Electronic Cigarettes Shake Up the Tobaco Industry

By: Richard_Cox

In the last few years, we have seen relatively few examples of true market innovation.  Progress in cell phone, computer, and automobile technology has stalled and this makes it difficult to identify companies that are poised for real growth over the next 5-10 years.  But it looks as though an exception can be made here in the electronic cigarette industry, which has made some major advances in recent years when compared to the traditional cigarette products that have seemingly been around forever.  These innovations will have a major impact not only on the health of cigarette smokers but on the broader trajectory in many areas of the marketplace, as well.  Here, we will look at some of the ways electronic cigarettes will alter the landscape -- both from a health perspective and from a market perspective.  

Cheaper Prices, Healthier Products

From a consumer perspective, electronic cigarettes offer several advantages over their paper alternatives.  Smoking electronic cigarettes, or e-cigarettes, is far cheaper in terms of price, healthier for the primary smoker, and safer for those in the secondary field of view.  “When smoking an e-cigarette, you are not dealing with an open flame because nothing is being burned,” said Sam Hadi at CloudCig, producer of Cloud Electronic Cigarettes. “This will likely have a marked impact on the number of fire-related injuries that occur worldwide each year.”  Currently, cigarettes are the number one cause of fire-related deaths, so there are clear safety advantages -- especially in homes with small children.  

From a health perspective, e-cigarettes are widely expected to help reduce the potential for heart attack, stroke, throat cancer, Alzheimer’s osteoporosis, and lung cancer.  The main reason for this comes from the fact that paper cigarettes include many more harmful and carcinogenic chemicals that are not present in the electronic alternatives.  Most of the user surveys have established a marked changed in the overall feeling of health that is seen in regular smokers of both products.  This has prompted a widespread surge in sales, with more than $1 billion in electronic cigarette sales in 2013.  Nearly 2.5 million consumers in the US alone have permanently switched to e-cigarettes, so the trends here are clear and it is unlikely we will see any reversals here any time soon. 

Impact For Companies

Some of the best evidence for the fact that trends in the e-cigarette industry will not be changing can be seen in the recent steps major manufacturers.  Some of the biggest players in the sector have started to divert resources away from traditional paper cigarette products and instead have made key acquisitions of smaller companies that are well-positioned in the electronic space.  Key examples here can be seen in Altria Group (more commonly known by its former name, Philip-Morris), British-American Tobacco, and Lorillard.  So far, most of the innovation has been seen in much smaller companies. 

But all three of these blue chip names have purchased some of the strongest selections in order to build on the research and development that is already in place.  Altria’s purchase of e-vape company Green Smoke (through its NuMark subsidiary) is the latest example of this type of activity.  Altria has already released its first product, the MarkTen, but it is still only available in limited markets.  Provided that the broader sales trends continue to perform above and beyond the analyst expectations, this product offering will continue to expand and generate additional sales for the company. 

All in all, the innovative products that are now being offered by e-cigarette companies have a variety of benefits and will continue to have drastic implications for what is seen in the marketplace as a whole.  Innovations of this magnitude are relatively rare when we look at the last few years.  But the implications here are huge, in terms of consumer pricing, potential corporate earning, safety and personal health. 

By Richard Cox

© 2014 Richard Cox - All Rights Reserved

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