FORBES Magazine: "Why Electronic Cigarettes Are About to Explode" December 08 2013
Why Electronic Cigarettes Are About to Explode
The first time you saw an electronic cigarette you may have thought it was a joke or a marketing ploy, the second time you may have felt it was becoming a fad, the third time you may have barely noticed at all. The fact is that non-burning, electronic nicotine delivery systems are worthy of some attention. Don’t believe that? Consider why Lorillard (third largest tobacco company) bought Blu Ecigs for $135 million.
Blu Ecigs brought in about $30 million revenue in 2011 and the electronic cigarette, as a whole, generates between $250 million to $500 million estimated annually—a small portion of the $100 billion US tobacco market. Still, A government survey found that 2.7% of U.S. adults had tried e-cigarettes by 2010, up from 0.6% a year earlier. Those rises in exposure for a niche product are the kind of statistics that potential trends are made of.
Meet White Cloud
This growth in interest is exactly what White Cloud Electronic Cigarettes are banking on. The Florida-based company started up in 2008, after company founders Michael Murray and Danielle & Matthew Steingraber were inspired by viewing e-cigarettes at a Las Vegas trade show.
Searching for a new business startup endeavor following a short-lived career in private collegiate funding services, the trio dove into the niche industry, acting as distributors for an established company before traveling to China to establish their own factory and set the foundation for their own company—White Cloud.
What sets e-cigarettes apart from other non-traditional nicotine delivery systems is that it has a high conversion rate, meaning that ‘smokers’ are less likely to return to regular cigarettes—a trend not enjoyed by other non-burning nicotine outlets like patches, Matthew Steingraber said. This could be because e-cigarettes look similar to cigarettes, feel the same in the hand and can be social (think cigarette breaks or grabbing a smoke outside while at a bar with friends). Because it’s non-burning, e-cigarettes don’t carry the same health risks as regular cigarettes, Steingraber said. Though nicotine is still not healthy, there’s no smoke, no ash and no tar.
“People smoke for nicotine but they die from the tar,” said Steingraber. All three company founders enjoy their own products, he said.
How Do They Compete?
Steingraber insists that what sets his company apart from the rest is a) longer product battery life, b) higher levels of nicotine than competitors, and c) An array of attractive flavors. The company won’t release revenue figures but said it has enjoyed 77% revenue growth year over year. The company is looking to franchising as a means of growth, shooting to establish itself in the more high-end e-cigarette space.
Growth of the Market
As for the future of White Cloud, the company is open to the idea of taking on minority investment as a means of speeding up growth—a concept they hadn’t considered prior to coming to the conclusion that the e-cigarette industry will make leaps in the coming year or so, on the back of a handful of new players and investment and development of products by big tobacco companies like Lorillard (NYSE:LO).
At the moment the big competitors in the U.S. e-cigarette market include V2 Cigs, bluCigs, NJOY and Green Smoke. Reynolds American Inc. (NYSE:RAI) (NASDAQ:RAI) has released e-cigarettes under the Vuse and Zonnic brands as well. In the coming year or so the market is likely to see a lot of new players as well as a lot of acquisition of established competitors, Steingraber said.
And why shouldn’t big tobacco embrace electronic cigarettes? If they do not, the niche brought to US shores from established markets in China could further harm an American tobacco market that has seen a steady reduction in consumption over the past 20 years.
How long can we really look at e-cigarettes as a niche? The product has shown an increase in exposure and adoption, the tobacco company has acknowledged them as a threat to business and, hey, the product already has celebrity endorsers like Robert Pattinson and Uma Thurman. This is definitely a battery-operated, addiction-based market to watch.