug Administration (FDA) banned flavors for traditional cigarettes in fall 2009, but no such regulation applies to electronic cigarettes.

"I think it is a mistake for electronic cigarette companies to use other flavors like chocolate, strawberry or vanilla," Panes observes. "That markets too much to the youth market. Electronic cigarettes should only be marketed to adult smokers as an alternative [to a traditional cigarette]."

Logic has also been recognized for the success it has found in the growing industry. Harold Levinson Associates, a Farmingdale, N.Y.-based wholesale supplier that primarily serves convenience stores in the northeastern United States, named Logic the new vendor of the year for 2011.

"Logic plans to be here a long time," Panes says, adding that the company is moving its manufacturing to New Jersey, a move that should occur in the second quarter of 2012.

From Online to Retail

Charlotte, N.C.-based Blu Cigs is also making inroads in the grocery channel. In the past several months, the electronic cigarette company has grown from an online business to one with a presence in more than 10,000 retail locations across the country, including H-E-B and Meijer.

"While retail channels for e-cigarettes can offer a great sales opportunity, it's important to choose a supplier that is not only known for providing good products, but [also] one that can support the consumer once they have purchased your product," explains Jason Healy, Blu CEO. "We have recently expanded to 10,000 retail locations nationwide, including Meijer and major drug store chains, so many retail channels have found Blu to be a good fit for their stores, and vice versa. However, Blu is continuing to grow, so grocery retailers still have the opportunity to get in the game."

Currently, Blu offers several options for retailers to stock their shelves. For example, the Smart Pack features a homing device feature to locate other Blu users close by, automatic reordering when the cartridge supply runs low and longer-lasting battery life and flavor. The company also markets disposable and rechargeable cigarettes in different flavors and nicotine strengths.

In addition, the company will soon launch an integrated social media and individual profile platform that will allow users to indicate relationship status, and network with friends and colleagues, Healy says.

The company doesn't expect retailers to go it alone. "We focus 100 percent on moving products off retailers' shelves. This was the impetus behind Blu's online store location, created to help transition more than 350,000 customers from online to retail sales," Healy says, adding that this section of the website sees more than 9,000 visits a day.

The e-cigarette company also provides retailers with point-of-sale displays and has a full marketing campaign across TV, print and online media, while its promotional activity has included the MTV Video Music Awards and the Country Music Awards.

Product Innovation

Another electronic cigarette company looking to tackle the grocery market is Vapor Corp. According to Adam Frija, director of business development, Fort Lauderdale, Fla.-based Vapor Corp. is the only publicly traded company in the industry. In addition to that distinction, Frija says that the diversity and quality of its product, customer service and its ability to create a unique program for a vendor set it apart from its competition.

"Our research and development team is constantly striving to improve the design and functionality of our products," Frija says, adding that Vapor Corp.'s target audience is the adult smoker searching for an alter- native to traditional cigarettes.

Vapor Corp.'s products fall into two categories: disposable and rechargeable. Its brands include Krave, Smoke 51, Greenpuffer and Vapor X. The last of these is a new addition to the lineup and offers zero nicotine in 10 flavors.

As Frija explains, retailers can effectively market electronic cigarettes with door clings, change pads and in-store signs. "Vapor Corp. offers all of our retail clients promotional marketing items for use in any and all of their locations," he says. "Signs and window clings, product display units with promotional videos and eye-catching designs help our product stand out when placed next to similar products."

Great Expectations

David Bishop, managing partner at Barrington, Ill.-based Balvor LLC, agrees that more needs to be done to move electronic cigarettes from the retail shelves to the consumer's ring.

"Retailers are really intrigued by the segment," he says. "Here is a new OTP segment that has the potential to create and unlock new growth for the tobacco category, which has suffered from market compressions, decline in cigarette volume, plus a shift to smokeless alternatives."

But there's a flip side to the intrigue, he adds. Some retailers are wondering what all the hubbub is about and what the future holds for the industry. "It is still too early to tell," Bishop concedes. "Expectations are higher than reality at this point."

Standardization in the electronic cigarette industry is seen by some as an obstacle, he says, explaining that the lack of any standardization is not only confusing to the consumer, but also to the retailer. For example, refillable cartridges aren't interchangeable among the different e-cigarette brands. So if a consumer buys a kit in one retail establishment, it can't buy a refillable cartridge from another unless that retailer carries that specific brand, he explains. As a result, retailers need to carry multiple brands.

The need for standardization is also obvious when it comes to displaying electronic cigarettes. "For retailers to be successful, they need to have a way to effectively merchandise electronic cigarettes in a display," Bishop says. "The lack of standardization prohibits displaying the different products in one unified case. It limits the ability of retailers to market these products."

Unlike other retail categories, it's not only about price or placement, but also about educating the consumer, he says, pointing out that the retail staff needs to be able to tell consumers about the products. And that's where the two sides of the business equation need to get together.

"Manufacturers and retailers need to work together to educate the consumer," Bishop says. "It is not enough to offer the product and think they will sell themselves, because they won't. Retailers need supplier support."

Electronic cigarettes also face regulatory hurdles at all levels of government. Even though e-cigarettes don't contain tobacco or emit smoke (only water vapor), there has been some movement across the country to include them in existing smoking bans. For example, in early December, the Boston Public Health Commission's Board of Health unanimously approved rules governing the sale and regulation of e-cigarettes. Retailers there are now required to obtain a permit to sell the products and are prohibited from selling them to minors. In addition, the rules ban the use of e-cigarettes in the workplace.

The Obama administration also took up the issue in September with a proposal of its own to ban the use of electronic cigarettes on airlines because of concerns that they may be harmful. The industry is also waiting for the FDA to issue regulations on electronic cigarettes. The FDA originally tried to regulate e-cigarettes as devices; however, that move didn't hold up to a legal challenge by the industry. In turn, the agency said this past spring that it would develop a strategy to regulate the products under the Family Smoking Prevention and Tobacco Control Act. To date, the FDA has yet to issue regulations.

Ray Story, CEO of the Tobacco Vapor Electronic Cigarette Association and owner of Sunrise, Fla.-based Smoking Everywhere, isn't against regulation or taxation, but it must be fair, he says: "If you want to become a regulated, respected business, you need to take the good with the bad."

And though some retail outlets may be hesitant to add electronic cigarettes to their inventories with FDA regulations still up in the air, Vapor Corp.'s Frija says retailers shouldn't wait to get involved.

"Now is the time to be visible and get placement for our products in distributors, brokers and retailers," he says. "Electronic cigarettes have already begun picking up market share lost by Big Tobacco, and they're only projected to increase market share."

"The trend is expanding to the point where customers are expecting to see our product where they shop."

—Jay Galletly, TSC Global

"It's important to choose a supplier that is not only known for providing good products, but [also] one that can support the consumer once they have purchased your product."

—Jason Healy, Blu Cigs

"Signs and window clings, product display units with promotional videos and eye-catching designs help our product stand out when placed next to similar products."

—Adam Frija, Vapor Corp.