Monday, May 22, 2023

Young Vapers Like "Watermelon Ice"

Here are two interesting slides from presentations at the E-Cigarette Summit UK, 2022 that was held in December at the Royal College of Physicians in London.:

Young people like vapes, and vapers like flavors.

Our thesis of re-nicotinization is playing out. People who had never smoked cigarettes are consuming nicotine in much safer ways: oral nicotine pouches and vapes.

The problem is that these new products will not necessarily be profitable for big tobacco, which is why we had to sell the big tobacco companies. Both spaces are ferociously competitive. Zyn has been dominating the U.S. pouch market, but if you go to SnusDirect you can see that the pouch market in Scandinavia is very crowded. You can get a JalapeƱo Lime flavored pouch from LOOP or an extremely strong Skruf mint flavored pouch. 

Perhaps the managers of Swedish Match sold the company because they knew an onslaught of competition would eventually reach America? They had two-thirds market share with Zyn in the U.S., but only about ten percent market share in Scandinavia (see slide 7)!

Competition in vapes seems even worse. The second slide shows that young vapers do not care for the taste of tobacco - they want the types of fruit and candy flavors that Elf Bar sells.

It seems like Philip Morris knows they are outgunned in vaping which is why they are trying for something that would have a stronger "razor & razorblade" model: heated tobacco. 

Big tobacco investors have been conditioned to be complacent. We have a mutual on Twitter who says, "I've seen doomsday proclamations for going on 20 years now despite ever higher earnings and dividends."

The companies - quite ingeniously - settled the 1990s litigation in a way that resulted in very profitable competitive dynamics. That does not mean that selling nicotine is inherently profitable. 

If the cigarette businesses go away and the replacement risk market is fragmented, some of the tobacco enterprises values may be smaller than the outstanding liabilities.

8 comments:

Anonymous said...

Sure, vaping may be very competitive, but in the US the FDA is there to rescue Big Tobacco.

(Import ban on Chinese ElfBar is here)
https://www.accessdata.fda.gov/cms_ia/importalert_1163.html

While I think vaping and pouches may have different (more competitive) market dynamics than cigarettes, HTPs are going to be a turbocharged version of cigarettes, with better margins and growing volumes. 
I also think IQOS and GLO are going to be much bigger than Vapes, i see how consumer preference works in Europe (where I'm located) where the market is totally open to competition, and consumers prefer HTP - ultimately they are more convenient I guess. I see no reason why the US would be any different. Just give PM some time. 
Pouches grow fast, but are still very small, and will be insignificant for next 4-6 years. 
In the next 5 years cancer sticks being replaced by higher margin HTP will be the most important factor for tobacco companies.

(disc: long BTI and PM) 

Anonymous said...

Sure, vaping may be very competitive, but in the US the FDA is there to rescue Big Tobacco.

(Import ban on Chinese ElfBar is here)
https://www.accessdata.fda.gov/cms_ia/importalert_1163.html

While I think vaping and pouches may have different (more competitive) market dynamics than cigarettes, HTPs are going to be a turbocharged version of cigarettes, with better margins and growing volumes. 
I also think IQOS and GLO are going to be much bigger than Vapes, i see how consumer preference works in Europe (where I'm located) where the market is totally open to competition, and consumers prefer HTP - ultimately they are more convenient I guess. I see no reason why the US would be any different. Just give PM some time. 
Pouches grow fast, but are still very small, and will be insignificant for next 4-6 years. 
In the next 5 years cancer sticks being replaced by higher margin HTP will be the most important factor for tobacco companies.

(disc: long BTI and PM) 

JJF said...

Sure, vaping may be very competitive, but in the US the FDA is there to rescue Big Tobacco.

(Import ban on Chinese ElfBar is here)
https://www.accessdata.fda.gov/cms_ia/importalert_1163.html

While I think vaping and pouches may have different (more competitive) market dynamics than cigarettes, HTPs are going to be a turbocharged version of cigarettes, with better margins and growing volumes. 
I also think IQOS and GLO are going to be much bigger than Vapes, i see how consumer preference works in Europe (where I'm located) where the market is totally open to competition, and consumers prefer HTP - ultimately they are more convenient I guess. I see no reason why the US would be any different. Just give PM some time. 
Pouches grow fast, but are still very small, and will be insignificant for next 4-6 years. 
In the next 5 years cancer sticks being replaced by higher margin HTP will be the most important factor for tobacco companies.

(disc: long BTI and PM) 

CP said...

Thanks for the comment.

Funny that so many different Chinese entities are importing the Elfbar. (Guangdong Qisitech, Haiqiang Logistics, Heaven Gifts, Imiracle Shenzhen...) What will stop more of them from springing up?

We don't think that IQOS will sell well in the U.S. - as you can see above, people here don't like the taste of tobacco. We got our hands on a unit and gave it to our focus group and... everyone hated it.

We would agree that if we had to own a big tobacco company, it would be PM. (But we don't have to own a big tobacco company.)

CP said...

If MO and BTI are a bet on HTPs selling well in the U.S., we'd rather be short than long.

Anonymous said...

The social contract in America has been broken.

No reason to still believe the Feds and MO are in "cahoots" all bets are off on how the Feds will "rescue" MO from the vapes.

CP said...

On May 25, FDA issued warning letters to firms responsible for two popular flavored, disposable e-cigarette products—Shenzen Innokin Technology Co. Ltd. who make Esco Bars products and Breeze Smoke, LLC who import and distribute Breeze products. These firms have been manufacturing, distributing, and/or importing unauthorized tobacco products in the United States.
https://www.fda.gov/tobacco-products/ctp-newsroom/fda-puts-firms-responsible-esco-bars-and-breeze-two-popular-disposable-e-cigarette-brands-notice

CP said...

Sweet and Fruity E-Cigarettes Thrive Despite Teen-Vaping Crackdown
Disposable e-cigarettes, which have escaped FDA restrictions, make up more than half of the vaping market

https://www.wsj.com/articles/sweet-and-fruity-e-cigarettes-thrive-despite-teen-vaping-crackdown-f2da676f