Lorillard Inc. (NYSE:LO) and Altria Group Inc. (NYSE:MO) might want to take a look over their shoulder... or perhaps take another, longer look. Not only is the cigarette space as competitive as ever for the likes of LO and MO, but there are some new faces playing the game. And, their strategy is to play the game in a way that's never been played before. Even more alarming to the likes of Altria and Lorillard? These new players are already showing some great progress with this "new way", and are on pace to capture $10 billion of the current annual cigarette market by 2017, up from around $1.0 billion last year.
The latest and greatest of these new entrants is a little startup called American Heritage International Inc. (OTCBB:AHII)... a little company that could really rattle the cages of its bigger brothers.
You may have already seen them. In fact, you may have already seen them and not even known it. Seen what? An electronic cigarette, or an "e-cig" for short. Just like the name implies, an electronic cigarette is a battery-powered device that delivers the nicotine smokers crave, without delivering all the nasty chemicals and carcinogens that a dried-out, processed burning plant - tobacco - does.
There are more players in this space than an outsider and non-smoker might realize. American Heritage International joins names like Blu and Skycig, just to name a few; there are dozens of other, even smallercompanies in the electronic cigarette space too. In fact, it would be safe to say the industry is still fragmented.
Even in its fragmented state, however, these companies have already made a little trouble for the tobacco industry, so much so that Lorillard recently acquired the Blu brand. Altria, meanwhile, is now aiming to expand its Markten brand of e-cigs across the nation, after a limited test rollout last year. All of the major "big tobacco" names now have an electronic cigarettes presence, though again, the market remains highly fragmented, poised to cause more headache for the major, traditional names than not, despite the fact that they each have some presence in the market.
American Heritage International, however, is a name investors as well as big tobacco will want to keep an eye on. See, while other manufacturers make an admittedly solid product, AHII believes (and rightfully so) its product is one of the best - if not the best - on the market.
For starters, the product is 100% American-made, which the company explains is safer and worry-free. American Heritage's electronic cigarettes also look and feel like traditional cigarettes, rather than look and feel like a ballpoint pen hanging out of a smoker's mouth. Those two nuances may seem minor on the surface, but those little details have made a big difference in terms of marketability. In fact, in early market research studies, nine out of ten e-cig users who tried an American Heritage e-cig preferred it to the competitor's e-cig. This young company is positioned to be a disruptor once it launches nationwide, on a full scale.
It's also worth noting that even though electronic cigarettes are cheaper than real tobacco cigarettes, AHII still sees wide profit margins on its product.
With all of that being said, the most significant reason other names in the tobacco industry, like the aforementioned Lorillard or Altria, may want to worry about American Heritage isn't the superior product as much as it is the fact that AHII has a clear and thorough, top-to-bottom marketing plan... not to mention has the wherewithal to put it into action. The experienced management team recognizes that placement in convenience stores just isn't enough. It also aims to maximize online sales, while simultaneously aiming to maximize brand-awareness via sponsorship deals. It's also initiating an affiliate plan. Other players should be worried.
Bottom line? Though it was only a small order, the initial order of inaugural American Heritage electronic cigarettes sold out pretty quickly. The next order is apt to do the same. It's evidence of tremendous demand for this new product, much of which was created purely from buzz and publicity. The best thing going for investors right now is that most of the market still hasn't heard of AHII, but given the groundwork that's been laid on top of the exponential growth of the electronic cigarette market, that's not a condition that's going to last long. And once the word about American Heritage gets out, both its e-cigarettes and the stock may be hard to get.
For more on American Heritage, its investor presentation PDF offers the most insight. The coporate website can be found here.