San Francisco vaping start-up Juul Labs has already taken the US by storm and looks set to exceed its initial “aggressive” sales targets for the UK, but analysts say the ecigarette maker’s meteoric rise might finally be curtailed by regulators and competition.
Launched in 2015, Juul had captured 71 per cent of the US ecigarette market as of July, according Nielsen, a global market research company. It was valued at about $15bn after its latest round of funding. Juul launched in the UK, its first overseas market, last month.
Unlike most vapour products, Juul devices use nicotine salts, which deliver nicotine at a speed comparable to traditional cigarettes and give users the “hit” they crave faster than most ecigarettes.
“This is a case of some really clever individuals figuring out that they’re putting a very high level of nicotine in a very effective delivery form,” said Robin Koval, chief executive of non-profit tobacco control group Truth Initiative, adding that the company had employed a successful marketing strategy. “This is the perfect package.”
Juul said it owes its success to simply having created a better product than the alternatives.
Smart design has certainly played a role, said Linda Bauld, professor of health policy at the University of Stirling: “It’s a very slick, compact device in contrast to most vaping products.” The product is also easier to refill than previous more “fiddly” offerings, and the price is reasonable, she said.
However, tightening regulations and competing products could change Juul’s prospects.
In the UK, Juul must contend with stricter regulations: EU laws ban almost all ecigarette advertising and restrict products to a maximum of 20mg/ml of nicotine, significantly less than the 50mg/ml found in US-sold Juuls. The relative ease of launching an ecigarette in the UK has also generated a more competitive market.
In addition, several big tobacco companies, including Philip Morris International, which produces Marlboro cigarettes, and Imperial Brands, whose brands include Winston and Gauloises, are developing rival nicotine salts products. Imperial Brands’ salts product, myBlu, launched in February.
“I think [big tobacco companies] have seen our success in the US and they’re scared,” said Dan Thomson, Juul’s UK managing director. “If I were them, I would be.”
Meanwhile, regulatory changes in the US may dilute the company’s dominance in its primary market. The US Food and Drug Administration is planning to develop an ecigarette product standard that could limit levels of nicotine in ecigarette liquids and result in the removal of existing products from the market. This could “make it harder” for companies such as Juul to take market share, said Owen Bennett, analyst at Jefferies.
According to Wells Fargo, US ecigarette sales grew from $2.5bn in 2012 to $4.4bn in 2017, and are estimated to reach $5.5bn in 2018. Taking note of this trend, big tobacco has invested billions in “next generation” products.
But cigarette majors have struggled to maintain strong rates of sales growth for ecigarettes, and recent figures have fallen short of estimates. In 2016 and 2017, while big tobacco’s ecigarette sales in the US plateaued, Juul was rapidly gaining market share.
According to Nielsen, the rise in US ecigarette sales since mid-2016 has been driven predominantly by Juul. Respondents to Wells Fargo’s survey of US tobacco retailers in the second quarter said Juul continued to outperform other ecigarette brands, and was taking market share from specialist vaping companies such as Vuse and MarkTen.
While respondents to Wells Fargo’s survey were divided over whether myBlu would be a “significant threat” to Juul, analysts at Credit Suisse noted in July that myBlu’s sales were “ramping up impressively”.
Juul owes much of its success to social media, and the growing popularity of hashtags such as #juuling, said Jidong Huang, associate professor of health management and policy at Georgia State University, although this has attracted criticism.
Mr Huang said there was a “strong probability” that users find salts products more addictive than weaker ecigarette alternatives.
In April and May, two lawsuits were filed in the US accusing Juul of deceptive advertising, alleging the company had falsely marketed its products as safe despite their high nicotine content. The filings alleged Juul’s products caused one plaintiff to become addicted to nicotine, and two others, who had switched to Juul to quit smoking, to become more addicted.
A third was filed in New York in June by the mother of a 15-year-old, alleging that Juul’s marketing “used imagery that appealed to youth” and had caused the child to become addicted to nicotine.
The company has vowed to contest the cases, which it says have no merit, and said it did not target advertising at minors or sell to them.
Critics, however, have also alleged that Juul’s features, such as a flashing “party mode”, attract younger generations, and several respondents to Wells Fargo’s survey noted that Juul was particularly popular among “younger users”.
“We believe the majority of Juul’s growth is being driven by youth,” said Mr Bennett, adding that the FDA had launched a crackdown in April on youth ecigarette marketing and a probe into Juul’s marketing, so growth was likely to slow, he said.
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