A few retailers noted the higher price points could discourage consumers. Our contacts feel that about 75% of the sales of these products will cannibalize existing sales rather than generate incremental sales. Retailers Have Low Expectations on 'Advanced' Devices Coming from NJOY, LOGIC, Mistic and Blu -Retailers seem somewhat underwhelmed by the larger devices that are meant to 'bridge the gap' between 'traditional' e-cigs and VTMs-such as those from NJOY, LOGIC (Pro), blu (+) and Mistic. Other key takeaways from our survey include: (1) Vapor category growth in c-stores remains robust (+17% in 4Q14) but decelerating relative to 3Q14's 21% growth, likely driven by continued heavy promotions on both Vuse and MarkTen which is driving unit momentum but not necessarily accelerating $ sales (2) Vapor continues to displace about 4% of combustible cig volume (3)Repeat vapor purchases have accelerated to 60% in 4Q14, up from 57% in 3Q14 (4) E-cig sub category growth continues to decelerate-our contacts estimate about 5% growth in 4Q14-down from 7% last quarter and 19% in 4Q13 (5) blu continues to cede share to Vuse, LOGIC and MarkTen which is expected to continue given heightened activity (particularly on Vuse & MarkTen) and (6) Our retailer contacts are increasingly disenchanted with NJOY, noting issues with product returns and the company generally overpromising and under delivering. This has been very perplexing to us but we believe could be due to: (1) high prevalence of dual use and (2) vapers consuming more (vapers tend to vape more since current vaping technology is a less efficient way to deliver nicotine and it's easier to vape more places currently). Vapor Category Growth Remains Strong at 17% but Continues to Moderate in C-Stores - Despite continued growth, the vapor category has not yet resulted in a deceleration of combustible cig volume. We continue to believe that technological innovation is crucial and that Big Tobacco will be pivotal in shaping the non-combustible nicotine industry. We believe it's imperative these factors are addressed promptly if not, we're concerned that vapor category growth could continue to moderate.īottom line, we remain bullish long term and still believe consumption of vapor and other non-combustibles (such as heat-not-burn) could surpass consumption of combustible cigs in the next decade (by 2023).

We observed a few 'calls to action' from our retailer contacts pertaining to the vapor industry: (1) the FDA must take leadership and act soon to improve consumers' perception of the relative risks of vapor and uncertainty surrounding the category (2) the industry must align, particularly to push for modified risk claims so that public perception doesn't deteriorate further and (3) vape shops need to be regulated more closely as they are 'playing by their own set of rules' potentially harming the industry's reputation.

Vapor Category Remains Promising Long Term But We're Increasingly Concerned That Action is Needed For Momentum to Continue - We recently conducted a survey of our tobacco retailer and wholesaler contacts representing about 20,000 U.S. Vapor Retailer Survey - Wake Up Call! Action Needed To Keep Vapor Category Momentum Alive

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