With consumers reaching for interesting flavors at still low prices, cigars—especially cigarillos—continue to move briskly off of convenience store shelves.
By Howard Riell, Associate Editor
According to IRI’s convenience store statistics for the 52 weeks ending July 10, 2016, cigars notched nearly $2.7 billion in sales, a 6.19% increase over 2015. Units rose 10.17%.
To take best advantage, c-stores should pay heed to customer preferences, keep the appropriate SKUs in stock, hit the key price points and stay on top of the latest line extensions.
Rich Jacobs, director of packaged beverages and tobacco for RaceTrac, which operates 420 convenience stores in Georgia, Florida, Louisiana and Texas, said cigars remain a strong category for the retailer
“I would say it’s a growing, innovative category. In the past it’s been kind of dry and drab, no new innovation, nothing coming out that was exciting in the category,” Jacobs said. “But over the past few years it’s been very innovative as far as flavors go. There has been an influx of limited time offers, which are driving a lot of the profitability and growth.”
Top brands like Swisher Sweets, White Owl, Game and Black and Mild do “very” well across the chain, he said. Plastic-tipped cigars also do well. “But when we look at the overall business, tipped is a small portion of the category share that cigarillos are.”
Like other players across the convenience store channel, RaceTrac sees consumers strongly favoring cigarillos. “What I have seen across the category is that there has been a lot of two-for-99-cent offers that I think are doing very well.”
Some c-store chains have embraced larger quantities for 99 cents, Jacobs pointed out. “We have never dabbled in it. We didn’t want to devalue the two for 99 cents so we held strong with that offer and never got into the three-, four- or five-for 99 cents. A lot of the cigar companies just want to keep marching down that ladder of value, for the people who are buying the multiple cigars.”
From what Jacobs and his colleagues have seen over the past couple of years, however, that strategy harms the price-value equation. “Those companies have really fallen. Category leaders like the Swishers and Swedish Matches of the world have kept on growing, while those have declined.”
Like other c-store operators across the country, Horizon Market in Bismarck, N.D., adapts its product selection and store design to the specific needs of its community. With that in mind, it has downplayed its tobacco set at times.
“It just hasn’t been a strong part of our brand to where we have really promoted tobacco,” said Casey Clement, Horizon’s president. “We’re right next to a middle school and an elementary school, our neighbor is a church, and we have a frozen yogurt shop that we operate inside of our c-store called Swirly’s. We’ve kind of softened the signage around our tobacco. We don’t even take the discount on cigarettes because we’re not going to have the Marlboro signs above our cigarette racks.”
That said, cigars remain a viable and profitable category as customer demographics have slowly changed.
“What I have seen is a definite change over the years in the typical cigar customer,” said Patrick Shannon, Horizon Market’s manager. “The typical customer has definitely gotten younger, with the majority of the sales of the single or two-pack variety as compared to the larger-pack sales. Most of the younger customers are looking for the cheaper two-for-99-cent deals.” They also look more for the fresher foil packs.
The older cigar customers, on the other hand, lean more toward the premium brand cigars in the larger packs, Shannon added. “But I am seeing less and less of this type of customer.”
As for flavors, the ones that have been around longer, like grape and blueberry, are clearly the best sellers. “They keep coming out with the new flavors that people may try,” Shannon said, “but on a consistent basis I see the customer going back to the older flavors that they know.”
Regarding flavors: On July 29, 2016, the U.S. Food and Drug Administration issued guidelines designed to assist retailers in complying with the tobacco regulations relating to the sale of various products. For cigars, they include:
- Check photo ID of everyone under age 27 who attempts to purchase cigars. Only sell cigars to customers age 18 and older.
- Do not give away free samples of cigars, including any of their components or parts.
- Do not sell cigars in a vending machine unless in an adult-only facility.
Of course, flavored tobacco products of all kinds have been a favorite target of legislators who cite fear over potential sales to minors. The National Association of Tobacco Outlets (NATO) has countered that such legislation accomplishes little besides harming retailers: “A flavored tobacco ban disrupts the free marketplace by interfering with normal transactions between legitimate, responsible retailers and adult consumers desiring to purchase legal tobacco products.”
“Adults will simply turn to ordering flavored tobacco products over the Internet or traveling a short distance to another town, city or neighboring state that does not have a flavored ban law to purchase their favorite tobacco products,” NATO added.
“At GetGo, we work to identify industry trends and deliver our customers an appealing selection of cigars,” said Jannah Jablonowski, a corporate communications consultant at Giant Eagle, which operates 200 GetGo locations. “Recently, we have noted increased customer interest in seasonal flavors and pouches containing multiple cigars. As such, we have incorporated these varieties into our assortment, where appropriate.”
Chris Pelletier, the manager of Bradley’s CITGO & C-Store Car Wash in Presque Island, Maine, has noted the same product trends. “What we sell the most of is pretty much cigarillos, especially flavored cigarillos—grape, white grape, pineapple, mango.” Promotions aimed at the low end—79 cents each, or two for $1—generate the most consumer interest.
The demographic range for the vast majority of cigar buyers has remained steady, Pelletier added. “Anywhere from college guys to a few older guys.”
The three-foot section that the store devotes to cigars is not expected to grow any time soon, Pelletier said, nor will the number of SKUs. “We just stick with what works.” Only occasionally will a limited time item become a permanent addition. “Black & Mild Jazz was a temporary one, but it did well and I can get it all the time now.”
Jacobs conceded that legislators cracking down on flavored cigars for fear they might attract under-age smokers could be an issue going forward.
“It depends on how the FDA/deeming regulations flush out as far as what they deem to be a flavor, and then how the big manufacturers look at the flavors and actually brand those flavors. Some have suggested manufacturers could replace flavor names with colors, which could hold restrictions at bay, at least for a time,” Jacobs said. “It would slow down innovation, but I think long term it will flush out to where we will still have some flavors that will keep the category growing. Swisher and Swedish Match have done a great job of creating new flavors and bringing them to the market on a quarterly rotation.”
Those drivers could include the two-for-99 cents limited time offer for a new flavor, or a different promotional offer on cigars that are not pre-priced and have a big impact on the category.
The category, Jacobs said, can be expected to continue to grow through 2016 and at least into 2017. In the meantime, operators can help fuel sales.
“Retailers need to really define what their SKU optimization process is going forward,” Jacobs concluded. “That is a big driver for us and other people who really think that cigars are an important category. What I mean by that is, making sure you have the right SKUs at the right stores in the right demographic area.”