It was simply too big of a market to ignore. A few months back, I noted Goldman Sachs Group, Inc. (NYSE:GS) estimates that electronic cigarettes would become a $1 billion industry in a few years and Altria Group Inc (NYSE:MO) was the only major tobacco company that did have an electronic loosey to call its own. I thought it was simply too lucrative an opportunity for the Marlboro Man to pass up and yesterday the tobacco giant confirmed it was indeed launching its MarkTen brand of e-cig in August through its NuMark subsidiary.
While the FDA wants to get its fingers into regulating them, saying their ability to help users quit smoking are unproven, I don’t think that’s the attraction of an e-cig from a smoker’s point of view.
The government has caused smokers to be treated like pariahs and has taxed the bejesus out of tobacco such that a pack of smokes these days costs on average $5.51. In some states like New York, the price can run as high as $12 a pack, and as my Foolish colleague Selena Maranjian noted, that means some folks can spend a quarter of their annual income on cigarettes.
In comparison, an e-cig costs about $10 and a refill pack from Njoy, one of the product’s first manufacturers, runs about $22, but is equivalent to a carton of cigarettes. That’s a significant savings for a smoker, along with the added benefit that you don’t get the 4,000 or so chemicals that are found in a regular cigarette, but, more importantly, none of the tar associated with them. It’s the tar that kills you.
Designed to look and feel like a real cigarette, e-cigs produce a vapor, not smoke. Though there’s a cigarette-like taste for the smoker, there’s no cigarette smell.
With tobacco sales falling, all of Altria Group Inc (NYSE:MO)’s major rivals have an e-cig product on the market already or have one coming to market soon. Lorillard Inc. (NYSE:LO) is now one of the leading e-cig manufacturers, having gotten into the business last year after acquiring blu eCigs for $135 million. It generated $57 million in sales in the first quarter and has more than 40% market share.
Because President Obama wants to hike cigarette taxes yet again, almost doubling the excise tax paid to $1.95 per pack, it’s clear cigarette makers need to find an alternative source of income. Reynolds American, Inc. (NYSE:RAI), also late to the game, will launch its Vuse brand next month.