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JUUL e-cigs' growth in popularity strains supply chain

  • JUUL is one of the hottest e-cigarettes on the market.
  • The brand had 27 percent of dollar market share of the total e-cigarette category in the four weeks that ended Sept. 9, according to Nielsen data provided by JUUL Labs.
  • Having so much demand that supply struggles to keep up may sound like a start-up's dream, but CEO Tyler Goldman doesn't consider it one.
A model smokes a Juul e-cig during New York Fashion Week.
Eduardo Munoz Alvarez | AFP | Getty Images
A model smokes a Juul e-cig during New York Fashion Week.

Having so much demand that supply struggles to keep up may sound like a start-up's dream, but not when you're trying to give people a reason to switch from another product.

"When people say it's a good problem to have, I think about it a little differently," JUUL Labs CEO Tyler Goldman told CNBC. The company's goal is to switch cigarette users, he said. And to do that, JUUL needs to have enough products to satisfy users' nicotine cravings.

JUUL is one of the hottest e-cigarettes on the market. The device, which launched about two years ago, represented 27 percent of dollar market share of the total e-cigarette category for the four weeks that ended Sept. 9, according to Nielsen data provided by JUUL Labs.

While JUUL's retail representation is strongest along America's coasts and the Midwest, according to the company, JUUL has a presence in every state nationwide.

Every month, JUUL Labs produces 20 million products, including devices and cartridges, Goldman said. But the pace has strained the company's supply chain. While some continue to rave, others complain the quality has worsened.

"To achieve our mission, we really need to make sure that we have enough pods per device, and if we're not getting enough devices out into the marketplace, it means we're not giving people the option to switch to JUUL."

JUUL e-cig starter kits includes the device, four pods and a USB charger.
Source: JUUL Labs
JUUL e-cig starter kits includes the device, four pods and a USB charger.

JUUL devices are flat and rectangular and are about as long as a palm of a hand. They're thinner than an iPhone and weigh even less. Users snap on a cartridge with nicotine liquid, which uses nicotine extracted from tobacco. To activate them, users simply draw on the end.

In areas where JUUL is available, it has essentially gone viral. Cloud 99 Vapes, a vape shop in New York, can hardly ever keep the display case full, said employee Ryan Nieves.

Customers sometimes come in complaining about leaky cartridges, Nieves said. However, he said that's a problem with all vape products. They use cotton to keep the nicotine liquid inside, and cotton can only retain so much liquid until they start to leak, he said.

JUUL's prices can vary based on location, although they tend to sell at a premium compared with other e-cigarettes. Online, a JUUL device costs $34.99, and a four-pack of pods costs $15.99. The nicotine in each pod is said to be equivalent to a pack of cigarettes.

The products are under warranty, so people can contact customer service if pods leak or devices break. However, some customers say it can take awhile to hear back. Even if they do receive new pods, they must first spend more locally to buy new ones while they wait for replacements to arrive in the mail.

JUUL e-cig device
Source: JUUL Labs
JUUL e-cig device

After she first bought a device last year, Staci Starnes, 26, of Charlotte, North Carolina, loved JUUL and recommended it to friends. Within about six months, she said, she started experiencing problems with pods leaking into the device and her mouth.

She always helped friends clean their devices clogged with spilled liquid. Then one week earlier this year, she said, she couldn't fix hers or multiple other devices.

Starnes said she gave up on the product altogether and switched to a different brand. She admits she could have contacted the company about the malfunctions but was too busy.

"It was a letdown because I really believed in (JUUL)," Starnes said. "I thought it was one of the best e-cigs, but not anymore. I hate that company."

Goldman said he recognizes JUUL's issues and has worked to fix them. The company has stopped growing its footprint. It has also invested in improving the machinery that makes devices and pods.

He said the initiatives have started to pay off, saying the number of calls to customer service has fallen in the last few months. Goldman is confident JUUL can scale an "enormous level" of high quality devices and pods and start expanding its retail presence again early next year.

Product support requests decreased to less than 1.4 percent of unit sales, from roughly 3 percent, in the second half of 2017, JUUL said.