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The Convenience (R)evolution

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While global sales of e-cigarettes and vaping products have surged over the last few years, it's impossible to avoid the reality that they still only account for about 1% of sales within the global “tobacco” market.   This is despite being offered in markets devoid of regulation for most of that time – something that is about to change in a big way in many markets around the world.   The question then, is why are so few people adopting vaping as an alternative?


The answer, in my opinion, is convenience. I remember 4 or 5 years ago when I was shown my first open system. I think it was an evod or something of that ilk and I remember thinking there was no way in hell I would ever use one of those. Instead I opted to go and buy a cig-a-like instead and give that a try, with predictable results. However, my initial reaction to an open system device isn’t all that different than the reaction that most smokers have today when looking at the latest and greatest box mod or quad coil tank. In fact, you could argue that today’s devices are even less beginner friendly than the devices of 5 years ago. This trend is great for the enthusiast, but does little to no good for people who are looking to make their first move into vaping away from cigarettes.   We’re going through a bit of a “what’s old is new again” cycle as we’ve been seeing a ton of new closed systems hitting the market in the last year. It goes without saying that closed systems are by their very nature more convenient than open systems. That convenience, though, extends beyond just the usability of the product. There are many practical business and consumer driven reasons for these products to be emerging the way they are, and I’m going to dig into a few of them and try to explain why they make so much sense right now.

 

Distribution

While vape shops have been popping up all over North America at a pretty rapid clip, they have nowhere near the 150,000-store footprint of traditional convenience stores. For vapor products to truly move past their current 1% market penetration their availability needs to increase, and increase dramatically. While open systems offer an abundance of choice, that choice is actually a negative when it comes to a reaching the mass market. Without standard options available at EVERY location, vapor products cannot compete with traditional tobacco in a meaningful way.   It’s the same reason why Coca-Cola is available at every convenience store, gas station, grocery store and restaurant instead of just every soda store in the country. It works because it’s simple, easily consumed, and easily identifiable. These same principles need to apply to vapor products to make them successful at that scale. Right now, the complexity and diversity of the products are a great pro for people who want a highly customized and individualized experience, but unfortunately those same traits are what keep them from being widely adopted.   The new breed of close systems directly addresses this by making a simple product with limited options easily consumed by the general public and easily distributed through traditional convenience channels.

 

Safety

I understand before I write this that most open systems are, in fact, quite safe. However, we are talking about general public perception as it relates to their willingness to adopt a new product and in that respect, closed systems are absolutely perceived as the safer option.   The argument here is very simple – liquids containing nicotine are a risk (however small) to children and pets and closed systems address this by eliminating the possibility of exposure.   Most members of the public are not going to try and do a calculation for a what lethal level of nicotine would be for a toddler, they’re just going to say “fuck that” and buy a product that doesn’t pose that perceived threat. The same logic applies to regulators when looking at this category of products.   It certainly doesn’t help that many manufacturers outright refused to use child proof caps when given the opportunity to make that decision themselves.   Regulators and public perception tend to both feed off of worst case scenarios and it only takes one selfish prick putting out a candy flavored liquid in a non-compliant package for the whole industry to be tainted with that brush.   The same sort of issue exists with hardware as many devices on the market today still operate without any kind of built in safety. The industry has always put the responsibility back on the consumer touting battery safety as the key to keeping things from getting all exlplodey.   This, sadly, is not the way the world works and expecting consumers to manage their own safety through education is far too high a bar for these products to ever have mass appeal.   Mass consumer products have to be safe for the lowest common denominator, which is why this new wave of closed systems has so much potential.

 

Competition

If you got a dollar and dream you can start an e-liquid company. This has been the truth for most of the last 5 years, and the 5000 or so e-liquid brands on the market today are ample proof of that.   This, however, is not sustainable if the products are going to reach the masses.   The convenience stores we talked about earlier are not interested in curating the hottest new “hype” brand for their customer.   They, frankly, couldn’t give a shit if your version of lemonade is better than the next guys. They want products that are consumer friendly, packaged to sell, and consistent. They are not there to sell the merits of the product or educate or provide samples, they are there to make the product available and that’s about it. Their business model is a lot simpler than what vape stores have been looking for in the past. They want to buy products that people already have demand for and move those products off the shelf quickly. Things like store exclusivity are BAD in a world where pre-built demand is required to move products. In that respect, the vape shop model has been backwards for a long time.   Vape shops want unique products while traditional distribution channels want ubiquitous products. Closed systems work perfectly in this world because they do a couple of things very well.   Firstly, they limit flavour choice, which immediately simplifies the buying decision and makes it easier for stores to stock the product.   You don’t need a juice wall if you have a little display at the front of the store that has all 4 of your flavours. Secondly, they limit competition by providing a barrier of access to the technology. It’s not an accident that Big Tobacco bought into closed systems as a way into this market. They understood right away that distribution matters and being consistent in your offering in every market is more important for market penetration that an abundance of choice. They also viewed the added technology hurdle as a valuable barrier to entry that still applies today. Once a customer buys into a platform on a closed system they’re lifetime value as a customer is many multiple’s higher than it is for any open system. This gives those companies that offer them a massive leg up as it allows them to spend for more on customer acquisition than in a one-and-done scenario.

 

I think that what we’re seeing now is only the beginning of the next evolution of this industry.   In the coming months I think we will see more and more of these closed systems hit the market and we will start to see a surge in sales through traditional convenience channels that adopt these products.   Overall, I think this is a good thing, as I don’t really see the enthusiast vape shop going anywhere either. There is absolutely an opportunity for these products to coexist but I think when it comes to which product variation is going to successfully reach the masses its not even close. Closed systems follow the traditional consumer packaged goods model whereas open systems do not, and for that reason we’re a lot more likely to see Juul’s at a rate of 10 to 1 versus box mods when standing in our newly created government mandated vaping sections. I’ll save that last bit for another time…

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  • Beju Lakhani
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