The e-cigarette market is still relatively new. It was not until 2003 that Hon Lik released his original e-cigarette after watching his father pass from smoking-related illnesses. The following decade and a half have seen rapid growth in investment, development and market value. This growth is showing no signs of slowing and is making waves the world over. In doing so, it’s also massively affecting the tobacco industry.
How the numbers stack up:
2018 saw the tobacco industry take a huge £100 billion hit ($127 billion USD). British American Tobacco lost half its stock market value. Altria and Philip Morris lost around 30 percent. Imperial Brands lost around a quarter, and Japan Tobacco lost around 20 percent.
While the global tobacco market was estimated to be valued at around $560 billion in 2017, it has a relatively modest compound annual growth rate (CAGR) of 2.8 percent by 2021. If the current trend continues, this is likely to drop. Even with more than a billion smokers in the world, increases in awareness surrounding health and in safer alternatives mean the tobacco industry is fighting a losing battle.
Conversely, the global e-cigarette market is predicted to see a 20.8 percent CAGR by 2025. As such, many of the big players in the tobacco industry are trying to shift their focus to this growing market. BAT has invested $1 billion into e-cigarette research and development in the last five years. They also own e-cigarette brand Vype, a pod system similar to the Juul. Imperial Tobacco is also a part of the e-cigarette market, having released the myBlu to keep up with the changing demand.
Juul was one of the biggest influencers in the e-cigarette market in 2018. Taking over a massive 74 percent of the US e-cigarette market and with a current net value of $16 billion, they’ve since signed a deal with Altria. Altria now hold a 35 percent stake for the price of $12.8 billion, increasing the reach that Juul will have through all of the sales channels of existing Altria products. This is a significant move given Juul only hit the shelves in 2015, indicating that even tobacco companies are aware where the consumers preferences are shifting.
While Big Tobacco is breaking into the e-cigarette market, many consumers will still be purchasing from non-tobacco associated brands. Vapers who engage with the activity as a hobby will purchase products from specialist vaping brands including the likes of SMOK and Vaporesso, which offer niche and more advanced options. While Big Tobacco caters to the entry level e-cig market, there still exists a whole vaping subculture. These consumers are the ones who spend big to update, modify and enhance their experience; and it is a market that the tobacco industry has yet to tap into.
The legislation:
Legislation that regulates packaging — that is, how cigarettes and tobacco can be displayed — in addition to price hikes, is affecting the popularity and accessibility for consumers. Combine that with more research into the efficacy and comparative safety of e-cigarettes as well as governing health bodies voicing their support, you can see the clear trend away conventional tobacco toward e-cigarettes.
In the United States, the FDA is considering a blanket ban on all flavored tobacco products. While e-liquids only contain nicotine and not tobacco, they are still classified as tobacco products. Since the breadth of variety of e-liquid flavors is a key selling point, this will significantly impact the e-cigarette market. However, it will also apply to menthol cigarettes. If the flavor ban does come into play, it will affect cigarette brands like Reynolds (a part of BAT) who sell majority menthol cigarettes.
Internationally, many countries have been hiking the prices of cigarettes and loose tobacco to reduce the accessibility while also reconsidering their e-cigarette legislation. In New Zealand, they’ve steadily been increasing the price of cigarettes; some 20-packs now cost more than $25 NZD ($16.90 USD). They are also looking at making vaping more accessible, since New Zealand smokers typically come from lower income areas.
E-cigarettes are heavily regulated in Australia, but the country’s parliament is re-considering how accessible they should be. Smoking in Australia is even more expensive than in New Zealand with a 20-pack ranging from $22.50 to nearly $30 ($21 USD). A new Switch2Vaping campaign has launched to encourage smokers to try alternative quitting methods. While e-cigarette users must have a doctor’s prescription to use nicotine, the Australian market shows significant potential for a growing e-cigarette market.
Like Australia, France has raising cigarette prices and enforced neutral packaging on all tobacco products. Since then, France has also had a significant uptake in e-cigarette use. The estimates are that the market value will be around 500 million Euros by 2020, with a current 1.2 million daily vapers and counting.
The UK has been one of the most progressive places for the e-cigarette market to establish itself. Even with TPD regulations in the EU limiting the tank size and nicotine strength, the number of people using e-cigarettes to quit conventional smoking grows every year. On top of that, governing health bodies like PHE (Public Health England) and the National Health Service both support and promote vaping as a safer alternative.
The health factor:
According to the World Health Organization, there are still more than a billion smokers worldwide. However, with increased research and education into the effects of the use of conventional tobacco, people are becoming more motivated than ever to get away from the habit. Tobacco products kill more than 7 million people a year, and not just the people using them. Secondhand smoke causes around 890,000 of those deaths annually. Add to that the study that every cigarette takes 11 minutes off your life, the research proves time and again the negative health implications of combustible tobacco.
The statistics keep rolling in from the likes of Cancer Research who have looked into the 7,000 chemicals in cigarette smoke and the amount of cancers they cause. The National Health Service in England has explained how every part of your body is affected by smoking. Even the Royal College of Physicians has put to rest concerns that e-cigarettes will lead people to conventional smoking. The uptake in smoking amongst teens is at an all time low. Secondhand vapor from e-cigarettes has shown no ill effects and a landmark study from Public Health England has established e-cigarettes as 95 percent safer than combustible tobacco. This research is recognized outside of the UK and has affected the policies as far afield as the US, Australia and New Zealand.
The future of tobacco:
Collectively and in a relatively short time frame, Big Tobacco has started to see a slowdown in uptake from younger generations. People are more aware of the health impact, while increasing costs and legislative changes have made it harder for them to reach a new market. The fact alone that Altria will be putting information about Juul inside their cigarette packets says a lot to the future of how nicotine will be consumed by future generations.
E-cigarettes are more widely accepted and more affordable, offer more flavors and varying nicotine strengths and feature none of the carcinogens from conventional tobacco. They’ve already proven to be the most viable means of quitting smoking.
The way the numbers stack up, vaping is taking a portion of what used to be the smokers market. Juul alone has seen an 800 percent increase in 2018 and takes up a majority portion of the US e-cigarette industry. The UK is adopting e-cigarettes faster than any other nation with more than 3 millions regular vapers, around half of which have stopped smoking entirely. Less youth adoption of smoking, combined with older generations quitting smoking in favor of vaping means existing markets are waning and new markets are drying up.
In the coming years, what will define the continued success of e-cigarettes and decline of tobacco comes down largely to governments and consumer accessibility to harm-reduction products. Low and medium-income countries having the highest smoking rates, and incidentally often the strictest regulations against e-cigarettes. With reforms in the laws against vaping, they could potentially push the discrepancy between e-cig use and tobacco use in favor of the safer option. This would further reduce the reach and profitability of cigarettes, forcing advances in technology and deals like the one Altria made with Juul. It makes sense — with consumers choosing vaping products more and more and living longer when they do so, these products allow brands like Altria and Reynolds to maintain their profit margins. The shift would ensure Big Tobacco companies survive, even if it is in a parallel market.
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