Manufacturing Retail

Is the vaping industry bubble about to burst?

A clutch of people have made their fortunes in the feral world of e-cigs and vaping. How much longer will the party last now new rules and big tobacco are entering the fray?

20 Apr 2017

Shops filled with smoke and neon lights have become a common feature on UK high streets over the last five years. As the vaping phenomenon has swept through the country, vape shops have spread like e-fire, concentrated especially in poorer parts of the country.

There are estimated to be at least 2,000 vape shops in the UK. Many more companies are selling an array of flavoured e-juices, as well as tanks, vaporisers, coils, batteries, drips, ‘squonkers’ and other paraphernalia online, contributing to what is already a £1bn-a-year business in the UK, and £6bn globally.

Millions of smokers have swapped their packets of 20 for battery-powered inhaling gizmos as a less harmful alternative to smoking, a step towards kicking the habit altogether, or simply as a way to save money.

It’s the biggest shift in the history of smoking since the mass production and advertising of cigarettes in the 1800s, and one that’s been driven by small, fast-growing players, armed with Chinese imports.

Now things are about to change. Lawmakers are catching up with this ‘Wild West’ sector, and are poised to impose regulations and stipulations. Just as ominously for the startups, the world’s big tobacco firms are determined to protect their hold on the market.

Free for all

So-called ‘e-juice’ has been the money maker for the vaping vendors to date. The liquids come in flavours that mimic the taste of standard tobacco and menthol, as well as sweet varieties like ‘strawberry champagne’ and ‘vanilla almond milk’. Most of the flavours come in a range of nicotine strengths, right down to zero. Even Poundland has got in on the act, selling packs of the liquid for a quid.

None contain actual tobacco, with the hit coming from a distillation of nicotine. As a result, e-juice hasn’t been regulated, which has meant anyone can import batches of untested liquids and devices from China and sell them online and in shops. In the early days, traces of metal as well as a variety of toxins were discovered in tests of Chinese-made liquids.

Safety concerns were one of the reasons why many of the larger vape companies switched to manufacturing the liquid in the UK or importing from the US soon after launch. In both countries, the big brand products are now produced in lab-like environments with onsite toxicologists.

‘It was a free-for-all, you could source juice from anywhere or anyone,’ says Avril Hall, who opened the first of three Tank Puffin vape shops on the London-Essex border in 2013, and exclusively stocks US-made liquids.

Vape millionaires

The industry emerged online towards the end of the last decade. First to launch the products were a number of largely northern-based businesses that were already importing a variety of other goods from China.

The result was a scrappy industry that grew out of nowhere, with little investment, spawning a number of millionaires who capitalised on how easy it was to enter the trade, while catching big tobacco completely off-guard.

There’s certainly no lack of success stories to choose from.

In his final year of university, Jason Cropper was selling homeopathic remedies on Ebay. While searching for herbal variants to import, he came across Chinese-made electronic cigarettes (the e-cigarette was invented by a Chinese pharmacist in 2003).

By 2010, his company was turning over £5m a year and had opened one of the first dedicated e-cigarette shops in the US. Two years later it shifted the production of its liquids from China to Blackburn, where the company is based. This year the firm, now known as Totally Wicked and led by Cropper’s brother, Fraser, is set to make £55m.

Cropper’s story is not unique. Aaron Taylor launched Peterborough-based E-cig Wizard in 2010 with £1,000. It now also manufactures its own liquid and makes over £7m of sales a year.

The only mass market company that manufactures vaping devices, rather than importing from China, is Scotland-based Jac Vapour. Former engineer Andrew Logan started selling devices he made in his garage in 2010. The firm is now shifting over 150,000 devices a year, at an average price of £40. It’s also launched a range of liquids.

First regulation

EU regulation kicks in from May this year, following a 12-month phase-in period. Although its application will be tested as Britain leaves the EU, the rules are likely to be enforced in the UK.

Support for the new laws will come from larger retail operations, hoping they will flush out the scrappier ends of the sector. There’s particular enthusiasm for all the liquids and canisters to pass a toxicology test to check for the presence of harmful chemicals. Tests will cost £150 per product, in every combination of flavour and nicotine-strength.

Hall is particularly excited for what this could mean for her recently-launched distribution business. ‘As a wholesaler I’ve spent a lot of time and money to ensure our whole range is compliant. Our US suppliers have produced 10ml bottles especially for the UK market. There are more shops in the UK than ever, but come 20 May the new regulation will mean there’s going to suddenly be less juice available. It should mean that companies like us pick up the market share.’

Not all the new regulations have been welcomed so openly. Rules that limit the volume liquids are sold in to 10ml and the size of tanks in the devices to 2ml (the current average is 4ml) have been met with scorn. The majority of vape shops Courier spoke to stocked up on products when imports were banned in November 2016, in order to sell them up until the ban comes into force in May.

Size ban

Totally Wicked’s Cropper is particularly unhappy about the size ban, arguing that with implementation of size restrictions differing across the EU, consumers will just buy online from European companies, or even direct from China.

He also argues that, with Trading Standards in charge of enforcement, smaller shops could get away with flouting the rules, feeding a ‘feral black market’ and putting the larger and more high-profile companies at a disadvantage for complying. He singles out head shop-type operations, selling e-cigarettes alongside bongs, that he says give the industry a bad image.

‘I understand why people roll their eyes. They look at a head shop on the edge of town selling dodgy stuff,’ he says. ‘The sooner they go, the better. They’ll be easy to close down – Trading Standards can just walk in and take all the 30ml off the shelf [when the new rules come in].’

Bricks and mortar

For an industry born online, and where web sales are still high, further challenges await. A big concern is a ban on internet advertising, says Richard Hyslop, who runs the Independent British Vape Trade Association.

It’s a factor that’s increasing the feeling that bricks and mortar retail is the future, with many vape startups looking to open more stores once the dust of new regulation has settled. ‘Retail stores mitigate against marketing prohibitions,’ says Cropper, adding that Totally Wicked is set to open 20 stores in London this year, in the company’s first concerted push into the capital.

And with the UK vaping industry continuing to grow by up to 30% a year (the seven million people in the UK who continue to smoke cigarettes being a ready target audience), it’s likely the number of smoke-filled shop fronts is only set to increase.

What the new EU regulation says
  • Tanks limited to 2ml liquid capacity (in the UK)
  • Bottles limited to 10ml sizes (in the UK)
  • Online and TV advertising banned, billboards and bus stops allowed
  • Toxicology reports for all liquids, as well as the metal inside the devices
  • Potential ban on flavours in some parts of Europe (not in the UK)