US: Big Tobacco is About to Dive Into E-Cigarettes

Source from:  Wall Street Journal 06/18/2013

Altria Group Inc. , the No. 1 tobacco player in the U.S. and maker of Marlboro cigarettes, has promised to give more details about its e-cigarette strategy on June 11 at its Investor Day in New York. It said last month it will roll out its own version of the alternative cigarettes in the second half of this year, but has been otherwise tight-lipped.

The two companies control about three-quarters of the domestic cigarette market but are belatedly tackling a niche category that has been growing by leaps and bounds since they were introduced in China in the mid-2000s and hit the U.S. in 2007.

Industry watchers say U.S. retail sales could reach $1 billion this year, still roughly just 1% of the total tobacco market, but a doubling from last year. A growing number of smokers are sampling e-cigarettes as they to wean themselves off traditional cigarettes, which release most of their toxins through combustion. The alternative is believed to have contributed to the steeper-than-typical 6% drop in conventional cigarette volumes during the first quarter of 2013.

Lorillard Inc. , the No. 3 tobacco player, has moved more quickly, paying about $135 million last year to buy Blu Ecigs, a leading e-cigarette brand. Hundreds of privately held competing brands are sold on the Internet and increasingly surfacing on stores shelves and in TV ads with names like NJOY, V2, 21st Century Smoke and Logic.

Reynolds, Altria and Lorillard don't want to kill their cash cows, with traditional cigarettes fueling more than 80% of their profits. An uncertain regulatory landscape – the Food and Drug Administration has yet to propose rules governing the sale of e-cigarettes – also has caused them to move carefully. But they also don't want to miss the boat.

Daniel Delen, Reynolds' chief executive, told shareholders earlier this month his company expects to be "a major player" in e-cigarettes and plans a "significant" rollout. It began selling a potential prototype called Vuse in a small number of stores in North Carolina last year. The version includes a microchip to control the flow of nicotine and Reynolds calls it a "digital vapor cigarette."

Brands such as NJOY and Blu have used celebrities like the singer Courtney Love and actor Stephen Dorff, respectively, to shine a spotlight on their products. Pier 59 Studios at Chelsea Piers, where Reynolds will hold its event next week, is a popular venue for the entertainment and fashion industries.

But "the only celebrities" at the daytime event will be "company celebrities," including Mr. Delen, a Reynolds spokesman said Wednesday. Enditem