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Operator Q&A

E-cigarette retailer finds business smoking—er, vaping—hot


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Health officials denounce them. Regulators are circling. Sounds perfect to Chip Paul, who’s started Palm Beach Vapors to sell e-cigarettes and wants to one day test sales of marijuana, which he calls ‘the next gold rush.’ 

FT: Palm Beach Vapors of Tulsa, Oklahoma, purports to be the first bricks-and-mortar retail electronic cigarette franchise. How did you get started?

Cynthia Paul

Cynthia Paul, left, is co-founder of Palm Beach Vapors, and she shares a vape break with store manager Robbie Olivarez and customers Alisha Deeds and Ed Duley.

Chip Paul: We have three principals, and all three of us had quit smoking using electronic cigarettes. My wife, Cindy, quit about two-and-a-half years ago, and then I quit a year and a half ago, and the other partner, Angie Stokes, at the same time. We’re all three professional people, and you go in these vapor shops and they’re real edgy and skateboardy, they’re like a head shop. It’s just not a real comfortable feeling walking in. 

We thought we could do it better. It’s vastly different from anything out there. It’s bright colors, a beach theme.  

 

FT: But starting to franchise was rocky?

Paul: We used a local franchise development company to help us get started; it turned out to be a disaster. We terminated that agreement in December of 2012, so then we had to go and put our own marketing and sales and PR together. So it’s only been the last month when we’ve been franchising. We’ve done 11 franchised units in a couple of months and we have two corporate stores.

 

FT: How did you end up in the vaping business? 

Paul: I spent about 10 years in corporate America, in IT. I took a severance package and started a retail candy company, with 14 candy stores in major malls. That was a tremendous amount of work and not very rewarding because you’re dealing with malls and vendors. It was just a mess. 

I ended up selling that business, and I bought a franchise, Right at Home. I learned a lot about the home-care business and I learned about what were the expectations for a franchisee and how a franchise system should work. We built that business from 0 to $2 million, and we just sold it to concentrate full-time on Palm Beach Vapors.

FT: Why did you quit smoking?

Paul: Just health reasons, mainly. There are so many negative things about tobacco smoke. It’s just kind of dirty. I’m a runner, and I could tell my cigar smoking was affecting my physical performance. Plus I’m getting old. I’m 53. I made that transition to vaping. You can feel it in your whole physical being. You can tell that it’s far, far healthier than tobacco.

 

FT: But isn’t that the crux of the controversy around vaping. Is it healthier?

Paul: If you’re judging the liquid of what you’re using, what are you judging it against? That’s one of the good things about the FDA actually getting involved in regulating the industry, because that will prompt proper testing. There have been some really good studies, and without exception the studies say vaping is far superior to smoking a cigarette.

 

FT: But they still have nicotine.

Paul: There are 4,000 chemicals in a cigarette in addition to the nicotine, so you’re ingesting all those chemicals, and they put in stuff to accelerate the nicotine.

FT: And what’s in e-cigarettes?

Paul: We manufacture our own liquids, so we know exactly what’s in them. There’s nicotine, with four levels of nicotine, plus we have a zero-level that doesn’t have any; and then food additives including what’s called PG and vegetable glyceme. Everything is food-grade kosher product. We purchase it from a lab, so we know exactly what the lab does.

Nicotine in and of itself is addictive, but it’s addictive in the way that caffeine is. Nicotine suspended in a liquid is just like caffeine suspended in a liquid. The thing that makes ‘nicotine’ a bad word is ‘cigarette.’ It’s an education thing.

 

FT: A lot of cities are passing regulations on e-cigarettes, location by location, and there are all kinds of alarms being raised about kids starting to vape, for example. Doesn’t that cause you worry, when you’re trying to franchise?

Paul: No, not really, because we feel like it’s a lack of education issue. We think the Food & Drug Administration will regulate our industry, and again, we don’t really view that as a bad thing because that’s going to lead to further testing. We think the FDA might ban online sales, which would be a great thing for a retail business. They could require any mixing be done in a lab, which we already do and a lot of them don’t do, which is a good thing. There’s probably going to be a restriction on the flavors, like the candy and bubblegum flavors that appeal to kids, and that’s fine with us. 

 

FT: You’ve got competition from online retailers, mostly, plus mom-and-pop or regional retailers. How does that affect you?

Paul: One of the problems for mom-and-pop stores is all the electronic cigarette hardware comes from China. So you wire them your money and have to meet their minimum sale requirement, which is large. Then you wait four to six weeks and hopefully your product will arrive. We have established our own sourcing company with offices and a warehouse in Hong Kong and Oklahoma. And we’ve developed our whole liquid system and the juice.

 

FT: Then a few big tobacco players are getting involved, like R.J.. Reynolds. I saw they were promoting their e-cig Vuse at the SXSW festival in Austin.

Paul: Again, they’re lobbying for electronic cigarettes, which is good for us. And the even better thing for us is they’ve chosen to sell in convenience stores and drugstores.

 

FT: So they don’t offer the retail experience you say you’re providing. You consider yourself the first bricks-and-mortar e-cigarette retail concept. Is it hard to be first?

Paul: It’s never bad. You probably get beat up more than the second guy in, but there’s also opportunity in being first. The best thing that’s happened to us is fricking Colorado.

 

FT: You mean because of legalized marijuana sales? Why do you say that?

Levi Broaddrick

Levi Broaddrick serves a customer at the tiki testing bar, a feature of every Palm Beach Vapors store.

Paul: States are concerned they’re losing money they used to get from big tobacco. They’re looking at ways to increase revenue, and that could be electronic cigarettes, but they can’t do that without FDA regulation. The window for that is going to close and then more states are going to look at marijuana sales.

We’re planning on opening a corporate store in Colorado in the next couple of months, and play around with that industry as an add-on to our model. We feel that’s going to be the next gold rush, and we could be very, very, very well positioned to own that industry from a retail perspective.

 

FT: Describe this tiki bar in your store. That sounds like fun.

Paul: Everything we do is the whole customer experience. We want somebody to be able to walk in to our store and say, I smoke and I want to quit. We would take that customer and say, you need this kind of battery or this kind of tank. 

And then we take them to the flavor bar, and say, here’s our 150 flavors, let’s try a few. Do you like fruit, baked goods, tobacco flavor? Or do you like blueberry cheesecake? They can test them at the tiki bar, at the flavor station. It’s all nicotine free at our tasting station. That way they leave with the proper kit and the juice they like to be able to stop.

We have a 95 percent success rate in helping people quit smoking. If they bring in their last pack of cigarettes, and sign our pledge, we give them an additional 25 percent off. 

 

FT: But then when they quit, don’t you lose a customer?

Paul: Every time you have a customer who has a kit, they come back for the juice, they come back for the wick. And then people save so much money from not smoking that they now have discretionary money and they’ll end up spending a lot of it on the store. 

People get passionate about vaping, so they’ll want to get a better tank or a better battery. They’re constantly upgrading their equipment. A pack-a-day smoker will spend $4,500 a year on cigarettes, and we’ve figured out that our vapor user will spend between $500 and $1,000 a year on their vapor stuff. 

 

FT: Do you still vape?

Paul: I still vape, but my nicotine level has come down. That’s the interesting thing with smokers. When you quit smoking, it’s not just stopping the nicotine. It’s having something to do with your hands, it’s the taste, it’s all those things that are part of the habit. So the vaping nails absolutely every one of those things. To me, I would never quit vaping. It’s enjoyable.

 

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