Retailers of e-cigarettes in the U.S. are under increasing pressure as the FDA seeks to regulate the quickly growing and ever-changing nicotine alternative market. Of particular concern is the growing use of e-cigarettes among teenagers which has been described as an ‘epidemic’ by regulators. In response, the FDA is considering a ban on all flavoured e-liquids and juices, leaving only tobacco flavoured products. Such a change would drastically dampen the U.S. e-cigarette market – causing many retailers to close and making consumers turn to other venues or mix their own e-liquids.

The scope of the flavour ban is not available, but the FDA has made clear that the public health implications are important enough to consider “the immediate removal of these flavoured products from the market.” The worst-case scenario for the e-cigarette market would be if the FDA followed the example of the counties in California which have already banned flavoured e-cigarettes. This would include a full ban on flavoured liquids (both the nicotine-containing and nicotine-free types).

To understand how the vaping product landscape would be impacted, Sector & Segment interviewed e-cigarette retailers across the United States to better understand how they are responding to regulation and the potential for a ban on flavoured e-liquids in particular. This included interviews with several retailers in San Francisco and San Mateo, California where a ban on flavoured e-liquids has already been approved and is currently being implemented. As such, these interviews represent a strong case study for the potential impact of a nationwide ban on flavoured e-liquids.

Vaping liquids going up in smoke

A ban on flavoured liquids would represent a loss of sales that could threaten the existence of the ~8,000 e-cigarette stores currently trading. For all of the retailers interviewed, e-liquids made up the largest share of their sales and could not be easily replaced. Liquids have to be replenished every few weeks whereas devices, although pricier, typically can have a lifespan of several years. This makes stores dependent on consumers keen on replenishing or trying new flavours.

We sell everything: mods, juices, pods – but the bulk of the business is in the juices

– Vape Store Owner, San Francisco

Much of the appeal of stores is their ability to provide a wide range of flavours. And retailers provide consumers a venue for testing and discussing the merits of flavours (and devices). As a result, stores often focus on offering a boutique experience where customers can draw from the knowledge of employees. In a tobacco-only flavour liquid market, the vaping communities organised around specialised vape stores will lose their appeal, which could lead to store closures.

This was the case for the retailers interviewed in San Francisco. Without income from e-liquids, retailers had the option of either moving to a less regulated product offering or simply shutting down. While some stores might be able to carry on by selling e-cigarettes and other devices, they would also be forced to diversify into new products.

When the flavour ban goes out, that will be the end… some consumers might continue to use tobacco flavours but it’s too much of a gamble for me [to stay in business]

– Vape Shop Owner, San Francisco

The flavourless future of the vaping market

In a scenario where the FDA bans flavoured liquids, current users of those vape juices will be pushed to adjust their buying behaviours.

At the moment, only a small fraction of vapers who consume nicotine liquids rely on tobacco flavours as the majority prefer to experiment with fruity and sweet tastes. If e-liquids were reduced to a single flavour (tobacco), there would be little need for flavour tasting in dedicated vaping stores. Consumers would be able to turn to gas stations, convenience stores or online platforms for product refills, the same way most do for either cigarettes or pods. With minimal variation between brands, a few key tobacco-flavoured e-liquid brands would likely dominate the market.

Consumers’ preferences in devices would also change. Most would turn to e-cigarettes as a nicotine delivery system rather than for the “flavour plus nicotine”. Open devices like mods would lose much of their value in favour of pod-style devices. Mods are oriented around delivering fuller flavour which would be of less value in a market with only tobacco flavoured liquids. In contrast, pod-style devices accompanied by salt nicotine, a type of e-liquid, are able to deliver high doses of nicotine in a small convenient package.

Less drastic scenarios are still on the table

It is not yet clear that the FDA will pursue a full ban on flavoured e-liquids. Various other options are available for reducing teen usage such as:

·       Restrictions on e-liquid nicotine strength

·       Restrictions on online sales

Furthermore, if the FDA allows for flavoured nicotine-free products, many stores may be able to carry on selling flavoured liquids and nicotine separately, thus allowing consumers to mix their own flavours.

However, if the FDA follows San Francisco’s model this would not be an option. In California, nicotine-free liquids are regulated as tobacco products and so the ban on flavoured e-liquids would extend to nicotine-free products as well.

Final thoughts

Although there is still limited visibility on the full scope of FDA restrictions on sales of e-cigarette consumables, it seems likely that whatever path they take, it will affect the entire industry, from liquid production to vaping communities. E-cigarette retailers have adapted to a range of regulations in recent years but all the vape shop owners we talked to were consistent in believing that a full ban on flavoured e-liquids would mean the end of their specialised retail.