Have you tried Juul?

Juul has all the qualities of a standard Silicon Valley success – fat profit margins, explosive growth, and even the cultural cachet to make its name a verb. But the three-year-old start-up is not a simple technology company: it sells addictive e-cigarettes.

Its popularity among teens has provoked a backlash from authorities, and the announcement last month that it would join forces with Altria, which makes Marlboro cigarettes, has only ramped up the controversy.

So how did the firm grow to be worth more than $38bn? Juul shares an origin story with many other Silicon Valley firms.

Founders Adam Bowen, 43, and James Monsees, 38, met in the early 2000s while in graduate school at Stanford University, where they were studying product design. Smokers themselves, they went looking for a way to make cigarettes less carcinogenic and foul-smelling, and more socially acceptable. They set up their company Pax Labs in 2007 and spent about a decade working on vape products, before launching Juul in 2015.

The device, often likened to an unusually long flash drive, heats liquids inserted via a pod, which come in flavours such as tobacco, mint and mango and hold about as much nicotine as a pack of cigarettes.

Pax Labs spun out Juul as an independent company in 2017, and since then the firm’s growth has been astonishing. In 2018 alone, Juul expanded from about 225 employees to roughly 1,500, as sales more than tripled, according to analyst estimates. The firm now claims some 70% of the US e-cigarette market, putting it on track to make what some analysts estimate will be well over $2bn in sales this year.

Juul also sells in seven countries outside the US, including the UK, Germany and France. Altria’s deal to take a 35% stake in Juul, valued the firm at more than $38bn – more than double the $16bn valuation settled on during its most recent financing round in July.

The deal made Juul’s two co-founders billionaires, according to Forbes. It also put their three-year-old start-up on a par with the market cap of publicly listed companies such as Ford and Delta Airlines.

The company doesn’t use the cancer-causing tobacco-burning process of traditional cigarettes. But in the US, Juul pods deliver more nicotine than many rival e-cigarette brands – a design the firm says was intended to help switch smokers to their products.

That addictive quality is one reason why Juul has caught on.

Analysts also cite Juul’s flavours, discreet size and easy-to-use features, while critics blame early advertising campaigns for creating a “cool” factor that appealed to youth. Investors focused on Juul’s financial prospects emphasise that its products are cheaper than cigarettes and have higher profit margins.

There are about 38 million adults who smoke cigarettes in the US, according to the Centers for Disease Control and Prevention, though that number is falling. The percentage of adult smokers dropped from almost 21% in 2005 to about 15.5% in 2016.

Just how much of that is due to e-cigarettes isn’t entirely clear.

But Juul – which has a stated mission of replacing traditional cigarettes – argues that its growth, alongside an accelerating decline in cigarette sales, is no coincidence. About 25% to 45% of Juul’s sales may be replacing cigarette consumption, Piper Jaffray analysts estimate.

The tie-up with Altria should help Juul get its products into more stores in the US and benefit from Altria’s lobbying operation. The firm is also at the start of what is planned to be a major international expansion, after venturing abroad for the first time in 2018. But there’s a lot of uncertainty ahead.

 

Check out my relate post: Have smartphones destroyed a Generation?


Interesting reads:

https://www.juul.com/our-story

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

https://www.fastcompany.com/90262821/how-juul-founded-on-a-life-saving-mission-became-the-most-embattled-startup-of-2018

https://www.bbc.co.uk/news/business-46654063

https://www.washingtonpost.com/business/how-juul-became-a-victim-of-its-own-huge-success/2018/11/15/29e41c7e-e8fc-11e8-8449-1ff263609a31_story.html?utm_term=.bb9adee93bb6

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