Combining entrepreneurial flair with seasoned tobacco expertise, Gamucci makes its mark on the e-cigarette market.
You don’t have to be with Umer Sheikh for long to realize why Gamucci, the e-cigarette company he co-founded with his brother, Taz, in 2007, is booming. His passion for his products and his belief in their potential are clearly evident in every word he utters about the business and the industry in which it operates. And that passion takes concrete form when you learn that, unusually, Gamucci, after finding third-party manufacturing unsatisfactory, invested in a plant in Shenzhen, China, to produce all of its own products and only its own products; that Umer spends every other month in China working with the company’s four engineers as they research tomorrow’s e-cigarettes; and that, again unusually and possibly uniquely, the company holds a U.K. patent on its product and has a U.S. patent pending.
The question of patents is worth pursuing a little because it seems that it could be central to the evolution of the e-cigarette market in the future. Early e-cigarettes comprised three parts: a battery, a heating element (known also as an atomizer or vaporizer) and a cartridge containing the “e-liquid”: a mixture of nicotine, propylene glycol, glycerin and flavors. These early products were problematic in that their heating elements didn’t remain efficient during multiple cartridge use, so Gamucci came up with the idea of combining the heating element and the cartridge, which means that each new cartridge comes with its own heating element. It is this combined technology that is the subject of Gamucci’s patent, and it is this patent that the company will be looking to enforce in the future. In the meantime, Gamucci intends to look at filing further patents this year, possibly covering new methods of vaporization, new power sources and other technologies aimed at bringing the cost of the product down.
To a certain extent, Umer’s enthusiasm is unsurprising because Gamucci seems well positioned to take advantage of the boom in sales of e-cigarettes. The company is established in the U.K., where it launched its product in 2008, and in Bengalaru, India, where it has telesales and backroom administrative operations to support its U.K. and U.S. divisions. It has plans to launch its products in India this year, and in China, both of which countries are seen to have
In addition, for the past 18 months, according to Tony Scanlan, Gamucci’s CEO, the company’s sales have been doubling every three to four months. And while nobody believes that such a growth rate can be maintained over the long term, Scanlan said that, this year, sales would take an “absolutely enormous move forward.” And beyond that, there is plenty of room for more modest but nevertheless robust growth. All of the available evidence is that sales of e-cigarettes are being made at the expense of traditional tobacco cigarettes (and of nicotine-replacement therapies), and, as yet, the former has hardly dented the latter.
What this seems to mean is that while e-cigarettes are the product of what might be thought of as a new industry, with all of the vitality that such newness implies, it can be thought of too as a new branch of an old industry, with all of the stability that conjures up.
That Gamucci sees its products as the natural successors to- and substitutes for- traditional tobacco cigarettes is written large in the backgrounds of the people it has been recruiting to its senior management team. For the most part, these are people with years of experience in companies including Rothmans, Imperial Tobacco/Commonwealth Brands, Altria/Philip Morris USA and British American Tobacco. Indeed, Umer summed up the mood when he said these were exciting times for the e-cigarette category in general, as well as for the Gamucci business in particular as it employed a mix of entrepreneurial flair and seasoned tobacco expertise to stay in the vanguard of the evolution of combustibles to noncombustibles.
The idea that this is an evolution, rather than a revolution, is borne out by a number of factors. As Umer said, most e-cigarettes looked like traditional cigarettes; the hand-to-mouth action was similar; the act of inhalation was the same; the vapor produced closely mimicked tobacco smoke; the taste of the two products was similar; and the nicotine hit was comparable. And as Scanlan pointed out, the two products share the same consumers, similar routes to market and the same retailers. The only difference, he said, was that e-cigarettes could be sold in a wider range of retail outlets than could traditional cigarettes. Indeed, Scanlan said, in Waitrose, a major supermarket chain in the U.K., Gamucci products were uniquely dual sited: on sale alongside nicotine replacement therapy products and in the tobacco section. And in the U.K., at least, from 2016, doctors could be prescribing e-cigarettes because, by then, these products are due to be the subject of medical licensing.
There has been a lot of opposition to the U.K. Medicines and Healthcare Products Regulatory Agency’s (MHRA) plan to license e-cigarettes as medical devices, with much of the outcry concerning the fact that the companies who are offering e-cigarettes are relatively small and therefore seemingly unlikely to be able to withstand the expense and rigors of medical licensing, an outlook that, if it turned out to be true, would leave consumers without a traditional-cigarette escape route, at least in the short term and medium term, because it is these small companies that, up until now, have been satisfying demand for e-cigarettes. But Umer, while expressing the belief that the MHRA’s proposals would have been better delivered with a lighter touch, largely welcomes regulation as a sort of coming of age for the industry. The quality of the products available on the market would be generally improved and made more uniform, he said, with the “enthusiasts’” products largely consigned to history. In any case, Gamucci is ready.
The company started talking with the MHRA in 2009 and, since then, has been working with consultants in respect of the sorts of processes the company is likely to have to go through. In addition, Umer is confident that Gamucci can meet the necessary standards because his company will be able to make any necessary changes to manufacturing practices using its own people working in its own factory. It won’t have to negotiate with a third-party manufacturer, which is an important point, especially when it is considered that e-cigarette manufacturers are probably going to have to comply with regulatory requirements that will vary from country to country, or, at least, from region to region.
Of course, it’s not that the e-cigarette industry will be going from no regulation to regulation. As is the case with consumer products in general, e-cigarettes already have to meet certain standards. In fact, if anything, it is the lack of regulation during the past few years that has been something of a problem because new products have had to be developed knowing that regulation was coming but not knowing what form that regulation was going to take.
And it is important that new e-cigarettes are developed because it seems likely that they comprise the product with the potential to do more for tobacco harm reduction than any other product or campaign. No matter what some might say, these products are offering a continuing escape route for smokers. In the early days of e-cigarettes, it was often said they sold because of their novelty value; so while sales of starter kits were relatively high, sales of refills were modest. But the recent experience at Gamucci is that three-in-a-pack refills (the equivalent of six packs of tobacco cigarettes) are outselling starter kits at the rate of up to seven to one.
Not for quitters
I’m wading into dangerous waters here. I lost count of how many times Umer and Scanlan made the point that e-cigarettes were not sold as quit aids. This is true, but it is also true that a lot of consumers buy these products as quit aids, and the evidence points to the fact that they comprise the most powerful quit tool yet devised. To get a sense of this you only have to read the letter penned by a group of e-cigarette users to the EU Parliament’s Environment, Public Health and Food Safety Committee in response to the EU Commission’s proposals to revise the Tobacco Products Directive, which include a proposal to regulate e-cigarettes.* They are quite convinced that these products have the potential to save lives their lives and those of others.
But, at the same time, a lot of people are saying that not enough is known about e-cigarettes and that more research needs to be carried out before they can be given an official stamp of approval. But, up to a point, the case being made looks to be self-serving. Read a research paper on e-cigarettes, and one of the loudest arguments to come across will be the one claiming that more research needs to be done. But then researchers would say that, wouldn’t they? And, partly, they are right, but that research is being done on the hoof—for instance, by the consumers who wrote to the EU Parliament’s environment committee.
And the results of that research can be easily recorded through electronic- and tobacco-cigarette sales data, and, in time, through morbidity and mortality figures. Of course, it would be interesting to research whether, for instance, a nonicotine e-cigarette can help smokers quit their tobacco cigarette habit, and whether people can become addicted to nicotine without having been smokers.But these questions are mainly of academic interest. The aim surely is simply to get people to quit smoking.
There are other e-cigarette naysayers who suggest that e-cigarettes are a gateway to smoking, but the evidence seems to belie this idea. As far as Gamucci is concerned, the typical e-cigarette user is 30–60 years of age, has smoked for 10-plus years, is aware that smoking is risky and has previously tried to quit, perhaps using nicotine replacement therapy products. Those aged 18–29 are little interested in e-cigarettes: They go for tobacco cigarettes, probably because of the widespread belief among such people that they are indestructible. Whatever the situation, it must surely now be the case that the naysayers are going to have a significant battle on their hands with e cigarettes.
Apart from the fact that these products seem to be less risky than tobacco cigarettes (they deliver nicotine, which is, to all accounts, not risky, but no tar, which is risky), they are also cheaper. And while they are cheaper for the consumer, they offer also bigger returns on starter kits than do traditional cigarettes for every business stretching from the manufacturer to the retailer, and at least equal returns on refills. The reason why this is possible, of course, has to do with excise tax. With few jurisdictions applying excise tax to e-cigarettes, all of these businesses can turn a good profit. It would be naïve, of course, to think that governments will not want a cut sooner or later, though the justification for taxing e-cigarettes might require some nifty ethical footwork in those countries that have legislated for these products to become medical devices.
In the meantime, retailers are likely to become keen salespeople for this product category. Scanlan said that a survey of one U.K. retailer had found that, while Gamucci products accounted for only 3 percent of its “smoking products” sales, they accounted for 8 percent of its profits. It certainly seems to be the case that, despite the efforts of some people, the momentum is with e-cigarettes. One of the most telling remarks Scanlan made was when he said that, 12 months ago, somebody would have gone into a shop in the U.K. and only asked whether it sold e-cigarettes. Now that person goes in asking for his or her brand.
By George Gay
View online here: Tobacco Reporter