By Howard Riell, Associate Editor
Cigar sales are trending upward and c-stores are responding in kind by adding SKUs, honing assortments, maintaining prices, offering fresher product in resealable packs and stocking a popular, ever-expanding variety of flavors.
IRI’s Infoscan data indicates that for the 52-week period ending April 19, 2015, cigar sales in convenience stores generated nearly $2.5 billion, an increase of 3.14% over the same period the previous year.
“Having the product available is the key, but having the right mix creates synergy,” said Bob Richardson, category manager for tobacco and electronic cigarettes for E-Z Mart Stores in Texarkana, Texas.
Richardson noted that the cigar market has shifted away from singles to two- , three- and five-packs because customers seemed to be drifting away from what the c-store was stocking.
CUSTOMER IS ALWAYS RIGHT
“We had a good presentation and we had a lot of stuff but our sales were declining because what the customer wanted was changing,” Richardson said.
To satisfy its customers’ desires, E-Z Mart honed its three-foot, four-shelf section, adjusted pricing and placement and made sure it was introducing new items on a regular basis. E-Z Mart is holding a line on selling just two-packs right now, Richardson added, aside from a three-for-the-price-of-two offer from Garcia y Vega.
Flavored cigars continue to help drive the category, Richardson has found. “Swisher (Sweets) reintroduced chocolate, and that is now doing pretty well. The shelf life of the flavors, though, is not as long as it used to be.”
Richardson has also noted the strong shift to more natural-leaf cigars. “The outer wrap is full-leaf and it supposedly makes it burn slower and has more moisture and a longer taste. It’s not dominant but there is growth. Customers are becoming more aware of them, and are asking for them, so we have brought in some Dutch Masters, Garcia y Vega and Swedish Match.”
Declining in popularity are plastic-tipped cigarillos, Richardson added. “That’s been the shift over the past few years. You still have Black & Mild introducing things like Casino, which is a plastic tip with different flavors, so it has not gone away, just declined. For Black & Mild, the plastic and wooden tips are their mainstay.”
“Sales of cigars are rising very quickly,” reported Moti Balyan, chief operating officer for Woodland Hills, Calif.-based Macland Investments’ 40-store Mac Chevron. “Previously we didn’t have that much variety, but right now we have a lot of variety. We have more than doubled the number of SKUs. We now have a whole fixture for the cigar category.”
Like Richardson, Balyan has found consumers trending away from singles.
“We like to sell the single items, but more and more companies are giving us two-packs, three-packs and five-packs.” The two-packs range in price from $1.49-$1.99, the five-packs from $4.99-$5.99. His stores carry 10 brands.
Mac Chevron did more than just increase its number of SKUs. The c-store created space by reaching out to and working with vendors.
“Previously we’d had three or four small, small, small displays. They were taking too much room. We said to them, ‘Why don’t you bring one big display and fit everything.’ So that’s the way we worked it out,” Balyan said. “Now everybody is set inside the same fixture.”
Balyan’s merchandising philosophy speaks to supply and demand.
“I have found that if you increase the supply, the demand will increase automatically,” Balyan said.
“Whenever a new product becomes available we are the first ones to bring it into the market, whether it is cigars or anything else, and when we increase supply, demand automatically increases and we become the retail center point for the consumers.”
In the end, a more diverse cigar supply seems to translate into more sales.
“I agree with that premise,” said Tim Cote, vice president of marketing at Beaverton, Ore.-based Plaid Pantry. “A few years back Walmart went through and did a pretty massive storewide ‘SKU rationalization.’ They saw pretty significant sales losses as a result and ended up adding items back into their assortment. Especially in the age of the individualistic Millennial, limiting assortment means limiting sales.”
“He’s right and wrong,” said Ryan Mathews, founder and CEO of Detroit-based Black Monk Consulting. “Increasing facings does increase sales, to a point. Think about it: if he were right he’d have a store selling nothing but his most profitable, fastest mover. Studies show that efficient assortment is the key to boosting sales—emphasis on assortment and on efficient.”
SKU rationalization demonstrably builds sales, he added, but like anything else the key is balance. “The industry loves the idea of stocking more/new products, but the truth is when you stock too many the customer can’t find what he or she is looking for. Stock too few and you run the risk of having the same problem, albeit for a different reason.”
There may, however, also be a downside to Balyan’s approach.
“As with any product you will eventually reach a tipping point where you are over-SKU’d and just carrying excess inventory,” said Lori Bull, director of c-store operations for Fabulous Freddy’s in Las Vegas. “You can also cause cognitive dissonance for the customer; literally too much to look at. In some cases, the response to that is to walk away, possibly costing you a sale.”
CIGARILLOS IN THE HOUSE
At Trumbull, Conn.-based Consumers Petroleum’s 19-store Wheels Convenience Stores chain, cigar sales were previously on the decline, but times have changed.
“Cigars had declined and moist had picked up; that had been the trend for about 12 -14 months,” said Mary Sonatore, category manager for Wheels. “But we have seen that cigars are starting to pick up a little bit now, with the new natural-leaf roll cigarillos and the pouches that are resealable.”
Wheels carries between 30-40 cigar SKUs, with a mix that Sonatore said she is constantly adjusting based on scan data and readjusting promotional strategies.
“Some of them come out with a flavor that is available for only a limited time as a sell-through, and so we can’t get it back in. I wonder what the thought process is for that,” Sonatore said.
At the same time, Sonatore added, suppliers are continually changing and innovating. “That’s what is kind of exciting about the category, aside from the margins.”
Staying on top of sales trends is crucial for maintaining sales, said Sonatore, who reviews scan data at least once a quarter.
“To keep that back bar fresh (operators) have to edit out poor sellers. If something new and innovative comes around and we need room for it I might want to look at the bottom sellers and see what I can replace,” Sonatore said.
Retailers also have to be very careful when taking a promotional deal from the manufacturer because it could distort the assortment, she added.
“They could effectively have the same item repeated in two different UPCs,” Sonatore said. “They have to be very careful about that.”
Consumers have also responded well to cigars’ improved freshness, Sonatore noted.
“The newer two- and three- packs like those from (Garcia y Vega’s) Game and Dutch Masters are in resealable foil packages, so they will retain that freshness, and the value proposition is stronger versus the 79 cents or 89 cents single,” Sonatore said.
Wheels sees the cigar category remaining robust into the foreseeable future.
“I just think that it’s its own category; there is a lot of interest in it, and I think people are edging away from cigarettes,” Sonatore said. “They are looking more at cigars as alternatives. And the flavor profiles absolutely make a cigar attractive to a lot more people.”
Sonatore said she advises retailers to notice parallels between smoking and dining trends. “I think of just how quickly trends change. You have to look at the flavor profiles in food and beverage and translate them into cigars a little bit. Cigars are a good category and absolutely getting better.”