Lorillard, Inc., through its Lorillard Tobacco Company subsidiary, is the third largest manufacturer of cigarettes in the United States. The North Carolina-based tobacco company announced in the autumn of 2013 that Blu cigs sales make up 4% of Lorillard’s Total Revenue. While this might not seem very much, you need to take into account the fact that the division is growing at a very rapid rate, as last year Blu Cigs sales accounted for just 1% of Lorillard’s income.
Famous for their signature blue colored LED tip, Blu Cigs has been a key player in the U.S. ecigarette market for years and in 2012 it was acquired by Lorillard for $135 million. In February 2013, the tobacco giant reported its electronic cigarette division had contributed $61 million in net sales since the acquisition, but according to the latest figures, Blu’s sales have increased almost exponentially, to $63 million in the last quarter of 2013 alone.
Blu cigs were very popular prior to the acquisition but now, benefiting from Lorillard’s well-established chain of distribution and an aggressive marketing campaign featuring even celebrities in their TV ads, it now holds almost half of the US electronic cigarette market. Corroborated with an increase in traditional cigarettes sales, the bald move pushed Lorillard’s total sales up 10 percent, to $1.8 billion in 2013. Even though it sold almost 10.5 billion analog cigarettes in the last quarter of 2013, 3.5% more than a year earlier, Lorillard also had to fork over $79 million in damages tied to a long product-liability fight in Massachusetts.
The company’s CEO Murray Kessler still believes that the tobacco industry is in decline and as Wells Fargo rates the global ecig market at $2 billion and estimates it will top $10 billion by 2017, it seems like a very big share to put your hands on. Therefore Lorillard decided to apply the same successful strategy abroad too and bought British brand Skycig for $49 million in cash in the beginning of October 2013.
But Lorillard’s ship is sailing in murky waters at the moment because the ecigarette market still lacks firm regulations from the F.D.A. therefore its long-term profitability in this sector depends greatly on the upcoming regulation proposals. “If the FDA does overly strict regulations and reads it just like cigarettes … you’re going to get a different trajectory in the category than you’re going to get if they recognize, again, that this is somewhat different on the continuum of risk,” Kessler said.
As the success of Blu Cigs has become representative for the e-cigarette niche, earlier this year Marlboro cigarette maker Altria Group Inc. said it will buy e-cigarette company Green Smoke Inc. for $110 million in the latest sign the battery-powered devices are moving from novelty to mainstay and pose a rising competitive threat to traditional smokes. Green Smoke had about $40 million in revenue last year, a relatively small slice of the $1 billion-plus in the estimated U.S. e-cigarette market.