R.j. reynolds expanding e-cigarettes to colorado market — winston-salem journal: business news

R.J. Reynolds Tobacco Co. is hoping a methodical approach into the crowded electronic cigarette marketplace will lead to consumer acceptance and market share gains.

A subsidiary, R.J. Reynolds Vapor Co., said Thursday it will expand the testing of its Vuse e cig product to retail outlets in Colorado, beginning in July.

Vuse debuted last year in Tarheel Tobacco stores at 6311 Stadium Drive in Clemmons, 3193 Peters Creek Parkway in Winston Salem and in Danville, Va. It will continued to be sold there, but the volume available may be limited as part of adding the Colorado distribution.

E cigs are battery powered devices that heat a liquid nicotine solution in a disposable cartridge and create a vapor that is inhaled. The Tobacco Vapor Electronic Cigarette Association estimates there are about 2.5 million users with overall sales exceeding $500 million in 2012 and likely to surpass $1 billion by 2014.

This is a game changing product in the e cigarette category, says Stephanie Cordisco, president of the subsidiary.

Cordisco, as well as Daan Delen, Reynolds American Inc. s chief executive and president, have said they can make that claim because they believe Vuse solves the vexing dilemma of a high volume of smokers trying e cigs, but a limited number converting to them as their top tobacco choice.

We believe Vuse will change that through providing a smoking experience that s the most similar to the traditional cigarette, Cordisco said.

Vuse s prices will vary a basic package, which includes a flavor cartridge, a USB charger and rechargeable power unit, sells for about $10. A deluxe package has three cartridges, including a menthol flavor, a power unit, a USB charger, a wall charger and a carrying case. That package sells for about $30.

About 40 percent of e cig sales are done online through small marketers, but that percentage is expected to dwindle as Vuse and blu eCigs show up more prominently at retail, particularly convenience stores. Lorillard, based in Greensboro, bought blu eCigs of Charlotte for $135 million in April 2012.

During the New York presentation, Reynolds said Vuse will not be sold online because of the difficulty of verifying the age of the buyer, according to Bonnie Herzog, a Wells Fargo Securities analyst.

Herzog called Vuse a force to be reckoned with because of its innovative technology.

Herzog has said the e cig craze has shifted from fad to here to stay, in part because Lorillard and Reynolds are generating more consumer confidence in the products than most of the little known marketers.

This is a wonderful story of an industry that in another 10 years could have gone the way of the dinosaurs, but will not because science/innovation has been fashioned to fulfill consumers’ desire and demand, said Stephen Pope, chief global market strategist with Cantor Fitzgerald Europe.

Cordisco said Reynolds determination to address the high trial, low conversion challenge is why the company chose to develop and assemble Vuse in the United States. Most of the smaller marketers are selling their e cigs through a licensing deal with a Chinese manufacturer.

The product is being assembled in Kansas, though officials said production could be added at Reynolds Tobaccoville plant if warranted by consumer demand. The liquid that produces the vapor is made in Winston Salem.

We are not late to the game, Cordisco stressed. We believe designed and assembled in the USA will resonate with most consumers given what the bulk of the current products are made.

Because of its technological advantages, Cordisco said Reynolds looks at traditional cigarettes as its main competition.

The Vuse product contains sensors that communicate with a memory chip to monitor and regulate the power, heat and cartridge performance to ensure a perfect puff first time, every time, said Danny Herko, the company s senior vice president for research and development.

A leading complaint of e cig users is that they get an inconsistent puffing experience, particularly toward the end of the cartridge. Herko said Vuse will let consumers know when its lithium battery is running down or when a cartridge needs to be replaced.

It is the third time Reynolds had chosen Colorado as a launching pad for a key smokeless innovation, counting Camel Dip, a premium moist smokeless product, in April 2009, and dissolvable products Camel Sticks, Camel Strips and Camel Orbs in March 2011.

Cordisco said Reynolds expects high interest among Colorado smokers in a Reynolds e cig, as well as a lower environmental impact of Vuse compared with traditional cigarettes. Reynolds will offer a recycling program for the cartridges and lithium batteries.

Cordisco said another marketplace advantage of Vuse is it will be sold in a rechargeable format rather than as disposable, making it a less costly option since one Vuse cartridge is expected to last as long as a cigarette pack. For example, she said a pack of cigarettes sells for about $4.95 in Colorado, whereas the Vuse cartridge will sell for $3.

The goal is not letting price serve as a barrier to trial and adoption, Cordisco said.

Scott Ballin, past chairman of the Coalition on Smoking or Health, said he thinks it is a smart business proposition for the big tobacco companies to have an expanded harm reduction portfolio, and now that is definitely taking place.

It may also be that many are pushing forward now, expecting the Food and Drug Administration will be doing something in the future.

The FDA is reviewing how to oversee e cigs, with regulations expected to be announced this year.

Bill Godshall, an industry analyst and executive director of SmokeFree Pennsylvania, has said he is concerned the FDA may try to ban e cigs in what he considers a misguided attempt to apply the quit or die approach to all tobacco products.

Vince Willmore, vice president of communications for Campaign for Tobacco Free Kids, said the growing use of e cigs and increased marketing underscore the need for the FDA to quickly assert jurisdiction over all tobacco products.

John Spangler, a professor of family and community medicine at Wake Forest School of Medicine, supports developing and marketing products that lessen exposure to tobacco. He said there are two main safety concerns with e cigs.

FDA regulation of e cigs might ease product safety concerns, and should be looked into, Spangler said.

But there still is the question of population harm What if kids try e cigs because they look cool, and become hooked on nicotine? Will they then graduate to traditional cigarettes to obtain even more nicotine?

No one knows the answer to that question.

rcraver

(336) 727 7376

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