e Sutta Case Study

8/18/2019 e Sutta Case Study

http://slidepdf.com/reader/full/e-sutta-case-study 1/14

Esutta

It was an early winter morning, when the CEO of Cleon Retail Solutions Private Limited, Nikhil Thapar was

sitting in the Noida office of Mr. SK Agarwal the prime investor into Cleon Retail. To present the last

quarter performance and raise additional money to expand the manufacturing line of e liquids to foray

into newer markets.

Cleon Retail Solutions Private Limited which owned the Brands Esutta, Cigo Cigs and Desivape the

separate lines of product all under one industry of E-Cigarettes.

E cigarettes

E cigarettes

, also known aselectronic cigarettes

andvaporizer cigarettes

are devices that emit doses of

vaporized nicotine mixed with food concentrate flavors that are inhaled in form of vapors. Electronic

cigarette is a battery-operated device heats and evaporates a liquid based solution into vapors. E

Cigarettes are known to be an alternative for tobacco smokers who want to avoid inhaling tobacco

smoke.

Tobacco smoke contains over 4,000 different chemicals, many of which are hazardous for human health,plus it burns tobacco and paper which form the tar in human body.

E cigarette are known to provide a similar sensation to inhaling tobacco smoke, however, there is no

combustion as there is no smoke but just vapors.

They are usually long-shaped tubes, many look like the regular cigarettes, such as a cigarette, cigar or

pipe. Some look like ballpoint pens and the new age ones look like box shaped big devices. The majority

are reusable with replaceable and refillable cartridges. A small percentage of products are throw-away

ones - disposable e-cigarettes.

The main components of an e cigarette are:

-

Battery: a standard li-on battery with different specifications

-

Atomizer: an heating element that heats the wick inside it which evaporates the liquid

-

Liquid: a solution of food concentrates with propylene glycol or vegetable glycerin with liquid

nicotine that evaporates on heating of the atomizer.



The electronic cigarette was first invented in China by Hon Lik, who was a 52 year old pharmacist, and asmoker. He invented the device after his father, died of lung cancer as he was also a heavy smoker. The

company Lik worked for, Golden Dragon Holdings, developed the device and changed its name to Ruyan,

which means "like smoke."

Position of E cigarettes in U.S.

In USA this products are recognized as drug delivery device and are regulated under food, drug and

cosmetic ACT(FDCA) by FDA. In March 2010 the U.S. Court of Appeals for the District of Columbia passed

and judgment to stay the FDA regulation and regulate it as nicotine therapies. Further on 7 December

2010 the court ruled against the FDA in a 3 –0 unanimous decision stating that FDA can regulate this

products as tobacco products and cannot discourage their import. According to judges the ruling states

that this devices can come under drug legislation only if they can be used for therapeutic purpose which

has been proven by manufacturers and this is targeted for smokers and not for those trying to quit.

According to April 2014 new regulations was proposed by FDA for tobacco products which required

manufacturer to disclose ingredients used in e-cigarette liquids proof of safety of those ingredients and

regulation used for delivering the product and liquid. Also this products were not to be sailed any one

below 18 years of age. Many states in USA have adopted their own policy for this products due to

absence of FDA regulation in this state. This policy includes all as mentioned above including taxation of

this product and restricting them to be indoors rather than outdoors.

Position of E cigarettes in U.K.

In 19 December 2012 the proposal was proposed to revise the European Union Tobacco Products

Directive 2001/37/EC by European Union this included restricting the use and sale of tobacco products

including E-cigarettes. Similarly on 8 October 2013 the European Parliament voted against the

Commission's proposal which was to introduce the medical regulation used electronic cigarettes but they

voted in favor of cross-border marketing of this product and also to be regulated in similar to other



tobacco products but sale of this product to under 18 was discouraged and it was mandated to have

warning message on all products. Also regulation was passed to include mentioning the details of material

included and their quantity, safety measures in production and their impact on health. Britain’s drug

regulating agency drafted a policy to regulate and provide go-ahead for a British American Tobacco (BAT)

e-cigarette to be sold as a medicine in an impression that will help in quitting smoking. This becoming the

first product to receive the go-ahead and used as a theruaptic tool in order to treat persons wanted to

quit smoking and improve their health as a part of NHS.

Impact on Tobacco Sales

As per several reports if electronic cigarettes growth rate continues to climb, it may easily surpass sales of

traditional tobacco with in next 6-10 years. Most of ex-smokers are the one who used electronic

cigarettes between 2014 and 2015. The percentage of ex-smokers using electronic cigarettes climbed

from 4.5% in 2014 to 6.7% in 2015.

People have different reason of using or trying electronic cigarettes. People who haven’t tried electronic

cigarettes, nearly half (45%) say they used them ‘just to give it a try’.

Looking at the growth, the market for electronic cigarettes has grown from several thousand users (in

2006) to several millions now worldwide. There are more than 200 brands of electronic cigarettes in

market for user to choose. Electronic cigarettes sales are projected to reach $10 billion by 2017. The total

volume of traditional cigarette sales was down by 4.5% in 2013, driven by volume displacement to e-

cigarettes. 31% more shelf space being devoted to electronic cigarettes.

In early 2014, electronic cigarettes only accounted for 1%-2% of the total cigarette market.

As per Merrill Lynch it is difficult to forecast how many people will switch to electronic cigarettes entirely,and how many will use electronic cigarettes only occasionally. The outlook for this industry will be driven

by several factors like -

1) Regulation

2) Taxes

3) Product development and innovation

E Cigarette Statistics Data

Percentage of people who tried electronic cigarettes that quit smoking

within 6 months 31 %

Total number of smoker in the U.S. 45 million

Total number of electronic cigarettes smokers 2.5 million



Percent of U.S. adults who have tried e-cigarettes 6.7 %

Percentage of high school students who have tried electronic cigarettes 10 %

Percentage of U.S. adults who have tried electronic cigarettes 2.7 %

E Cigarette Sales by Year Sales

2014 $2,475,000,000

(*Projected)

2014 $1,700,000,000

2013 $1,000,000,000

2012 $500,000,000

2011 $195,000,000

2010 $82,000,000

2009 $39,000,000

2008 $20,000,000

E Cigarette Market Share Market Share

Njoy 32 %

Vapor (Krave) 16 %

Metro 6 %

Smoker Friendly 3 %

Blu 2 %

Other 41 %

Source: UBS, Wells Fargo, Tobacco Vapor Electronic Cigarette Association



Let’s look at the regulatory environment of E Cigarettes all around the world

In Denmark, the country’s Medicines Agency considers electronic cigarettes which contain nicotine as

medicinal products. Thus, it requires authorization from the government body before selling and

marketing of e-cigarettes. The statutory body also states that e-cigarettes that do not deliver nicotine to

the user, and are not otherwise used for the prevention or treatment of a disease, are not treated as

medicinal devices.

In Estonia, e-cigarettes were earlier banned but this ban was later removed in 2013. Currently the liquids

used in e-cigarettes which have more than 0.7 mg/ml of nicotine are considered as medicine and are not

allowed to be purchased legally in the country as no manufacturer has proper licenses. Following the laws

in EU e-cigarettes are expected to be banned for minors and be made available only to non-minors.

In Finland, the advertisement of electronic cigarettes is not allowed by the statutory body as e cigarettes

might look like regular cigarettes and can mislead. Though, electronic cigarettes with nicotine may still be

sold, until their images and prices are not visible on the product. Import of electronic cigarettes is

currently allowed in the country, the authorities have ruled out that nicotine cartridges which have lessthan 10 mg nicotine, and e-liquid which have less than 0.42 gm nicotine per bottle, can be legally

purchased in from foreign countries for private use. If the content of nicotine is higher than the

prescribed limit, a prescription from the physician in Finland is required.



In Germany, the usage and sales of electronic cigarettes are considered legal. Currently there is no age

limit restriction in Germany. They are either considered as unregulated or as medicinal or tobacco

product by different states in Germany.

In Hungary, the usage and sale of e-cigarettes are currently legal in Hungary. Though, the sale of

cartridges and liquids with nicotine is illegal.

In Ireland, the usage and sale of e-cigarettes are currently legal in Ireland.

In Italy, as defined the Health Ministry – e-cigarettes containing nicotine cannot be sold to minors under

the age group of 18 years.

In Latvia, electronic cigarettes are legal.

In Lithuania, electronic cigarettes are legal.

In Netherlands, usage and sale of e-cigarettes is legal but their advertising is restricted.

In Norway the usage and sale of e-cigarettes are legal, but cartridges with nicotine can only be imported

from other EEA states (like UK) for private use.

In Poland, the usage and sale of e-cigarettes are legal.

In Portugal, e-cigarette with nicotine is restricted, but e-cigarette without nicotine is not regulated.

In Romania, the usage and sale of e-cigarettes are legal.

In Switzerland, electronic cigarettes without nicotine are legal. Their usage and importation is legal, but

they are not allowed to be sold within the country.

In Turkey e-cigarettes are considered as legal product: but e-cigarettes usage is forbidden indoors and on

public transport, and also forbidden for people under 18 years old.

In the United Kingdom, the usage, sales and advertising of electronic cigarettes is legal and are not

covered under laws which restrict smoking in public places. However, businesses are allowed to ban e-

cigarettes as well on their own.

In Argentina, sales, importation and manufacturing of electronic cigarettes have been banned by the local

regulatory authority also their usage has been discouraged by the National Clinical Practice Guideline for

Tobacco Cessation as e-cigarettes have lack of evidence on their safety grounds.

In Brazil, the usage, sale, advertising and importation of electronic cigarette is not allowed and is not

legal.



In Canada, electronic cigarettes are mostly unregulated. But this is mostly governed by state laws, thus e

cigarettes are allowed to be sold in some states and I some their usage and sale is completely banned.

In Hong Kong the sale and possession of electronic cigarettes with nicotine is illegal but this law does not

cover the non-nicotine devices.

In India, the use of electronic cigarettes is legal.

In Israel, the laws on e-cigarettes are regulated and are similar to that of regular cigarettes with warning

signs on the product's usage and usage in public places.

In Nepal, usage ad sale of electronic cigarettes is permitted and is legal.

In New Zealand, electronic cigarettes are considered as medicine and are sold only in drugstores.

In Pakistan, the import sale and usage of electronic cigarettes is legal.

In Panama, the importation, sale and usage of electronic cigarettes have been prohibited and is illegal.

In Philippines, the sale of e-cigarettes is not regulated, that means it is available to children and

adolescents. Currently their sale and usage is open in the country.

In Singapore, electronic cigarettes are currently illegal. Their sale, usage, importation, distribution and

advertising is completely banned by the Government and possess heavy penalty if anybody find breaking

the laws.

In South Korea, the usage and sale of e-cigarettes is legal.

In Spain, the usage and sale of e-cigarettes is currently legal and is soon expected to get regulated.

In United Arab Emirates, the usage and sale of e-cigarettes is illegal.

In Australia, the usage and sale of e-cigarettes is currently open but usage of nicotine based products is

completely forbidden, which simply means one can use electronic cigarettes which do not contain

nicotine but one with nicotine are not allowed in any format.

Evolution in India



1. India as a country has a high population of smokers counting close to about 120 million smokers in

India. India as a country has a high population of smokers counting close to about 120 million smokers in

India.

2. About 70% of the people who try to quit smoking fail due to reasons like psychology and availability

of alternates.

3. E-cigarettes came in India in about 2011 as a casual import for R&D purpose – the first organized

player came in India in the later phase of 2011.

4. There are cigarettes sold worth INR 420 crores in a day.

Looking at this opportunity Nikhil Thapar started Esutta in 2012 - Esutta was an accidental startup, a close

friend who was a chain smoker and this habit of smoking had actually started affecting his health, at quite

an early age. Trying to help him quit analog cigarettes – Nikhil went through couple of international blogs

on how E Cigarettes were disrupting the sales of Tobacco cigarettes and their impact. Impressed with the

product - Now, the biggest problem Nikhil faced was how to get one and there was actually no suppliers

of good quality electronic cigarettes in India and that’s when the idea evolved of helping out people to

quit smoking in the best possible way.

The journey of Esutta started from there - the team initially was skeptical about the success of the

product but it actually helped smokers, quit their smoking habit, after about 6 months of starting Esutta,

they had quite a number of success stories where people had actually given up or have reduced their

consumption of cigarettes by switching to electronic cigarettes.

Started as a self-funded venture with a team size of 3 people. Nikhil Thapar along with partner Sumit -

who was a technical coder by profession gave the actual shape to the web store of Esutta. The team grew

up to 25 people within 2 years of operations. Esutta started making real money from the first year of its

inception with revenues closing to INR 55lakh with a team of 5 people - the money was reinvested as

working capital and kept the business running. Improving on the product lines - Esutta further improved

the service with tools which helped a smoker to quit and get educated about the product,

recommendation engine, all over India delivery facility, cash on delivery option, option to pay online,

came with the concept of Try then Buy.

It was not easy to start - with learning at every step, the team at Esutta identified there target audience

the hard way - gone by the perception with the product the team took time to understand, the youth

below the age of 25 was not the one who were keen to use a product like E Cigarette which is safer than

traditional smoking - it is the 25+year aged working audience that are actually concerned about their

health and are looking for such a solution but not the early smokers.

Costing

It was clear that the product worked and was able to solve a problem at a large scale, but with little or

almost no education about the product Esutta went through phases of pricing their products, but the cost

element remained the same for a long time: the costing of the product was dependent upon the

following



Cost of goods: Manufacturer price

Shipping and transportation: Cost of importing goods

Import duties: Government duties on the product

Packaging cost: further packaging cost before order delivery

Delivery Cost: Cost of delivering the goods in different cities

Over and above this the company took out the average monthly orders and split the total expenses in

equal ratio to the number of orders and the average ticket size per order

This formed the major price component.

Over and above this after all expenses and costs, company worked on a mark-up of 60%-70%

Pricing

Analyzing the cost, expenses, demand size and opportunity of enjoying the monopoly, the company

followed a cost-plus pricing technique – during the first year the company use to sell products with mark

ups of over 200% which covered costs for Rent, Salary, and Operational Expenses. With increasing

demand and rise in competition – the volumes started to grow up and these margin further came down

to around 60% markup over cost.

Offline Channel

With the rising demand of e cigarette – Esutta spread its arms to offline retail channels with over 300

outlets all across India. Distributors were assigned in Bangalore, Mumbai and Hyderabad.

The product was on shelfs of Pan Shops, modern retail outlets, chemist stores and high end convenience

stores.

A separate new brand with the name Cigo Cigs was launched with a standard entry level kit.

Unaware of the market dynamics with high capital incentive segment – and issues with cash collection

and failure at cracking the distribution channel for the product. The company drew from the offline

market within 6 months and further focused upon online sales.

The big tobacco company from India - ITC stepped in the market in late 2014 – but with lack of product

offering is currently fighting hard to capture the market share. In mid-2015 Godfrey Phillips India

Pricing for Offline Market

Landing Cost: X

Mark up: 40%

Distributor margin: 15%

Retailer margin: 30%

Challenges

Government regulations



Exhibit 2

Exhibit 3



Exhibit 4



Reference:

https://en.wikipedia.org/wiki/Regulation_of_electronic_cigarettes

https://www.esutta.com

www.tobaccotactics.org



https://www.esutta.com/


http://www.tobaccotactics.org/





e Sutta Case Study

Documents

Transcript of e Sutta Case Study