Altria pushes forward on electronic cigarette sales
BY JOHN REID BLACKWELL
Richmond Times-Dispatch
U.S. tobacco giant Altria Group Inc. is pushing more aggressively into the electronic cigarette market, with plans to expand sales of its first e-cigarette brand nationally in the next few months.
Henrico County-based Altria, the parent company of cigarette maker Philip Morris USA, said Wednesday that it plans to start a national rollout of its MarkTen e-cigarette in the second quarter.
The expansion of MarkTen follows the company’s recent test marketing of the product in Indiana and Arizona.
It also follows Altria’s announcement on Feb. 3 that it would bolster its presence in the e-cigarette market — what some call the “e-vapor” category — by acquiring e-cigarette maker and distributor Green Smoke Inc. for $110 million in a deal expected to close in the second quarter.
MarkTen was Altria’s first venture into the e-cigarette category, which is still small compared with the market for conventional cigarettes.
Yet electronic cigarette sales have been growing quickly and are now estimated at between $1 billion and $2 billion a year. Numerous companies have introduced e-cigarette products.
“It really is early days in e-vapor,” Marty Barrington, Altria’s chairman and CEO, said in a presentation to industry analysts and investors on Wednesday.
“Consumers are still choosing. They are trying to find their product. They are trying to find their brand,” Barrington said, adding that Altria’s goal is to be a leader in the e-cigarette category no matter how much it grows.
MarkTen is made by Altria’s product-development subsidiary, Nu Mark.
That company started test-marketing the e-cigarette in Indiana last August. In December, it expanded the test market to Arizona and made improvements to the product, including a new flavor system and adding a battery charger to the package.
“We are really happy with the performance,” Barrington said, noting that MarkTen has achieved a market share of 48 percent in only seven weeks of sales in Arizona.
Unlike conventional cigarettes, e-cigarettes do not burn tobacco or contain tobacco leaf. The battery-powered devices heat a liquid solution containing nicotine, artificial flavorings, and propylene glycol or vegetable glycerine, which creates a vapor that is inhaled by the smoker, or “vaper.”
Barrington has spoken cautiously to investors and analysts about the potential for e-cigarettes because the category’s growth could be affected by consumer acceptance, taxes and government regulation. The U.S. Food and Drug Administration is considering how it might regulate e-cigarettes.
FDA regulation remains a “wild card” for e-cigarettes because restrictive regulation by the federal agency could slow down marketing efforts in the category, said Steve Marascia, director of research at Capitol Securities Management Inc. in Henrico.
While the extent to which e-cigarette sales will grow remains unclear, “the tobacco companies need to do something, because they are looking at 3 to 4 percent volume declines in (conventional) cigarettes going forward, and they need to offset that,” Marascia said.
Barrington said Altria estimates that about 90 percent of adult cigarette smokers are aware of e-cigarettes and about two-thirds have tried them, but only a small number use them daily.
Yet Altria’s decision to expand its MarkTen sales and acquire Green Smoke may indicate that the company’s leaders have become more optimistic about the category, said industry analyst Bonnie Herzog of Wells Fargo Securities.
“Given early success of MarkTen in Arizona where the brand supposedly grew to 48 percent share, (Altria) seems more emboldened to ‘play to win’ in this new category, and ultimately we believe (the company’s) full participation will catapult growth of the category,” Herzog wrote in a note to investors.
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