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Tank You Very Much

Investors are noticing that the “tanks” segment of the electronic cigarette industry is outpacing all other market sectors. What could this mean?

Tobacco industry investment guru Bonnie Herzog, at Wells Fargo Investments, noted this week that growth in the “Vapors/Tanks” field is double that of the rest of the market.

Herzog recently polled independent companies worldwide to assess the comparative growth of “tanks” (also called “open systems”) over against traditional and cigalike segments. Respondents returned a resounding vote for tank sales, apparently unhindered by fears at the New York Times that children will be glugging the stuff down.

It is seasoned vapers who prefer the tanks. By contrast, disposable and rechargeable cigalikes require less savvy on the part of vapers, but end up costing almost twice as much. So it would seem that the jump in tank sales reflects a move into a the second and even third generation of vapers. A typical tank user may spend roughly $16 per week to support the habit, according to Herzog, while use of disposable cigalikes costs almost twice that much, and even rechargeables will cost roughly 20% more.

Newbies want the cigalikes for a look and feel that is closer to that of a burning cigarette, while seasoned vapers care less about that than about saving money. Vaping a mod is cool now, maybe cooler than looking like you’re smoking a cigarette. And saving money is always cool. That’s a change that can only accelerate.

This development is a boon for vape shops and online suppliers, which represent the sales outlets where tanks are concentrated. Big Tobacco has less control here, and convenience stores also cater more to the casual or newbie user, who wants a cig imitation he can vape and toss. Herzog opines that the market for traditional e-cigs is decelerating, while the opposite is the case for volume purchase at vape shops, which now number over 5000 – and growing – in the US alone.

Tankss are less “commoditized” or branded, and appeal more to the knowledgeable user who can save money buying in bulk and remaining in control. Herzog sees this as a serious challenge for the cigalike and traditional e-cig market.

According to Herzog’s figures, tank users are also less likely to “dual-use” – that is, to vape some of the time, but to have an occasional combustible cigarette as well. This should gladden the fretful hearts of hand-wringers at the CDC and the University of California at San Francisco, who are convinced, inexplicably, that dual use is worse than smoking all the time.

Regulation is of course the big question mark. If the FDA comes down hard on vape shops and online marketers, it will be a great boon for Big Tobacco, which can recapture the ascendency. This would be a crowning irony and a tragic development, of course. But stranger things have happened in a world where government tries to control markets without understanding them.