Education key to unlocking vaping growth

A packed audience gathered last month for SLR’s Cloud Chasing conference to hear a collection of industry experts explain how the local retailing sector could breathe new life into the vaping category and how the key was education.

by Findlay Stein

Former Prime Minister Tony Blair once said his three priorities for government were ‘education, education, education’. After a day listening to a dozen industry experts at SLR’s Cloud Chasing conference on kick-starting growth back into vaping in convenience, the packed audience was left in no doubt that education should also be the top three items on the to-do list of any local retailer keen to make a fresh start in this vital category.

With traditional retail only accounting for around £169m of this £1bn industry in the UK, the event brought retailers, suppliers and experts together to discuss how to get the category back on track in local retailing.

The first lesson of the day was given by Craig Johnston – co-founder of Hamilton-based Hope CBD. CBD has been touted as the next big category for the convenience channel, and Johnston gave the audience the lowdown on what the cannabis derivative actually is, how it works and why people take it. He was quick to reassure retailers that the average CBD customer was a female over 35, and that their store wouldn’t become a haven for stoners if they chose to stock CBD e-liquids or other products containing it. Johnston then highlighted the opportunity that increased public awareness of CBD presents, comparing it to where the market for vaping was six or seven years ago just as the category was taking off.

By that point in time Matthew Moden’s company Liberty Flights had been producing e-liquid and vape kits for around four years. Sharing his extensive experience, he too said vaping presented a massive opportunity for c-stores and predicted the demise of the vast majority of specialist vape shops. “Only the strong will survive,” he said, urging the audience to capitalise and look at vaping – with its 50%+ margins – as a key category that should be approached seriously and treated with respect. The biggest challenge was “unlocking knowledge for the retailer”, with training a vital element of this process.

Building a strong range is the other task that all retailers must embrace, said Moden, because it is “super-importan that you address every customer’s needs”. He stressed the importance of conducting regular range reviews and advised retailers to develop an understanding of the different flavours, which vary in popularity depending on where in the country you are. He also flagged up the need for strong POS materials, showcasing a variety of different solutions that Liberty Flights provides.

Moden also suggested that the market was moving towards ‘closed’ cartridge systems, described by vapers as pods or podmods. This point was reiterated by Imperial Tobacco’s Head of Next-Generation Product Sales Andrew Miller. He said convenience retail was presently focused on e-liquids and starter kits, but that the focus would shift to podmods within the next two or three years.

Miller reiterated the importance of “education, education and education”, suggesting retailers should become vaping experts and work with suppliers who can provide training. As potential first-time vapers can easily spend 20 minutes or more discussing their needs and options, Miller advised retailers to provide information leaflets that would allow such customers to go away and make an informed choice instead of blocking the till.

He also managed to cast a rare ray of sunshine over Brexit. He suggested it gave “significant opportunities” to separate vaping from the restrictive EU tobacco products legislation concerning marketing.

Shopper research consultants HIM interviewed 250 convenience retailers to get their thoughts on the vaping category especially for the conference. The results, as relayed by the firm’s Commercial Innovation Manager Josh Clifton, made for some grim listening and exposed why convenience is failing with vaping. Unsurprisingly, education and poor ranging lies at the root of the problem.

Some of the findings of the survey seemed to indicate that some retailers had all but given up on the category with a staggering degree of apathy and lack of knowledge. Astonishingly, Clifton revealed that 76% of retailers weren’t interested in having a trained category expert, while almost the same number (73%) wouldn’t consider an in-store concession. Nearly two-thirds (66%) don’t want category support from their suppliers.

Couple these numbers with Clifton’s revelation that despite almost every retailer polled (91%) had been asked for advice on vaping by a customer, over 40% were reluctant to do this due to a lack of category knowledge, it becomes clear where the problem lies.

Despite this, more than three-quarters of retailers surveyed expect to grow or at least maintain their current range, HIM’s survey revealed.

With smoking in Scottish prisons banned at the end of last month, Neil McCallum, CEO of JAC Vapour, educated and entertained delegates in equal measure with a timely discourse on the trials and tribulations of being the company chosen to produce a vaping device suitable for guests of Her Majesty.

The resulting product had to meet a number of design requirements, and uses closed pods so prisoners can’t tamper with the e-liquid and “get aff their nut”, as McCallum humorously put it. He also recalled presenting a tamper-proof prototype device that couldn’t be dismantled, only to be told by the governor of Barlinnie that some of his prisoners “had 20 years to get into it” and to “just make sure they can put it back together”.

McCallum also flagged up the “huge opportunity” presented by the forthcoming ban on menthol cigarettes in 2020, saying a menthol vape was the closest thing you could get to a menthol smoke.

Tobacco giant Philip Morris International (PMI) has publicly committed to replacing cigarettes with smoke-free alternatives and has sunk over $4.5bn into research and development for its IQOS device which heats rather than burns tobacco. IQOS was the first heated tobacco product to reach the UK market and Ed Simkiss, PMI’s Regional Sales Manager for Scotland, told the audience it gave the company the opportunity of opening up a new category and making the trade aware that it existed as an alternative to vaping.

Vaporized Compliance Director Doug Mutter, who sits on the board of the UK Vaping Industry Association (UKVIA), then predicted that the vaping market could quadruple in size to £4bn by 2021.

He also revealed the scale of the challenge retailers face to become vaping experts. Every single Vaporized employee undergoes a full fortnight of classroom-based training before moving on to in-store scenarios. If you’re keen to learn, Mutter offered this training to any retailer who wants to work as a Vaporized partner.

One such retailer is former SLR Rewards e-cig retailer of the year and Managing Director of Eros Retail Harris Aslam which operates a chain of nine stores in Central Scotland. He has been working closely with Vaporized and his Little Greens store in Alloa now boasts a Vaporized Express counter alongside its Post Office and in-store bakery.

Harris told the audience that the store has three vaping champions who have all been through Vaporized’s rigorous training programme. He acknowledged the effect this had on the staff rota but said: “If you’re serious about vaping you need to make sure your team are fully up to speed.” Product knowledge was the key to success, he added, and a “massive, massive challenge”.

And why should retailers should make the effort? It was a “no-brainer”, Harris said, to switch a customer from smoking to vaping and shift from an 8% margin on tobacco to a 50%+ margin and a marked increase in basket spend.

He advised the audience to work hard at marketing the category and said that Vaporized Express loyalty cards worked well in the Alloa store, which also features regular promotions and plenty of marketing material throughout – not just at the vaping counter.

Will Hill, British American Tobacco’s UK&I Head of Legal & External Affairs, was not the first speaker to say that the vaping opportunity is there for the taking but – as his job title suggests – also stressed the importance of responsible retailing of what are age-restricted products. In a thought-provoking presentation, Hill described the work BAT was doing to foster an environment of youth access prevention.

A lot of discussion at Cloud Chasing centred on the opportunities and problems presented by smokers considering vaping for the first time, but Khosrou Kheradmand, Director of vap-r, took a different approach. He suggested convenience retailers need to target more experienced vapers and poach market share from specialist shops. The best way of doing this, he said, was by stocking products such as ‘sub-ohm devices’ – the ones that customers with big beards and tattoos use to generate vast plumes of vapour. The good news here was that, compared to over 20,000 varieties of e-liquid that Kheradmand said were available in the UK, there were only really two or three brands of device popular with cloud chasers.

Blake Gladman, Strategy and Insight Director for insight agency KAM Media, then looked to the USA to predict what the future of vaping may hold for local retailers, sharing the results of some exclusive research the company conducted for the conference. The US vaping market was chosen because it is “ahead of the curve”, as Gladman put it. Some 500 vapers on both sides of the Atlantic were surveyed to understand the differences between the two markets.

There is a clear contrast: American c-stores and traditional retail channels have captured a 45% share of the vaping market compared to just 16% in the UK. Gladman said this disparity showed a real opportunity for UK convenience. Once more, range and knowledge were the main barriers the currently channel faced, said Gladman, with a third (33%) of UK vapers polled stating they wouldn’t choose a c-store as it wouldn’t have the brands/products they wanted. A similar number (37%) avoided convenience because the staff didn’t have any knowledge of the category.

The survey also revealed a considerable level of dissatisfaction among vapers with specialist shops and the online channel, suggesting that if the local retailing sector can address the three key focus areas raised by Gladman – getting the right range of products, getting the right range of brands and getting staff properly trained – then the market is there for the taking.

The final speaker of the day, Richard Cook, must have been delighted when Gladman suggested that Britain was playing catch-up with the US; he is Head of National Accounts for Juul, the company that went from a star-up company in 2015 to dominating the American vaping market with 75% of value sales in US convenience. The company now has annual sales of around $1bn in the US and is now tackling the UK, although it has existed on this side of the pond for only five months.

The reason for this American success may be down to the Juul device’s simplicity and it’s pared down design, often leading to it being described as “the Apple of the vaping world”. Assuming it’s charged, all users need to do is insert a pod and draw on it; it is breath-actuated and has no buttons to press.

Cook was keen to point out that Juul had no connection with, nor investment from, tobacco companies and had the aim of making a “positive impact” on 20 million smokers by 2020. Juul also insists sales are made under a ‘Challenge 25’ policy and will refuse to supply any retailers who are found to be in breach of this.

Citing an example of a retailer with over £2,000 tied up in a wide range of vape supplies – the majority of which didn’t move – Cook stressed the importance of stocking the right range. “A 50% to 60% margin on something that doesn’t sell adds no value to your business,” he said, adding that retailers shouldn’t be afraid to simply go into their local specialist vape shop and ask what sells.

Again repeating the “education, education, education” mantra, Cook urged retailers to invest in staff training. If what he then predicted comes true, it would be a brave retailer who didn’t.

“Tobacco is one of the biggest footfall drivers into your store,” he said. “This category will replace tobacco.”