ISSUE 04 | SECTOR REPORT
The vaping industry may be in its infancy, but it’s already punching above its weight. James Gavin takes a deep breath and goes behind the scenes to assess its future.
By James Gavin | Cuts Ice factory photography and portraits by Stuart Freedman
Stoned Aged. Red Astaire. Hannibal Nectar. The Sherbinator. A quick scan of the top selling e-liquids suggests vape businesses can’t resist a pun.
While such zappy monikers are clearly not targeted at world-weary, middle-aged journalists like me — more attuned to old-school cigarette brands like Benson & Hedges — these juices are finding a sizeable new audience.
Public Health England reckons 6% of the adult population is now vaping. That’s about 4m people. Walk down any UK high street and you’ll likely see someone with a ‘mod’ in hand, puffing out plumes of vapour into the ether.
My own incredible journey
Having ditched the filthy tobacco habit many years ago, my only exposure to smoking in recent years has been through shisha pipes, the bubbling pipes of Middle-East origin in which sweetened vapour passes through water to deliver a substantial nicotine hit.
...the bearded hipster behind the counter had me quickly sussed as a vape innocent
My passion for these quintessentially Oriental totems was shaped by press assignments in the Middle East, where booze could be hard to come by and the lure of a drag of smoke in a shisha cafe was compelling.
Trouble is, smoking shishas is (a) inconvenient unless you live on the Edgware Road, and (b) unhealthy. So could the electrically-charged equivalent provided by vaping devices prove a viable alternative for me?
Despite guffaws from doubting friends and colleagues, I was determined to find out — putting aside my clawing fear that I’d appear like the proverbial embarrassing dad, boogeying at the back of an Arctic Monkeys concert.
As I entered a central London vape shop, the bearded hipster behind the counter had me quickly sussed as a vape innocent.
First question: what sort of a device would I want? For those seeking a looser draw, with lots of shisha-like airflow, the best option is a direct to lung (DTL) kit — inhaling the vapour straight into the lungs. Check. Next, how much nicotine? For DTL, it’s usually 3 or 6 milligrams. Er, how about a 3?
Suited and booted with my vaping kit and e-juice, I was now ready to join the select elite of squonkers and cloud chasers. Despite a few initial technical mishaps, vaping is easy and pleasurable — the fruity flavour hitting the back of the throat smoothly, and delivering a nice hit.
The business case for Vaping
Thanks, in good measure, to vaping’s USP of weaning tobacco smokers off their Marlboro Lights, it is also now a strong business opportunity for the UK.
Behind the flashy branding lies a serious business in which the UK is forging a name for itself as a manufacturing hotbed. A spokesperson for the UK Vaping Industry Association (UKVIA) claims that, since entering the UK market in the late 2000s, the vaping industry has grown to a value of £1bn, has created thousands of jobs and is helping over 3m smokers to either reduce or quit their habit. “This is largely driven by entrepreneurial SMEs, many of which have gone on to become major businesses,” he says.
One such company is Cuts Ice, a premium e-liquid manufacturer based at a SEGRO site in West London, just off the A40. It was founded in 2012 by MD Nigel Quine — an ebullient, six-foot-plus, self-professed social vaper in his mid-40s. He’s overseen a rapid expansion from an initial 1,500-sqft unit to a state-of-the-art 55,000-sqft warehouse and production facility replete with clean room, which is cheek by jowl with warehouses belonging to the likes of John Lewis and Amazon.
Employing around 150 staff including more than 20 scientists, Cuts Ice’s own brands include T-Juice, Halcyon Haze, 13 Sins and Rude Oil. It also makes e-juices for others, with own-brand vs production for others divided in a rough 50:50 split.
Quine’s journey started in 2007, when a friend showed him an e-cigarette — then a rarity. “It was a three-piece atomiser model. It didn’t work very well, but I kept my eye on it.”
After a period travelling, including a motorcycle tour across Latin America, Quine had another encounter with a vape device — this time a two-piece cartomized version, that is a combination of cartridge and atomiser. “This was a different thing altogether. It was much better constructed and I thought, maybe this is something I should take a look at,” he says.
Quine then started a cigalike brand — mimicking the look of a tobacco cigarette — called Freedom Cigarettes, as a website but with experiential sales gazebos based at major London train stations to promote the brand.
Although sales weren’t massive, the market feedback was positive. “We started to get these calls from small vaping companies that were putting e-liquids into bottles. They were saying, ‘we really like your flavours — could you put them into bottles for us?’”
A very British set-up
Cuts Ice was formed in 2012 after Quine sold Freedom. He set up a supply agreement in which he could own his own supply chain based in the UK, rather than importing juice from China, as he had been before. “My real MO was to have a company that was nearly 100% supplied by the UK, and to export as much as I could, thereby promoting UK PLC. That’s very close to my heart,” he explains.
Cuts Ice is proud of its 99% UK supply chain. Through this, it has better quality control. “That is important”, says Quine. “The number one issue is the quality of raw materials. Within that supply chain, are all the people regulated by the same rules that you are? Are they conforming to the same standards?” To this end, Cuts Ice has developed its own proprietary bottle system with UK manufacturer MH Plastics.
Some have advised Quine to keep the company lean. But his vision is more expansive. “If you are to grow a company significantly, you have to prepare it for growth,” he says. The company’s big warehouse in Park Royal is testament to that ambition.
Last year, Cuts Ice became the first vape business to get investment from institutional money, courtesy of Lloyds Development Capital, the UK’s biggest mid-market fund. This should help drive value and develop its plant and brands.
Its current e-liquid production is 2.5m bottles per month. The typical hourly throughput of Cuts Ice’s production is 3,000 bottles.
The future of exports
Could Brexit present a potential challenge for a company where 80% of its market is in the EU? Quine is confident that it can prosper, and that the UK should strive to become the go-to place for vaping regulation and enforcement in Europe.
While no individual country or brand dominates the very fragmented e-liquid market, British firms have done reasonably well in exporting to Europe, says Barnaby Page, an analyst at consultancy ECigIntelligence. That’s despite the fact that regulatory environments are often less friendly than in the UK, and smokers less enthusiastic about converting to e-cigarettes than their British counterparts.
“Of course, Brexit raises a large question mark over the future of this export trade. Most of British industry’s attention to Brexit has been focused on the possibility that leaving the EU might enable further easing of UK domestic regulation. But it will undoubtedly also have an impact on manufacturers’ ability to serve markets elsewhere in Europe,” says Page.
In the meantime, the vape industry has some growing up to do. Consolidation could be on the cards – particularly on the retail side. With at least 2,000 vape shops and counting, market saturation beckons. Walk down any high street and next to the Costa and the nail bar, there’ll likely be a vape store. Not all of these will survive.
But the overall vape market offers significant growth opportunities, suggests Quine. “The vape segment is just 2.5% of the global tobacco market, so there’s a lot more market share to go after.”
Whether going after hardened 60-a-day types, teenage arrivistes or the casual shisha smoker like myself, e-liquid makers have a growing demographic in their sights. And with medical science on their side for the moment at least, British vapers will have a mushrooming array of competitive, locally-made juices to choose from.
Take-out: entrepreneurs grabbing a fresh market by the horns are creating manufacturing jobs