20 Nov

Big Tobacco Lights Up E-Cigarette Rivalry

Big tobacco is pushing further into the fast-growing electronic cigarette market with Reynolds American’s plan to expand its Vuse brand across the US next week.

Competition for dominance in the $2.5bn US market is heating up, even as regulators and public health groups grapple over the benefits and risks of the battery-powered devices.

Reynolds, the second-largest US tobacco company by sales, began testing Vuse in Colorado last year amid industry-wide moves to step up investment in alternatives to conventional cigarettes. With traditional cigarette sales in the US shrinking an average 3 per cent a year, tobacco companies have come to view e-cigarettes as an opportunity to retain customers.

“The brand’s nationwide expansion is an important step as we position Vuse as the vapour authority, and continue our efforts to lead the transformation of the tobacco industry,” said Stephanie Cordisco, president of Reynolds subsidiary RJ Reynolds Vapor Company. Vuse will be available in stores across the US from June 23.

The fragmented e-cigarette market is just a fraction of the $700bn global tobacco industry, but has drawn attention from big companies facing declining smoking rates. Last week, Japan Tobacco bought the UK’s E-Lites for an undisclosed amount.

Lorillard, the smallest of the big three US tobacco groups, dominates US sales with its Blu Ecigs brand, which it acquired in 2012 for $135m. Last year Reynolds and Marlboro-maker Altria began developing their own electronic products and testing them in various states. Altria, which has about 40 per cent of the US cigarette market, plans to take its MarkTen brand national in the coming months.

“We expect the national expansion of the Big Three into the vapour category . . . should catapult growth of the entire category,” said Wells Fargo analyst Bonnie Herzog, who predicts e-cigarette consumption could surpass traditional smoking in the next decade.

Reynolds and Lorillard are in talks over a potential merger, the Financial Times reported in March. Ms Herzog said the tie-up could accelerate growth in the electronic category.

“We think a combined Reynolds-Lorillard could become a global vapour powerhouse assuming a potential strategic partnership is formed with British American Tobacco (similar to Philip Morris International’s and Altria’s partnership) to expand outside the US,” she said. PMI, which sells the Marlboro brand internationally, and Altria struck a deal in December to license and distribute products including e-cigarettes.

Big tobacco’s moves will probably boost advertising for the devices, including on television, where tobacco ads have been banned since 1971. Marketing spending on e-cigarettes more than tripled to $79m in 2013, according to Kantar Media.

Vuse has been running TV ads in Colorado and Utah, while Blu appears on national cable networks. Njoy, a privately owned e-cigarette maker, ran ads in some markets during the past two Super Bowls.

The US Food and Drug Administration left the door open to more spending when its proposed e-cigarette regulations, unveiled in April, did not include curbs on marketing or advertising.

Reynolds’ expanded bet on the category comes amid a debate over the safety of the products. Advocates argue that the devices, which heat nicotine-laced liquid into a vapour that users inhale, are a less dangerous alternative to smoking because they lack some of the toxins found in cigarette smoke.

But others say there is not enough evidence on the potential health risks and that the products risk “renormalising” smoking after decades of success in stigmatising the habit.

In a letter to the World Health Organisation on Monday, a group of scientists, doctors and academics called on the agency to regulate e-cigarettes in the same way as tobacco, including advertising bans, limits on public smoking and heavy taxes. That followed an earlier appeal from other public health scientists to avoid burdening the emerging category with strict regulations.

“By moving into the e-cigarette market, the tobacco industry is only maintaining its predatory practices and increasing profits,” Monday’s letter said. “Both scientific evidence and best practices are available to support a regulatory framework that will best prevent initiation of use among youth and other non-tobacco users, protect bystanders in public areas from involuntary exposure, regulate marketing, and prohibit unsubstantiated claims.”