Valdosta Daily Times

Business

June 30, 2014

E-cigarette chain MadVapes hitches a ride on industry’s success

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Starting a multimillion-dollar company wasn’t what Mark Hoogendoorn intended. He just wanted to quit smoking.

The computer programmer had tried it all: nicotine patches, nicotine gum, hypnosis. He didn’t want his teenage son and daughter to see him smoking anymore. But nothing worked.

On a whim one day in 2008, he bought an electronic cigarette off eBay. Half an hour after he started trying it out, it fell apart.

So he decided to make his own.

Today, Hoogendoorn owns a 22-store e-cigarette retail chain that spans six states and is expected to earn $40 million in revenue this year. Mooresville, N.C.-based MadVapes, with 118 employees, is one of the largest companies of its kind in a rapidly expanding market.

“It was all accidental,” Hoogendoorn, 51, said in his warehouse. “I was happy as hell programming.”

He quit his job with the Paxton Group in 2010. He hasn’t touched tobacco in years.

E-cigarettes have gained widespread popularity, growing into an estimated $2 billion industry with millions of users. They’ve become a popular choice with smokers trying to quit.

With flavors ranging from amaretto to wintergreen, e-cigarette products and accessories number in the thousands. But all work the same way: A coil heats up and turns a liquid into a vapor, which the user inhales. Instead of smoking, it’s called “vaping.” The liquid may contain varying levels of nicotine, from zero to 3.6 percent, but nearly all the liquids are tobacco-free. Few rules govern where e-cigarettes can be used.

The growing business includes entrepreneurs like Hoogendoorn as well as Big Tobacco companies. Winston-Salem-based Reynolds American Inc. began nationwide distribution of its e-cigarette, Vuse, on Monday. North Carolina and other states have enacted taxes on the products.

Hoogendoorn said he’ll stay focused on building his company and developing new products and flavors. About 60 percent of his sales are online, but he wants to expand his network of stores as well.

“I like to see the stores; I like to see the people,” he said. “We have an awful lot more projects we want to do, but everyone’s too busy to do them.” Then he paused.

“Actually, I guess that’s a good thing.”

The connecting pieces just wouldn’t hold.

Vaporizers, the kind of e-cigarette Hoogendoorn focuses on, consist of two parts: a base that holds the battery and a mouthpiece that holds the e-liquid. When he first started buying them for himself, they kept falling apart.

A handy guy with a background in electronics, Hoogendoorn started making the connecting pieces himself, using information pulled from online forums. Later, he posted instructions online when friends asked how he did it.

“But they said, ‘Hey, you know, can we just buy those from you?’ ” Hoogendoorn said. “So I started making some out of my garage a little bit.”

His friends liked his work. “Then they were like, ‘Hey, you know, if you sell that part, you should sell this part and this part,’ ” he said.

Hoogendoorn’s investments in materials started with $30 trips to Lowe’s and Home Depot and soon grew into $200 eBay orders from China. He realized it was time to “take the jump,” so he took a $10,000 loan from his 401(k).

His home-office operation overflowed to the dining room, then the garage. There, he’d stay up late packaging orders; when neighbors noticed, they volunteered to help. Now they’re paid employees.

When they outgrew the garage, Hoogendoorn began renting office space, one unit at a time, as he needed it. Before long he bought a warehouse. Within a year, he had three, totaling 50,000 square feet.

These days, Hoogendoorn travels among his warehouses, overseeing bottling and order fulfillment. He also regularly visits his local stores, working 14- or 16-hour days to keep up with the company’s expansion. His projected $40 million in revenue this year is more than double last year’s $18 million.

Besides North Carolina, MadVapes has locations in South Carolina, Georgia, New Jersey, Massachusetts and New Hampshire. Hoogendoorn is looking to Texas next. He also is adding to his seven Charlotte, N.C.-area stores, with a location opening in Indian Trail in the next few weeks.

He says he didn’t take a paycheck for the first 18 months of his business. Now he admits to spoiling himself “a little bit,” by moving into the lake house he’s always wanted — but “nothing crazy.”

“I drive a Dodge,” he said, “not a Maserati.”

MadVapes’ growth has mirrored the industry’s, where analysts say revenues have been doubling annually. If popularity continues to grow as it has, e-cigarettes could overtake traditional cigarettes by the end of the decade, said Michael Lavery, a tobacco analyst with CLSA Americas. But he said the growth could just as likely begin to taper off.

By 2020, some analysts say what’s now a $2 billion industry will grow to $10 billion. Some estimate as high as $40 billion.

“The projections are bullish, but you’re never sure what could impede or derail the bullish growth story,” said Steve Marascia, an analyst with Capitol Securities Management Inc. “It’s a great unknown.”

North Carolina, the nation’s top tobacco-producing state, passed a 5-cents-per-milliliter tax on e-liquid last month. It takes effect next year. South Carolina has proposed the same tax.

For Hoogendoorn, the tax means more paperwork and an added cost of $2.50 on a 50-milliliter bottle of e-liquid, the largest bottle MadVapes sells. Excise tax on a pack of traditional cigarettes in North Carolina is 45 cents.

Hoogendoorn tries to see it as a positive.

“If they thought e-cigarettes were going to die off,” he said, “they wouldn’t have passed a tax on them.”

They’re widely known as electronic cigarettes, but Hoogendoorn doesn’t like to call them that.

He uses other terms: personal vaporizers, tobacco alternatives. The name that links his product to its tobacco counterpart, he says, makes him feel “guilty by association.”

“I’m not Big Tobacco,” Hoogendoorn said, vaporizer in hand. “I just don’t think we’re in the same industry at all.”

Within the niche market of e-cigarettes, consumers are starkly divided. A majority, estimated 65 percent, are using “cigalike” products. Popularized by Big Tobacco companies, they resemble tobacco cigarettes in size and shape. Blu eCigs from Greensboro, N.C.-based Lorillard dominate that market, though Reynolds’ Vuse will try to compete.

Hoogendoorn’s vaporizers are larger — and, fans say, more effective at delivering nicotine. That makes users less likely to return to tobacco, they say.

Because all types of e-cigarettes are so new, there’s little data on their long-term health effects. They’re largely unregulated, though the federal Food and Drug Administration is expected to release stricter regulations on the products within a year. Critics say they glamorize smoking. They also note that the products still contain nicotine, an addictive substance, though defenders say the nicotine is less harmful when not paired with tobacco.

Hoogendoorn scoffs at critics who say his products look like cigarettes. He holds out the 8-inch black and silver vaporizer in his hand. “Does this look like a cigarette to you?”

Hundreds of products line the walls, fill the display cases and adorn the marble-topped tables in the MadVapes in Pineville, N.C. Customers browse among starter kits ranging from about $10 to $100 and juices with flavors like Kick-Azz Caramel and Black Raspberry Champagne.

Charlotte has other e-cigarette retail outlets, but MadVapes has a distinctive atmosphere, said employee Daniel Frank, who’s been working for MadVapes for seven months. “This is like an upscale coffee shop compared to other places,” he said. “It’s like a little lounge where you can just talk vape.”

That’s just what customers in Pineville were doing around 6 p.m. on a recent weekday.

“It’s like my home away from home here,” said Jeremy Manzo, 28, of Charlotte, who’s been smoking e-cigarettes since December. After starting with e-liquid that had a 1.8 percent nicotine level — recommended for a pack-a-day smoker, Frank said — he’s down to zero.

“Now it’s just for fun.”

Manzo and Sunnie Mitchell, 28, of Charlotte, said they chose MadVapes because of its flavor selection, competitive prices and superior customer service.

“They care about you here,” Mitchell said, and Manzo nodded. “We can even bring our pet,” he said. Beside him, Mitchell sat with a live snake around her neck.

Mitchell, who’s down to 0.3 percent nicotine from 2.4 percent six months ago, pulled her vaporizer from her mouth and exhaled, releasing a fruity scent. “I’m smoking strawberries,” she said with a shrug.

The scene is what Hoogendoorn says he loves about his business: hearing stories about people who have turned away from cigarettes, now bonding over his product and their new hobby.

Still, he acknowledges that so much is still unknown about his industry. He had to take a risk to start, he said, and he’s taking a risk every day by expanding.

“Business is business,” he said, sitting at a table in his Mooresville office. “You try to plan for the best, and you make sure you have an exit strategy.”

But then he laughs, leaning back farther in his chair. He’s not going anywhere.

 

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