NEW YORK – After at least five years of steady growth, sales of the U.S. tobacco industry's most-hyped product since menthol fell for the first time in May and June, according to Ad Age magazine. That's potentially bad news for an industry struggling to offset falling sales of traditional tobacco cigarettes.
It also presents a challenge to Reynolds American Inc., which has agreed to sell the popular Blu e-cig brand as part of its proposed acquisition of Lorillard. The newly merged company would be left to rely on Vuse, an e-cigarette line created by Reynolds that's only now being widely distributed.
After betting on sleek disposable electronic cigarettes, the industry is also grappling with rising competition from generic vaporizers that can be refilled with nicotine liquid of many flavors.
Asked about the sales slowdown after the deal was announced yesterday, Lorillard CEO Murray Kessler said "it's normal for a brand new category to have some sort of ups and downs," according to Ad Age. But he is confident that investments in marketing and technology will re-ignite sales.
Sales of e-cigarettes and refillable vaporizers more than doubled to $1.7 billion in 2013, or 1.7% of a roughly $100 billion market for nicotine products. The first signs of a slip came this year. Ad Age reports that sales of packaged electronic smoking devices fell 2.9% in the four weeks ending May 18 compared with the previous year, according to data from Chicago researcher IRI. Sales slid twice as fast the following month.
In April, the industry got some good news on the e-cigarette front. While the U.S. Food and Drug Administration said it intended to limit sales of electronic sales to minors, ban free samples and require nicotine addiction warnings, the agency declined to prohibit TV advertising or flavored products.
Yet despite all the celebrities spotted vaping at awards ceremonies and the bullish projections from analysts, e-cig sales growth had already started slowing early this year, according to IRI. Lorillard's own data suggest why. Just 26% of smokers who tried e-cigs came back to vape another, the company said at an analyst conference in June of last year, according to Ad Age. That was up from about 22% two years earlier.
Some consumers have shunned cigarette-like packaged e-cigs for refillable vaporizers that allow users to control nicotine content and flavor with a single pipe-like device. Some versions use a small tank that can be injected with nicotine liquid purchased in bulk.