| July 30
July 30 Lorillard Inc. on Wednesday
reported significant declines in its electronic cigarettes
sales, raising questions about the strength of the nascent
The 3rd largest U.S. tobacco company owns industry leader
blu eCig, which once had 47 percent of the U.S. marketshare.
Sales of its electronic devices dropped 35 percent to $37
million for the second quarter ended June 30, 2014 compared to
$57 million for the same period last year. Its retail share fell
1.1 percentage point to 40.9 percent.
Lorillard blamed much of the decline on greater competition
from rivals Altria Group Inc and Reynolds American Inc
, which are rolling out this summer their own
e-cigarettes brands - Vuse and MarkTen - nationwide. Until now,
they've only been available in two states.
But industry analysts are concerned that consumers are
shifting from the smaller e-cigarettes to so-called tank
devices, which typically are larger and have longer-lasting
stronger batteries and a puff that is more similar to a
combustible cigarette. The tanks also can be customized with
thousands of different flavors ranging from bacon to bubble gum.
"The eCig category possesses none of the wide moat
characteristics of cigarettes, and we are concerned that today's
market leader could be usurped by one of the emerging
technologies," said Morningstar analyst Philip Gorham.
E-cigarettes are slim, reusable, metal tube devices
containing nicotine-laced liquids that come in exotic flavors.
When users puff, the nioctine is heated and released as a vapor
containing no tar, unlike conventional cigarettes smoke.
After initially soaring, e-cig sales declined 12.9 percent
in the period ending July 5 because of pricing declines and
slower sales, according to Bonnie Herzog, a senior analyst at
Wells Fargo, who estimates that the entire vapor market is about
$2.5 billion. She said the sales decline is more reflective of
"a move to vapors-tanks" and expects the industry to keep
Gorham said he is confident that one or more of the new
technologies will emerge but "What I don't know is which
technology will win out, and that is why I question the wisdom
in buying the market leader at such an early stage. Why pay up
for something with no guarantee of success?"
Earlier this month Imperial Tobacco Group Plc agreed to buy
a group of brands from Reynolds and Lorillard as part of their
merger, including the blu e-cigarette unit. E-cigarettes are
consider crucial business for big tobacco companies, which have
bought or developed their own brands in recent years to offset
shrinking sales of conventional tobacco cigarettes.
"It's a new technology. People are experimenting," said
Gorham. "Think VHS-Betamax in the 1980s. You wouldn't have done
very well from buying Betamax, but you wouldn't have known it at
the time because people were buying the Betamax technology."
Lorillard was down about 1 percent in mid-day trading.
(Reporting By Jilian Mincer; editing by Andrew Hay)