Marlboro maker Altria Group Inc. on Thursday said it would roll out its own version of e-cigarettes in the second half of 2013:Altria to Enter E-Cigarette Market - WSJ.com
Big tobacco is increasingly game for electronic cigarettes, a small but fast-growing rival to traditional smokes.
Marlboro maker Altria Group Inc. MO +1.15% on Thursday said it would roll out its own version of e-cigarettes in the second half of 2013 amid signs the battery-powered devices—which convert heated, nicotine-laced liquid into vapor—are beginning to erode sales of traditional cigarettes in the U.S., less than a decade after surfacing.
The CDC estimates that 21% of adult smokers used e-cigarettes in 2011.
Altria, which controls about half of the U.S. cigarette market, is playing catch-up to smaller rivals. Reynolds American Inc., RAI +1.63% the No. 2 cigarette player, said this week it plans to expand distribution of its Vuse e-cigarettes after bringing them in test markets in recent months. Lorillard Inc., LO -1.21% the No. 3 player, paid about $135 million a year ago to acquire Blu Ecigs, a leading e-cigarette company.
U.S. retail sales of e-cigarettes totaled around $500 million last year, about 0.5% of the overall tobacco market, but are poised to reach $1 billion in 2013, estimates Euromonitor, a data service. Lorillard reported this week first-quarter sales of its blu brand jumped to $57 million, sequentially increasing from $39 million.
"There is no denying that adult tobacco consumers have shown some interest in it," Marty Barrington, Altria's chairman and chief executive, told investors during an earnings conference call Thursday.
Altria said its cigarette volumes fell 5.2% in the first quarter from a year earlier. Lorillard and Reynolds said this week that e-cigarettes contributed to the estimated 6.2% industry drop in traditional cigarette volumes over the same period—accelerating from the typical 3% to 4% declines posted in recent years.
E-cigarette users—or "vapers"—say they prefer the product to other smokeless tobacco products such as snuff because it more closely mimics regular cigarettes. Many scientists say e-cigarettes are less harmful than regular cigarettes because most toxins are released through combustion in a lighted cigarette. E-cigarettes typically are cheaper than regular cigarettes.
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Regulations have been getting harsher for traditional cigarettes, with no letup in sight. A White House budget proposal earlier this month could trigger a 94% increase in the federal excise tax for regular cigarettes, further pressuring sales. Cigarette sales plunged around 10% in 2009 after Congress more than doubled the tax to $1.01 a pack. New York City, meanwhile, is considering increasing the legal age for buying cigarettes to 21 years from 18.
E-cigarettes have largely escaped taxes and regulations—including bans in public areas—until now. The only state that currently taxes e-cigarettes is Minnesota, although bills are pending in Oklahoma, Rhode Island and Vermont. At least a dozen states have introduced bills to prohibit the sale of e-cigarettes to minors, according to the National Association of Tobacco Outlets.
The Food and Drug Administration said in January it planned to propose regulations for tobacco products it doesn't currently oversee, including cigars and e-cigarettes, by April but has yet to publish them. An FDA spokeswoman also said Thursday "further research is needed'' on the "potential health benefits and risks" of electronic cigarettes.
The Centers for Disease Control and Prevention estimated in a recent study that 21% of adults who smoke regular cigarettes had used e-cigs in 2011, up from 10% in 2010. About 6% of all adults have tried e-cigarettes, nearly doubling from 2010, according to the CDC.
Altria declined to say Thursday if it will launch its e-cigarettes under the Marlboro name, promising to share more details in June. The company reported its first-quarter profit rose to $1.39 billion from $1.2 billion a year ago, even as revenue dipped 0.5% to $3.97 billion.
Dozens of e-cigarette brands are already sold online and increasingly in stores. Privately owned njoy Inc., a leading player, recently began airing television ads for its namesake e-cigarette and added former Surgeon General Richard Carmona to its board of directors. VMR Products LLC, maker of V2 Cigs, another popular e-cigarette brand, said this week it signed a marketing and distribution deal with National Tobacco Co. LP, a leading seller of cigarette paper and chewing tobacco.
Some e-cigarettes are designed to look like a traditional cigarette, while others look more like a pen. They come in all colors and flavors, including strawberry, vanilla and chocolate. Under FDA regulations, menthol is the only permitted flavor variant for traditional cigarettes. While many consumers use rechargeable kits, a growing number are turning to disposable e-cigarettes.
Cigarette Store Corp., which owns 85 "Smoker Friendly" stores in five states, says its revenue from e-cigarettes doubled last year, reaching 2% of overall cigarette volume. "It's becoming a more important category every single day," said Mary Szarmach, part owner of the Boulder, Colo.-based retailer.
Ms. Szarmach said many of the chain's e-cigarette customers are 30 to 50 years old and "dual users" who still buy regular cigarettes, but less than before, as they try to scale back or quit smoking. E-cigarettes also are sold for roughly half the price of regular cigarettes, making them popular among smokers, she added.
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