Aug 1 (Reuters) - The electronic cigarette, touted as a way to cut smoking, is facing a serious contender that even smokers find sexy.
Vapor tanks are typically hunkier and allow smokers and would-be quitters to customize nicotine levels, as well as to puff thousands of blissful flavors. A cult following is likely to grow as "vaping" becomes more fashionable and more stores, such as Walmart, carry the battery-powered metal tubes in a wide range of colors.
As a result e-cigarette sales, like its shape, are slimmer this year, prompting manufacturers to invest in the next generation of inhalant products ... as well as smokers.
Tank makers are introducing new models at a rapid clip in the fledgling market, ramping up research into products that may even evolve into puff pipes for medicine or marijuana.
E-cigarettes are typically used to smoke nicotine-laced liquids. When users puff, the nicotine is heated and released as a vapor containing no tar, unlike conventional cigarettes.
Tanks give smokers "something that more closely resembles a combustible cigarette because of the bigger plume of vapor," said John Wiesehan Jr., chief executive of Mistic, one of the largest private e-cig makers, which has added a tank device to its product lineup.
After surging in the last two years, e-cig sales declined 12.9 percent in the four weeks ended July 5 from the prior period because of lower prices and as smokers migrated to tanks, Wells Fargo analyst Bonnie Herzog said.
She estimates tanks and e-cigarettes have a combined market of about $2.5 billion, and believes that tanks will overtake the latter in the next decade.
Retailers, Herzog said, are starting to discontinue or take shelf space away from e-cigs to make room for tanks, "given their attractive growth and margins."
The three big tobacco companies said they are focusing on e-cigarettes and declined to discuss product plans. But they could acquire their own tank products after the technology is more developed.
Lorillard Inc, which leads the U.S. e-cig market, already sells a vapor tank in the United Kingdom. It reported Wednesday that increased competition is hurting its blu eCig, whose sales slipped last quarter by 35 percent as its U.S. market share fell to 40.9 percent.
Reynolds American Inc and Altria Group Inc are rolling out their own e-cig brands, Vuse and MarkTen respectively, nationwide this summer. They had only been available in two states.
"There is clearly more competition than there used to be," said Craig Weiss, CEO of NJOY, a top U.S. e-cigarette seller which has filed more than 80 patent applications in recent years. That, he said, has led to increased innovation.
Demand for NJOY's e-cigs has slowed in the last year, and the company plans to roll out a new tank device in August.
None of the current technologies "are the perfect delivery system but people that want a cheaper and more socially acceptable way of smoking will try what's out there until something sticks," Morningstar analyst Philip Gorham said.
"I am confident that e-cigs have a future and will likely get bigger," he said. "What I don't know is which technology will win out."
Reporting by Jilian Mincer; Editing by Richard Chang