--Reynolds gears up for national rollout of e-cigarette brand
Vuse
--Tobacco producer to bring Vuse to Colorado July 1
--Aiming to convert more early testers into loyal e-cigarette
consumers
By John Kell
NEW YORK--Reynolds American Inc. (RAI) is setting the early
groundwork for a national rollout of the tobacco producer's
e-cigarette called Vuse, touting a technological edge in a
fast-growing category that is getting increasingly crowded.
"The tobacco industry as we know it has hit an inflection
point," President and Chief Executive Daniel Delen said at a
presentation. "We see changes to how consumers interact and what
they expect from their tobacco products."
Reynolds exhibited Vuse at a splashy event at New York City's
Chelsea Piers, with the presentation more reminiscent of a tech
event than what is traditionally seen when new consumer products
are launched. Reynolds said it hasn't launched an event of this
scale for one of its products in "at least a decade."
The Vuse kick-off comes ahead of analyst-day presentations to be
held by top rivals Altria Group Inc. (MO) and Lorillard Inc. (LO),
with both events later this month likely to include more details
about their e-cigarette efforts.
All three companies are positioning themselves to address a
market that has gained significant consumer interest since
e-cigarettes first began to hit the U.S. market in 2006.
E-cigarettes, which turn heated, nicotine-laced liquid into a
vapor mist, are mostly generating buzz among existing smokers. The
category is being touted by some Wall Street analysts as a game
changer, and could help lift sales for the tobacco industry as
demand for traditional cigarettes has ebbed for years.
According to Mr. Delen, about 30% of adult tobacco consumers
have tried an e-cigarette in the last six months. But at the same
time, the company's data shows that in 2012, e-cigarettes only made
up 0.5% of total tobacco volume.
"They are trying, but few consumers are converting," Mr. Delen
said.
Tobacco executives and some analysts have said despite
e-cigarette buzz, which has led to a fragmented category with about
250 brands, low conversion among consumers is problematic.
"The category isn't sustainable long term if it is only living
off of new people all the time," Mr. Delen said.
Some analysts have agreed with that assessment. Citi analyst
Vivien Azer, in a research note earlier this week, wrote that while
she personally has exclusively switched to e-cigarettes, retention
is low.
"So the nagging question to us is whether I am just part of a
group of outliers?" Ms. Azer, a nearly 20-year smoker, wrote.
Reynolds American is angling to court more loyalty with Vuse--an
e-cigarette brand the company began to test in limited markets last
summer. This July, Reynolds American will launch Vuse in Colorado,
the first step before it rolls out the product more broadly in the
U.S. Reynolds also left the door open for the brand's expansion
abroad, though executives said they are for now focused on the
domestic market.
Vuse consists of two components: a cartridge and a power unit,
which Reynolds likens to a razor blade connecting to an electric
razor. The microprocessor within the power unit "communicates
approximately 2,000 times per second" to the cartridge
microchip.
The e-cigarette is a stainless steel rod with a battery, as well
as a cartridge with liquid that includes nicotine. The brand is
rechargeable, and Reynolds executives say they will accept used
Vuse products and even competitor devices as part of a recycling
program.
The company contends the technology within Vuse more closely
replicates the smoking experience of a traditional cigarette than
competing products.
Stephanie Cordisco, president of R.J. Reynolds Vapor Company,
said Vuse's launch in Colorado differed from testing last year in
that Reynolds is investing in television and print advertising, as
well as sending direct mail to verified adult-age tobacco
consumers.
Ms. Cordisco said the marketing would focus on the consistent
taste of Vuse, which she claims differs from other products on the
market in which the nicotine flavor diminishes over time. Ms.
Cordisco pointed to a specific tagline Reynolds hopes will resonate
with consumers: "A perfect puff. First time, every time."
U.S. retail sales of e-cigarettes totaled around $500 million
last year, but are poised to reach $1 billion in 2013, data service
Euromonitor has estimated. But the category is crowded, with
products sold online and increasingly in retail stores.
The biggest tobacco companies seem to have a longer term focus
in mind when addressing the hot category. Tobacco executives and
analysts have suggested e-cigarettes will command higher margins
over the long term than traditional cigarettes. And Reynolds said
savings should also be seen for tobacco consumers, estimating
annual savings of about $1,000 for those who convert to
e-cigarettes.
Write to John Kell at john.kell@dowjones.com
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