City focus: e-cigarettes stub out old smokes

Rival Imperial Tobacco introduced its first e cigarette in the UK in February in a bid to catch up with BAT. At stake is a market potentially worth many billions of pounds worldwide.

The e cigarette market is forecast to grow to over 1.7billion by 2015, according to a report by Citi Research. But make no mistake, there are serious regulatory and health issues with the electronic versions, just as with traditional gaspers.

There are 11million smokers regularly using e cigarettes since they were sold for the first time in 2003, and a further 17million who use them occasionally. In Britain alone there are 1.3million e cigarette users, almost double the 700,000 users in 2012.

The technology behind e cigarettes first surfaced back in 1963, but their inventor, American Herbert Gilbert, did not attempt production. It was only in 2003 that the Chinese commercialised them, hoping they would be the answer to smoking bans.

Addiction British American Tobacco’s Vype e cigarette

The re usable pieces of plastic are more sophisticated than paper tubes filed with tobacco and a filter. BAT’s Vype is a piece of plastic that comes complete with a computer chip, a battery, a heating element and a refillable cylinder, where the old fashioned leaf tobacco is substituted by liquid nicotine.

Others in the market include Philip Morris parent Altria’s MarkTen, and Reynolds American’s Vuse. But why is big tobacco investing huge resources into an area set to cannibalise its core cash cow?

The answer is twofold. Data shows there is a growing complementary market where people continue to smoke traditional cigarettes as well as e cigarettes. Also there is a growing market of independent e cigarette makers.

If big tobacco does not join the race and migrate some of its traditional smokers to its electronic versions, it risks losing out to rivals. Think of it like Blockbuster Video failing to develop its online offering and Netflix cannibalising its entire market.

Naughton says ‘The market hasn’t changed for decades or even centuries. We do see this as a substantial project and it can become a category in its own right.

‘Right now with advertising it’s about targeting smokers with an alternative. Over some time it’s clear it will cannibalise, but this is a good thing.

‘It’s good for public health and gives us an opportunity to lead the market. If we have a higher share for the business it is good for us.’

Naughton says the business model is different because it is all about the cartridges. Repeat business will come from smokers only able to use BAT’s cartridges in their Vype.

Many buy online so for the first time the cigarette firm will be able to build a database of its customers and market directly to them.

‘E cigarettes have been successful in getting people to quit,’ he said. ‘But there is also a lot of dual use. People can use them at different moments. They can have more control.’

It is also the only major tobacco player seeking to gain a licence from the Department of Health to differentiate its products from other electronic cigarettes.

While there is a prescription market from doctors seeking to wean patients off old fashioned cigarettes BAT sees this as niche.

‘We are doing it to give customers peace of mind that our products adhere to certain levels of safety and efficacy in terms of health which will be a point of difference,’ he said. ‘The licence is expected to come through in a few months.’

E cigarettes are a rapid growth category, but profits are still a faction of earnings from the traditional variety. Despite their growing popularity, it will be some time before they vaporise conventional ciggies.

Editorial: high-tech cigarettes

Public awareness. E cigarette manufacturers would be required to divulge the ingredients in their products. That will help researchers and potential smokers to better understand the risks e cigarettes pose to health.

The scientific debate is still simmering about the dangers of e cigarettes. Unlike traditional cigarettes, e smokes do not contain tobacco or some of the other harmful chemicals proven to cause cancer. So e cigs may be less harmful that traditional cigarettes, and could help smokers trying to quit.

But there is mounting evidence that electronic cigarettes pose significant health risks. One recent, preliminary study concluded that the nicotine laced vapor promoted the development of cancer in certain types of human cells much in the same way that tobacco smoke does, The New York Times reported. Another study found chemicals such as formaldehyde and acetone in exhaled e cig vapor.

Meanwhile, more young people are being drawn to the product. The National Youth Tobacco Survey found last year that 1 in 10 high schoolers had tried vaping, as it is known. That was double the number in the previous year, and is likely rising. The FDA is currently funding dozens of studies on the scientific and public health risks of e cigarettes, Mitch Zeller, director of the FDA s Center for Tobacco Products, told reporters Thursday. We don t know enough now to say anything remotely definitive about those risks, he said. We can t even tell you what the compounds are in the vapors.

That will likely change through the FDA proposal to require manufacturers to divulge ingredients and provide scientific evidence to substantiate claims that e cigs are safer than regular ones. Under the FDA proposal, e cigarettes would carry a warning label, just as regular cigarettes do.

Another important question to be answered Are e cigarettes a gateway to tobacco use? Some manufacturers target young people by marketing e cigarettes in fruit and candy flavors. A recently released congressional report on e cigarette marketing found that major producers target young people by, for instance, giving away free samples at music and sporting events. The FDA ruling would ban the distribution of free samples, but would allow makers to continue their advertising and market as they see fit.

The FDA is taking a sound approach with its focus on curtailing e cigarette sales to youngsters, warning adults about the dangers, and promoting more research. It s hard to say if e cigarettes will always be a niche sales product or will spawn a Mad Men style generation of vapers.

If you re tempted to vape, understand what we know and don t know about the risks. Tough federal scrutiny now will help clear away confusion so millions of Americans one day won t regret their choice.

Chicago Tribune