Convenience Store News

JAN 2017

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70 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM Cigarettes + Cigars + Smokeless + E-Cigs + Other OTP TOBACCO clouds and build big-old batteries and coils. That's part of the market, and it's where the negative hype unfortunately comes from. There's still a large part that just wants to stop smoking. They use it and it works for them, and they're not out posting it on Facebook or Twitter." With 9 million vapers in the United States and 45 million smokers, "we still haven't touched the surface yet," Wiesehan maintains. "If we can provide product con- venience that can help replace cigarettes, that's what we're try- ing to go after — to give smok- ers a device that actually works to help them stop smoking." THE OUTLOOK FOR MODIFIED RISK & MORE Expect to hear more about "modified risk" in 2017. Big Tobacco is soaring into the New Year with modified risk expectations. Philip Morris recently filed a Modified Risk Tobacco Product (MRTP) application with the FDA for its highly anticipated iQOS "heat-not-burn" tobacco product. If approved, the tobacco giant would be able to market iQOS in the U.S. with a health claim (i.e., as a modified exposure or modified risk product). The FDA reportedly has 60 days at minimum to accept the application for substantive review, and then up to one year to make a final decision (early 2018). "While this designation could be very powerful from a global public health standpoint, Philip Morris will need to file a PMTA [premarket tobacco appli- cation] to actually commercialize the product in the U.S. via an exclusive licensing agreement with Altria," according to Wells Fargo's Herzog. She added that Philip Morris is planning to file a PMTA in the first quarter of 2017, with a decision expected as early as July 2017. "A PMTA would allow iQOS to be marketed in the U.S. without a health claim, similar to how iQOS is currently being marketed in many countries, including Japan, with great success. We remain bullish on iQOS given the overwhelming success of the product in Japan; its strong margin profile since it is taxed 20 percent below conventional cigs there; tax benefits in other markets; growing consumer accep- tance/conversion rates in other key markets; and the potential to 'break the mold' once again." CSN to maintain strong volume/pricing is a testament to its strong competitive positioning. We expect further gains as new VUSE formats (VUSE Vibe and later, VUSE Port and VUSE Pro) start to hit store shelves." Of course, as of Aug. 8, 2016, vapor products are considered tobacco products and officially oper- ate under FDA control. Gregory Conley, president of the American Vaping Association, called Aug. 8 "the beginning of a two-year countdown to FDA prohibition of 99.9 percent-plus of vapor products on the market." He says that "if we do not succeed in changing the FDA's arbi- trary predicate date of Feb. 15, 2007, the vapor industry will shrink to almost nothing begin- ning Aug. 8, 2018." In addition to the Big Tobacco contenders, another "survivor in progress" is Mistic E-Cigs. Timing has been on the company's side. Looking to appeal to the mass smok- ing population, as well as the vaping population with an improved experience/easier-to-use device, it released its 2.0 POD-MOD in late July, in advance of the FDA deeming rule deadline (the concept was in the works for months before the news of the finalized deeming hit in May). The system is akin to the popular K-cup coffee machine experience; the Mistic 2.0 is a closed system with change-out flavor pods. The product "gives the experience, flavor profiles and vapor production that mod users are accustomed to, and also provides ease of use to cigalike users who haven't upgraded because they didn't want to deal with the hassle of bottles and tanks," according to Justin Wiesehan, vice president of marketing for Mistic. But it is the latter group that this product is intentionally targeted toward. "In our sales data, cartridges are still our best- selling items for four years. That consumer is still out there, and they're not as in-front of this industry as the mod users," said Wiesehan. "They're not on Instagram; they're not going to vape shows. [The] demographic is primarily in the 45-70 age range and the majority of them for us are women — all they want to do is use Mistic instead of Marlboro, and they don't make a big fuss of it." He goes on to say that "everybody thinks this industry is made up of hard-core vapers that blow Retailers are strongly advised to focus on proposed ordinances at the state and local levels. Anti-tobacco efforts are increasingly being felt at the small-town level to create precedent for larger campaigns.

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