Joe Dunne talks e-cigarettes with Bobby Kerr on Down to Business

March 18, 2014 E-Cig News

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This week I’m going to talk to one of Irelands more controversial companies, Joe Dunne he’s the managing director of VIP electronic cigarettes, the brand leader in the Irish E-Cigarette market. Joe let’s start at the beginning you need to explain to me, what exactly an E-Cigarette is.

Ok Bobby, well an E-Cigarette is…basically it gives people the nicotine that they would get in a normal cigarette but without the damage, without the tar, without the chemicals, without the carcinogenic.

So no tar, no carcinogenic, no chemicals?

Yes.

No vapour, as opposed to smoke?

Yes, exactly it’s a vapour which does provide a nicotine hit. What they say is that, and the reason that these were invented Bobby was that it simulates the exact replica of what you would do if you were smoking.

Now you were talking to somebody who’s been chewing Nicorettes for over 12 years so I’m somebody with a little bit of experience in this monkey on your back scenario where you’re one step away from a cigarette, but I want to know, talk to me, there’s battery powered, there’s vapour, I still don’t have an absolute understanding of what the product is.

Ok, well we do two or three different products but if you want to know the bread and butter products works like a cigarette. So what you have basically is you have the white bit, that’s the battery, and the brown bit that has the e-liquid in it. So basically the battery there is, you charge it up and then you use it, and the top part of it is a refill which has a certain quantity of e-liquid in it. That screws into that, and away you go.

Right ok. So let’s then benchmark your product against a conventional cigarette. So ok, we know that there isn’t carcinogenics, we know there isn’t tar, what about price? How many hits of an e-cigarette, what’s the comparison?

Well the comparison in puffs would be, just to give you an example of our refills, they say there’s an average of 7 puffs of tobacco per normal cigarette, ok, in our refills there’s approximately between 260-300 puffs so it equates to about 40 cigarettes. But I’ll break it down to you in simple terms, if somebody is buying our product and buying the refills, it basically works out at €1.50 for 20 cigarettes, and that’s in the electronic cigarette one.

And like the Nicorettes there’s 2ml, there’s 4ml so there’s different strength options.

There is different strength options, you can have the higher strength, and there’s 4 strengths. You can have the high, semi-medium, normal and goes down to a zero percent nicotine which just gives you the vapour, but then you’re still able to do the habit that you have of the simulation of using the hand to mouth action.

So I’m going to ask you about the marketplace now, would i be right now in saying that its about 10% of all conventional cigarette sales are now e-cigarettes.

Yes, there was a recent study done by the independent newspaper that said between 7-9% of smokers are using electronic cigarettes at this moment in time in Ireland.

So overnight this is a huge market

Overnight it has been a huge market, you know as i said from our perspective it’s still in the infant stage in relation to numbers and percentages of people that are on it. The end of the day there is controversy and there’s a lot of talk it and things like that. Basically from our point of view is to try and educate people into the science behind it, into how it works and how it helps.

Ok, you mention the independent article there and I want to bring up a quote from Kevin O’Hagan of the Irish Cancer Society, he was in the independent article, and he said ‘In the absence of any appropriate regulation and evidence we can’t recommend e-cigarettes. They may not have as many poisonous cancer causing chemicals that tobacco smoke has, but it’s unclear what the long term health impacts are’. So, and going back to traditional cigarette smoking in the 50s, we might have known they were bad for you, but it took probably 20 years or longer even until we became aware of the damage they were causing. Is there any danger that we’re in the same place with e-cigarettes.

Not in relation to tobacco cigarettes, there’s two viewpoints on this: In order for a study to have any backing or grounds, it takes a long time for those studies to happen, so I’ll give you the facts. They’re not from me they’re from the experts, the facts are: we know exactly what are in e-cigarettes, we know more than we even know now what are in tobacco cigarettes with the chemicals and the 4000 carcinogens that are in them. So we know a lot more about electronic cigarettes than we know about tobacco cigarettes.

If you want to be factual about it, there’s no tar, no tobacco, no chemicals. There’s food colourings, there’s pharmagrade and then there’s nicotine in that with the vapour. That’s all that’s in that, and we know for a fact from the experts, not from me but from tobacco and nicotine experts in the UK, they have gauged that about 95-99% safer than tobacco cigarettes. So for me they are the facts, they are the ingredients.

Ok, well some people still say that there’s an unknown dimension to these products.

There is, and what I would say, and this is one line that we are looking at ourselves, and there’s this huge discussion about regulation, ok, and that is a big thing. Our company welcome regulation, we need regulation. The problem we have is that there’s an awful lot of poor quality nicotine products out there, which affects the business as a whole.

And this is the difficulty of it being such a new business, that you’ve got all sorts of people piling into it and again, you’re going to get cowboys in there, and I’m sure there are already cowboys in the space and you know them better than me.

There is, and a lot of people are looking at it going ‘It should be tobacco product, that’s what it should be’. It shouldn’t, there’s no tobacco in it. So it shouldn’t be a tobacco product. The next thing is that it should be a medical product, it shouldn’t be a medical product, because then cigarettes should be a medical product because there’s nicotine in them. So our viewpoint on it Bobby, and we think it’s a very relevant viewpoint, I see it as a very simplistic view, is that e-cigarettes should have their own classification, like cosmetics. They should have a body.

Yeah I’m not so sure, it’s displacing cigarettes, you can argue that it’s not tobacco but it’s a replacement for a tobacco product so for me it’s clearly within that category 

Yeah, well underneath the tobacco legislation there obviously has to be tobacco in it, but just in relation to it, it should have its own classification, it is exploding at the moment and the issue that you have is that  a lot of the quality of products and the quality of nicotine in it is very poor, and that can effect the business as a whole.

Ok, lets look at, and you talked about regulation there, I’m confused about where the retail offer sits here. You’ve got, what I understand is a master franchise to bring these into the country, you’ve chosen to operate seven shops yourself, and you’ve sub-franchised 16 shops.

Correct, we’re in 28 locations in total, 10 are under direct control of ourselves, and then there’s 18 then that are franchises.

Ok, so you pay some form of royalty to the UK. Where’s the product made?

At the moment the product is made in China, that’s in relation to the machinery and the liquid. At the moment we are building a lab in Manchester in order to make the liquid in England from now on. But that’s a work in progress at the moment because that’s where the majority of electronic cigarettes and the majority of the liquids are made.

And what I’m perplexed about is, as a retailer, is that why dont these neatly fit into a spar or centre beside where other cigarettes are sold, so that you don’t have to go to the cost of paying separate rent because surely the customers for this product are people who are traditional cigarette buyers

They are indeed, yes.

So can you not capture them in a Spar or a Centra?

Well you can, the issue you have with that and we’ve looked at this over the last year, is that there is Spars and Centras and different retailers selling different brands of electronic cigarette, the issue you have purely from a business point of view is that if our products went into a spar or Centra or different shops tomorrow, it’s just going to going to be on the shelf like the thousand other products that they have. What we have found through opening as many kiosks in the UK that we did and researching it for about 6 months before we came over here, the best route to market was to open retail shops, our own shops, our own kiosks, our own stands, because that gives us the benefit of letting the smoker to come in, to get the full information of how the product works, what it does, how much it costs, let them taste the product and try it as well so they can make a fully informed decision about whether it suits them or not.

Ok this is the executive chair we’re talking to Joe Dunne, he’s the MD of VIP Cigarettes, Joe lets go back in time: You’re an ex-guard, how in God’s name did it bring you into this business?

I was in the guards for 7-8 years and I was stationed in Dublin, I ended up getting involved in another business with a friend of mine, we have a restaurant on the Millenium Walkway there called  Cactus Jacks, and I got involved in that with him and that started to take off while I was in the guards and then I had to make a decision because my time was very…

We didn’t want a Love/Hate scenario

No…no. So the restaurant was going very well and I just made the decision then, and I suppose my parents and other people were looking at me thinking I was going crazy leaving the, as the older generation would say, the pensionable job, to try something like this but that’s just the way it went.

You strike me as somebody who’s very alert to opportunity, and this clearly with the speed, you’re only in business since 2012.

About 16 months.

So an awful lot has happened for you and to have 28 shops in that period of time, is that sustainable, is that level of growth sustainable?

Yes, in number of locations, no because it gets to certain point where you get saturated and that’s what you don’t want to do especially when you have franchisees on board, where you have one that’s there and one a couple of miles down the road because that just affects every bodies bit of money that they’re making so you need to be conscious of that. We have so many enquiries about people wanting to open new franchises everywhere because they see us as the number 1 and they want a bit of it, but we have to be very conscious of the people that we work with and with the people that are involved. Yes, in one year we opened 28 locations, but that’s what needed to be done, this was starting to explode, and it was like a land grab. It was people trying to get into as many locations as we could.

And just getting back to the legislation because I don’t think we squared the circle on that, where is it going to end, what’s going to happen, are the pharmacists going to lobby to say that only they should sell them. Who’s going to become the owner of this space because it seems to me there’s a lot of people fighting for it.

There is a lot of people fighting for it and I suppose my opinion is that a lot of the tobacco companies are too late to the party, like a lot of people think that tobacco companies are behind our company or behind some other companies but they’re not. They arrived to the party very late and there you have some tobacco companies buying the electronic cigarette companies in the US paying big money for it seeing it as something that is going to be around for a while. In relation to the legislation here, of course you have Bobby, of course you have the tobacco companies trying to get it under tobacco and trying to get it taxed and trying to do that with it. And then you have the pharmacies that obviously just want it to be sold by pharmacies because then it’s just like the Nicorette and everything else and then you have a monopoly on that market, and for me, again just my own opinion, for people who smoke who can’t quit or are unwilling to quit we need to give them another option, there has to be another option that’s not just quit or die because that’s the options they have at the moment.

Well what about fellas like me on Nicorettes for 12 years?

Well if that’s working for you…there’s no point in trying to fix what’s not broken, so if it’s doing well for you. But in relation to legislation for me it would be that they can’t deny a smoker a product that could save their life, that’s the bottom line.

I think you need to be careful on that form of marketing, it’s unproven that you can save anybodies life. That’s a very dangerous marketing statement to make.

Well some of these claims that I’m making are coming from research and from studies, and from experts in the field. I’m not an expert in tobacco or nicotine, but as I said some of these statements are coming from people who have looked at it. They’ve looked at the basic facts of what’s in that compared to tobacco cigarettes and the difference it can make.

Ok, and just very finally. If we’re looking out 5 years, where do you see the marketplace. Will they be mainstream? Will they take 50% or more? Will they displace cigarettes altogether?

No I don’t think they’ll replace cigarettes altogether, but what I think is that at a certain point they’ll account for a certain percentage. I would look at it to be conservative, 45-50% of the smokers in the country will have at least tried or switch to electronic cigarettes. What you have to remember as well is that people do try them, and they do ween  down to the zero, but this in relation to where I see it going, I do see it becoming mainstream, I do think regulations are going to come in, which I think will help the business as a whole.

Well listen it’s been a pleasure talking to you, it’s an interesting business, it’s an interesting space, you’re a very interesting character, Joe Dunne, managing director of VIP cigarettes, thanks very much for coming in.

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