Big Interview: Jacob Fuller on why e-cig market won't go up in smoke

Way back in 2008, when e-cigs were in their infancy, Jacob Fuller made a prediction. “This e-cig market is going to explode,” he told business partner Sam Marks. He was right in more ways than even he realised.

Today, e-cigs - for that read cigalikes, tanks or vaporisers - are huge. And the dizzying rise of the pioneering startups who got in early is typified by Skycig. Fuller and Marks sold their first e-cig in 2009. Four years later they had cornered 20% of the UK market. Then last October, Lorillard, the US tobacco giant, stepped in and snapped them up for £60m, seeing Skycig as a ready-made operation to launch its bestselling US e-cig brand Blu into the UK.

Fuller, now CEO of Blu e-cigs in the UK, doesn’t plan on looking back. Bolstered by the investment, which has enabled him to hire “some very experienced fmcg people,” he wants 25% of the market by the end of the year and 50% by 2015 - around the same market share Blu enjoys in the US.

With sales still flying, Fuller thinks they will rival tobacco sales inside 10 years. “You walk down the road and everyone is using them. There are 11 shops dedicated to e-cigs in Edinburgh alone. There are 10 million smokers in the UK and between one and two million are already regularly using e-cigs.”

Retailers like them too, because their margins are “massive” compared with tobacco. “With tobacco you make 5%, with e-cigs it’s 40%.” Blu has already teamed up with hundreds of independent stores as well as big players like Asda, WH Smith, Morrisons and The Co-op. Discussions with Tesco are ongoing.

However, the e-cig business is not all about multi-million pound deals and exciting gadgets. Like the rest of the industry, Fuller has some steep hurdles to jump. Not least troubling reports of e-cigs going up in old-fashioned smoke after bursting into flames while charging.

“It happens with all electronic products but these share the name with cigarettes so the media gets on it harder,” sighs Fuller, exhaling a steady stream of vapour from his own personal tank, something he does very regularly over the next couple of hours. “People are using the wrong chargers with the wrong batteries or devices and that creates a short. Also, what does a guy who starts up an e-cig operation do? He goes to China and drills down the guy on price to find the lowest-priced battery to make his margins. But we have put measures in place so it doesn’t happen to us. We have specific chargers for each device to eliminate that.”

In fairness, exploding e-cigs are isolated incidents, hyped up by the media in the same way they splash on exploding iPhones, but it’s not the only challenge facing the burgeoning market. Wetherspoon has banned them, as have some trains, cinemas, restaurants and all planes. Things are more extreme in the US, with e-cigs banned from any public places, indoors or out. And this week, in a strongly worded 13 page report, the World Health Organization demanded a ban on advertising and indoor use of e-cigs, citing concerns over public health.  Potentially, it all renders one of the major attractions of e-cigs – being able to inhale nicotine anywhere in a world that has ostracised tobacco – redundant.

Inside the Blu offices in Edinburgh, Fuller takes another puff. “The air in Times Square is dirtier than the vapour you inhale from an e-cig. We don’t need to debate the issue today because science will win. If we publish the scientific research, people won’t believe it, but when the American Medical Journal publishes it, those people will be left in the dust.”

Fuller suggests attitudes are already changing. “I know a lot of pubs that love e-cigs because it keeps people in the pub spending money, plus you don’t have that disgusting look outside the pub where everyone is stuck outside smoking and anyone trying to get inside has to go through a smoke cloud. I have never been asked to not use this tank. People know what it is now.”

Tanks like the one Fuller is using are “taking over” from the newly old fashioned cigalikes, he says. “Tanks are up to 60% of the UK market right now. The battery lasts for two days, it delivers a better throat hit and it represents better value. And you can add much more vapour and play around with flavours.”

He asks me if I use e-cigs. I don’t, because I used to smoke and I’m wary that being reintroduced to nicotine may reopen the door to the real thing. Fuller doesn’t share that fear. “I used to smoke and now, when I try a cigarette, it kills my lungs and the smell is awful,” he replies. “It’s disgusting. ASH is probably the most anti-tobacco organisation and they say it’s not leading people to smoke; in fact it gets them further away from it. And this is ASH. If they thought it was a bad thing, they would say so.”

The target market isn’t ex-smokers anyway, he says, but existing ones, although he insists that Blu is not a cessation aid, but an unashamedly alternative method of delivering nicotine into the bloodstream.

“This is a lifestyle choice. I see it as way to deliver nicotine like you deliver caffeine in your coffee or your tea. That is how this is positioned and we never make claims that it’s a quitting aid. First, that is illegal; second it is not how we want people looking at our product. We want people to be proud of Blu. Smokers have been marginalised for so long.”

He exhales another plume of vapour. “Obviously nicotine is addictive, similar to caffeine, but I personally don’t see any issues with it. There are a lot of positive effects of nicotine. It stimulates your mind and helps you to remember things. It’s the toxins in cigarettes that are damaging, not the nicotine. We have no interest in getting people that have never smoked on to e-cigs. It’s just not the right thing to do. Who knows, in 10 years when all the information is out there it might be widely perceived like a cup of coffee, but right now our focus is on winning smokers from tobacco.”

Blu going global

It’s ironic that in order to do more of that, Fuller sold up to a tobacco company, but he insists they are serious about e-cigs. “Everyone assumes BAT or Phillip Morris can launch an e-cig brand and get distribution the next day, but they will struggle. Old tobacco is going to have a hard time doing an e-cig because it’s not a cigarette. Lorillard liked us because we were just an electronic cigarette business, that’s all we focused on. They acquired us for our brains, for the setup, for the expertise we brought to this industry. They acquired us to take Blu global.”

Although Fuller does admit “we had to partner with tobacco because they have the money”, he adds that a major attraction was “they promised us they would leave us alone in terms of how to run the business. They provide expertise on R&D and regulation.”

Whether anything will change in the wake of the July sale of Lorillard to Reynolds American (for £16.4bn), and the subsequent sale of Blu to Imperial, the fourth-largest international tobacco company, remains to be seen, but help with regulation is one of the more contentious areas in e-cigs.

The move to make e-cigs regulated as medicines has divided the industry but Fuller is in the majority when he suggests regulation is an absolute must, but medicinal regulation is not the answer. “Regulation is important, quality is important, consistency is important. Everyone should be open to regulation. If it gets the fly-by-night guys out, great. But we don’t want to go down the medicinal route.”

As for the accusation Big Tobacco is in favour of medicinal regulation because it will squeeze out smaller players and leave Big Tobacco with a clear run, Fuller believes there is room for everyone.

However, that accommodating attitude only extends so far. He would never swap working with e-cigs for working with tobacco. “No. There is a conflict there. I would never be interested in selling tobacco. My vision is electronic cigarettes. I want to look back in 20 years and think I was one of the guys to help start this industry.”

With that he takes another puff on his tank and starts telling me about the next e-cig innovation he’s been working on, provisionally titled ‘Smartcig’, which connects to your smartphone via Bluetooth and allows you to increase the battery power to “create more vapour and send back information to you about your usage, such as how many puffs you have had that day.”

It sounds a lot more clever than a cigarette. It probably won’t give you cancer, either. No wonder so many people are hooked.