Mid-Missouri Retailers Rush to Serve Rapidly Growing E-Cigarette Market

On Columbia’s north side, sandwiched between a check cashing outlet and a barbershop, a new store is serving one of the fastest growing markets in the country: electronic cigarettes, often called e-cigarettes

Inside Aqueous Vapor, glass cases contain hundreds of parts consumers can choose from to put together customized e-cigarettes. Along the back wall, hundreds of small glass bottles are filled with colorful nicotine-infused liquids with equally colorful names such as “OMGPeach” and “Yellow Ribbon.”

On the counter are dozens of tanks filled with the liquids, each with a detachable mouthpiece. It’s here where customers sample flavors and choose their favorites.  Sunlight coming in through the glass door illuminates a perpetual fog of e-cigarette vapor hanging in the air. It is redolent of fruits, menthol, spices and even cured tobacco.

Customers sit on leather sofas lining the walls, where they puff their e-cigarettes while chatting with the staff and other customers about flavors and latest “mods” available for their cigarettes.

E-cigarettes work by using power from a battery to heat a liquid, vaporizing it into a cloud of cool mist that is then inhaled. The mist itself is the same as the theatrical smoke used in theaters, film sets, concerts and dance clubs, only it is infused with flavorings and nicotine.

What the mist doesn’t contain is just as important as what it does: The vapor from e-cigarettes does not contain tar, considered the deadliest component of cigarette smoke.

As tobacco users addicted to nicotine search for a way to quit smoking or to satisfy their cravings without the health risks of tar, e-cigarette sales are increasing 50 percent a year according to Citibank’s investment banking branch.

A whole new market emerges

Inside Vapor Up, an e-cigarette store on Columbia’s south side, a customer talked about her switch from tobacco to e-cigarettes two months ago.

“I don’t even like real cigarettes anymore,” Terra Lock said. She has tried real cigarettes since she switched to e-cigarettes but has been unable to finish one because of the taste and smell.

She also feels healthier. “I started working out, so smoking this makes it a whole lot easier to breathe,” Lock said.

She likes that her clothes and skin no longer smell like smoke and that she doesn’t have to go outside to use her e-cigarette. The economic benefit is also important. Lock said she went from spending about $40 per week on tobacco cigarettes to spending around $16 per week on Green Smoke e-cigarette cartridges she purchases at Vapor Up in the Forum Shopping Center.

The market for these devices is growing so rapidly that even tobacco companies are jumping in. The company that makes Lock’s Green Smoke brand e-cigarette was purchased in February by tobacco giant Altria, formerly Philip Morris.

Lorillard, the maker of Newport cigarettes, owns the most popular brand of e-cigarette, Blu Ecigs. Reynolds American, which makes Camel cigarettes, recently introduced its own brand of e-cigarettes called Vuse. British American Tobacco is selling e-cigarettes in the U.K. and says it will expand sales to other markets.

The market for e-cigarettes will expand rapidly, Wells Fargo Securities predicts. Bonnie Herzog, a senior tobacco industry analyst at Wells Fargo, told several media outlets she expects Altria to make more from sales of e-cigarettes than tobacco cigarettes by 2023.

The Fitch ratings agency said in a press release this month that e-cigarette revenues rose from $10 million in 2007 to an estimated $1.5 billion in 2013. Demand for the devices is increasing 30-50 percent per year, according to Fitch. Most of the demand comes from existing tobacco users, Fitch said.

Customer Service Sets Shops Apart

Aqueous Vapor opened last June and Vapor Up opened two months later. Vapor Up is affiliated with 12 other stores in the Kansas City area with the same name, but Doug Stevens and his wife own only the Columbia location. The store sells e-cigarettes, refills and accessories supplied by Green Smoke, the company recently purchased by Altria.

Stevens, citing the hotly competitive market, is reluctant to share sales figures. But he did say that since opening in August business has been up every month with many repeat customers, and the store is turning a profit.

Aqueous Vapor manager James O’Shea believes the main benefit of specialty e-cigarette stores over convenience stores or Internet outlets comes down to customer service. The staff members know the products, and customers are able to sample flavors before buying.

Lorillard commands about 25 percent of the nation’s e-cigarette market, with most devices being sold in convenience stores alongside tobacco cigarettes, according to Wells Fargo. But the products sold at Aqueous Vapor are different than mass-market devices such as Blu. The devices sold at the specialty shop are modular, allowing customers to put together dozens of combinations to customize their individual devices.

O’Shea said customers can even make their own fluids with recipes found on the Internet, which he said makes Aqueous Vapors’ product not only more economical than smoking but cheaper to use than mass-market products sold in convenience stores.

“Every aspect of this is new,” O’Shea said.  “If they come in here, they’re talking to pros who can explain every little detail to them.”

“Where the technology is right now, it’s not a product that can be shipped and sold,” O’Shea said. “It’s kind of got to be in a store like this where you have people educating you and where you have the ability to try it.”

Stevens agrees that expertise and the ability to sample products is a huge benefit to customers and is one reason why specialty e-cigarette vendors are doing so well. Gas station attendants may not know a lot about the products they sell, he said. Internet sales may allow users to purchase items based off other users’ reviews, but the customer still can’t taste the flavors or experiment with the devices.

Both Stevens and O’Shea said the market in Columbia is dominated by middle-aged and older adults who want to quit smoking or who wish to continue smoking but are looking for a safer and cheaper alternative.

As the market heats up and big players in the tobacco industry enter it, Stevens says he is optimistic. He believes Altria’s purchase of Green Smoke — the product line his store carries — will be a positive change for his business.

“The FDA is going to be regulating the electronic cigarette industry here in the very near future, and part of being a regulated industry takes money,” Stevens said. He believes having a relationship with a company like Altria, with years of experience in regulatory compliance, will be beneficial.

Stevens believes the inevitable FDA regulations would only strengthen the e-cigarette industry. His business follows a set of voluntary guidelines prohibiting him from making health claims, calling his product a smoking cessation device or selling the product to those under the age of 18.

He predicts future regulations will codify the prohibition on sales to those under the age of 18, and that manufacturers will have stricter guidelines on the ingredients used in their fluids.

Internet sales may also be in trouble. “I suspect the FDA regulations will make online sales go away,” Stevens said. “It’s very difficult to prove you’re 18 when purchasing nicotine online.”

But the lack of federal regulations has spurred some states and municipalities to take up the matter on their own. North Dakota, New Jersey and Utah have all banned e-cigarette use in most places tobacco is prohibited. New York City, Los Angeles and Chicago have also included the devices under their existing tobacco ordinances.

Many college campuses — including the University of Missouri — have also included e-cigarettes in their campus smoking bans.

The European Union Parliament last month passed a new package of tobacco regulations that include e-cigarettes. The EU laws regulate e-cigarettes like tobacco products rather than taking the harder stance of declaring them a medical device which would subject the devices to much more stringent regulations.

For now, both Vapor Up and Aqueous Vapor plan to expand, but both are very tight-lipped about where or when.

“It’s a very, very competitive market,” Aqueous Vapor co-owner Merek LeGrand said.

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