According to Wells Fargo, the e-cigarette market in the U.S. will be $1 billion this year, and it will increase to $10 billion by 2017. This trend will be beneficial for the cigarette manufacturing companies, as these companies are facing headwinds from high tax rates, increasingly strict government rules and declining sales of traditional cigarettes. Tobacco companies are diverting their focus to e-cigarettes and increasing their marketing budgets for these products. Here are three tobacco companies that dominate the tobacco industry in the U.S. and are increasing their focus on e-cigarettes.
Growth in smokeless tobacco segment
Altria Group Inc (NYSE:MO), the largest cigarette-producing company in the U.S., is increasing its focus on e-cigarettes. The overall U.S. tobacco industry is facing headwinds in a market where smokers are quitting regularly due to growing health concerns. It is estimated that the number of traditional cigarette smokers in the U.S. decreased to 56 million in 2012, down from 60 million in 2008. According to the Centers for Disease Control and Prevention, 45 million smokers in the U.S. try to quit smoking every year.
Altria Group Inc (NYSE:MO) has attempted to take advantage of this trend by launching “MarkTen” e-cigarettes. The company is using “Four draw” technology in the production of MarkTen, which will give a similar smoking experience to traditional cigarettes. Moreover, this product will be disposable, but can be reused by purchasing a separate charging kit. Altria’s e-cigarette will be manufactured in China, and the estimated price per e-cigarette is $9.5. The company’s market share in traditional cigarettes increased to 56% in the quarter ending in March 2013. With its strong brand affiliation, it will be able to target its e-cig to traditional cigarette smokers who want to make the switch to e-cigarettes.
Smokeless tobacco contributes around 20% of Altria Group Inc (NYSE:MO)’s total revenue. It is expected to grow by 3% annually in the next two years. Moreover, the company dominates the U.S. smokeless tobacco market with around 55% market share. Altria Group Inc (NYSE:MO) has brands like Copenhagen, Skoal and Red Seal in its smokeless tobacco portfolio. It is estimated that revenue per pack will increase from $2.22 in this year to $2.24 next year and $2.28 in 2015.
Consumption of smokeless tobacco is considered less risky than cigarettes, although scientific evidence doesn’t fully bear this out. The total market size of smokeless tobacco in the U.S. will also see an upside during the same period, from $1.45 billion in this year to $1.59 billion in 2015. Taking advantage of these factors, the total earnings of the company are estimated to increase from $7.2 billion in the previous year to $7.7 billion in 2015.
New product launch
To capture the emerging e-cigarette trend, Reynolds American, Inc. (NYSE:RAI) launched its Vuse brand. Launched in Colorado, the U.S. version of the Vuse e-cigarette will be available with a single rechargeable unit called Vuse Solo, to recharge the battery for reuse. The initial price for Vuse will be $10 per stick, which is in line with industry peers. Moreover, its other product, Vuse System, will be introduced with additional features, including three flavor cartridges, a recharge battery, and carrying case. There are around 2.5 million smokers of e-cigarettes in the U.S., and that number is estimated to increase by four times in the next year. According to a study, one out of five cigarette smokers said that they have tried e-cigarettes once. With the help of its new products, the company will be able to tap this growing market.