February 2016

Mastering the Vape Space: 2016 Vape Industry Survival Guide

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By Norm Bour

This industry is going through a massive shift. And, that shift has just begun. Going back just a few years anyone and everyone could open a brick and mortar shop, and many did. Some chose to develop and launch an e-liquid company and even became prominent enough to become modern day rags to riches stories.

But, those days are no more. Sorry if the boat has sailed, but there are other ships ready to be boarded. The bottom line is, the industry is not dead and will outlive most of our lifetimes. The biggest issue at hand right now: new regulations.

We’ll not go into every nuance and possible outcome since many are still speculative and are covered in more details in other more in-depth pieces. Even so, there are certain aspects that will affect you soon, whether you are a shop owner, e-liquid company vapreneur or user.

Sampling and Other Regulatory Changes

An almost for-sure outcome, sampling probably will not be permitted in vape shops. In a recent FDA update webinar hosted by VapeMentors and presented by attorney Azim Chowdhury, head of Keller & Heckman’s cigarette and vape legal practice, Chowdhury said that “sampling will not be permitted under the new proposed regulations.” According to Chowdhury, “sales will probably take place behind the counter and products may not be able to be displayed under the new guidelines.” Some states already have proposed, but not instituted new laws that would require special licensing. Indiana has such a law on the books, scheduled to take effect July 2016.

Though the proposed regs do not address common sense concerns like clean room requirements, ingredients and labeling, flavoring restrictions and nicotine guidelines, they do state who is considered a “tobacco products manufacturer,” and the answer is “almost everyone.” If you build your own mods or carry your own house liquids, get in line; this law affects you. If you carry only pre-made and branded products, you may be exempt.

How Would Your Shop Change?

Imagine this: Your vape shop is no longer a hangout. It is no longer a fun place to be. It is a place to buy product, pure and simple. Devoid of any emotional connection, it could be as sterile and cold as walking into a 7-Eleven and buying a pack of cigarettes. Your biggest competition would not be the shop down the street, it would be online sales, which also is your biggest competitor now, in 2015.

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When your customers know what they want they may have less incentive to visit you. Their consumer dollars will go to less expensive online sellers.

The reality is, these scenarios do not have to play out this way, and you can still have a fun and profitable venture. Can you have a cloud competition? Probably not. But, you can host events and bring in entertainment and offer education and guidance. The business will not go away, but it will be different.


PREDICTIONS

“Those who live by the crystal ball are doomed to die from eating broken glass,” is a quote referenced by many. With that said, here are some predictions for 2016 and beyond:

• There will be less retail shops, doing more. A few years ago shops grossing six figures per month were more common than today. The dilution of the business has made $100,000 months harder to reach, but the closing of the majority of retail shops is inevitable. The net result: less shops overall, but being more professional and profitable.

• Fewer e-liquid companies. Period. But, there will be many using contract manufacturers. At my recent testimony at the Office of Management and Budget in Washington, D.C., I spoke about the effect of new regulations on manufacturers. I estimated that there were 8,000 e-liquid companies today, though no one really knows for sure. Most of these will go away. The big names will remain and new players will surface. Survivors will use third party giants like Molecule Labs, Purilum and JSPR since it may be cheaper than doing it yourself.

• More consolidation. Acquisition will be a key component in 2016 and beyond as the big players consume and merge with the smaller ones. What matters most to a purchaser? Marketing presence and posture, solid branding and a good consumer following.

• Big business will play a bigger part. Big tobacco controls the e-cigarette and closed tank market, but have been less present in the vapor, tanks and mod market. They already know how to play the regulatory game and will be developing their own products as well as buying the smaller players. See prior bullet No. 3.

• Consumers will be winners in this brand new world. They may have less selection, but quality will be high and prices may be low. That is the formula that drives most consumers.


What are your thoughts for 2016 and beyond? This information will be presented in more detail in an upcoming webinar hosted by VapeMentors. Be sure to sign up for the mailing list to be informed about the date.

Norm Bour is the founder of VapeMentors, which offers online educational programs, services and resources for anyone in the vape space, including vape shops, online stores and e-liquid brands. He’s also host of Vape Radio, a podcast series that interviews the masters of vape and thought leaders in the vape space. Contact him at norm@VapeMentors.com.

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