Puffing up Cigar Sales

Innovation in flavors and packaging are helping energize what was formerly a stodgy tobacco category.

By Jeffrey Steele, Contributing Editor

While some other tobacco product sales have been somewhat flat in the last quarter, convenience store cigar promotions continue to ignite consumer loyalty.

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Once considered a stodgy segment, the cigar market has become increasingly innovative, with manufacturers offering a variety of new flavors, packaging and merchandising ideas. Retailers point to limited time offers and two-for-one promotions as among the catalysts bringing customers into stores, helping keep interest in cigars fresh.

As a result, popular brands are registering growth in terms of units sold and in dollars generated.

According to Nielsen data from all retail channels reported by Wells Fargo Securities, cigar sales were strong at the end of 2017. For the four-week period ending Dec. 30, cigar sales were up 12.6%. In addition, Altria Group Inc.’s Middleton brand of cigars rose 4.4% in volume and 9.6% in pricing, while Swisher gained 9.6% by volume, and 0.4% in pricing.

“Retailers are growing cigars mainly through an increased focus on foil pouches, but also with singles, [where] Black & Mild is the only horse in the race,” said David Bishop, managing partner with Balvor LLC, a sales and marketing firm headquartered in Barrington, Ill.

“Packs play a role with key brands, although this segment has declined over time due to price inflation. Staying on trend is key for retailers, as a lot of [the cigar category] growth in convenience is driven by new product. Previously hot products—like grape flavored—are falling out of favor for new segments, like unflavored, natural leaf.”

At FriendShip Food Stores, a Freeport, Ohio-based retailer with 24 locations in Ohio, hot sellers continue to be all the brands one might expect to find in a c-store. “We definitely sell a high percentage of two-for-99-cents items like Swisher Sweets and White Owls,” said Kevin Campbell, FriendShip Food Stores’ director of marketing. “And obviously, we do very well with the Black & Mild products.”

Over the past year, the FriendShip chain has experienced stronger customer interest in Garcia y Vega Game Leaf Natural, made by Swedish Match, which also produces White Owl cigars.

The product appeals to smokers who prefer what some call a cheroot right out of a Clint Eastwood-style spaghetti western. The Game Leaf Natural comes in four flavors, cognac, mango, natural and sweet aromatic.

Cigar sales were up 17% at the chain in 2017, versus a 1% rise for cigarettes. “You have consumers switching over to that price point,” said Campbell.

The stores display their cigar selection behind the counter for optimal visibility.

“And most of our stores have a four-foot set,” Campbell said. “It’s actually on the same rack as the snuff, and we have five rows below the snuff. Most of our stores follow that same set. In the past, we’ve done promotions on Black & Mild singles to build our business. More recently, our sales have been good, so we haven’t had to do many promotions. We tried Optimo cigars on a scan down, which would be like 20 cents off a two-pack. Instead of two for 99 cents, it would be two for 79 cents.”

At Shout & Sack, a convenience store operation based in Vinita, Okla. owner Chris Carter said the only cigars the c-store now carries are what he calls inexpensive cigars. That, however, wasn’t always the case. The retailer used to stock high-priced products for the true cigar connoisseur. However, it couldn’t seem to find a significant market for these fine cigars among those who frequented the c-store.

“I used to have humidors in here years ago, but it was like selling clam juice over tacos; it didn’t work,” Carter said with a chuckle. “I have been in this business for 43 years and know what I can do, and I wasn’t any good at selling good cigars. But the cheaper ones we sell a lot of. Everyone comes in and said, ‘Give me a stick.’ That’s what they’re calling them these days—sticks. I’ve got more than 20 flavors of these more inexpensive cigars here. And we get them in to the store about three times a week.”

Leading the pack among top-selling cigars at Shout & Sack are regular Black & Mild, as well as the Black & Mild Jazz wood tip, featuring a cedar mouthpiece. Regular Swisher Sweets and Swisher Sweet Grape Natural Foil Wrapped Cigarillos are also big with Shout & Sack customers. For those seeking greater cigar innovation or simply tired of the same old thing, Carter said there are always new flavors being launched.

He added that the cigar selection at Shout & Sack seems to appeal most to a younger adult demographic comprised primarily of 18-35-year-old males.

It would be difficult, Carter said, for any customer to fail to notice his cigar selection while at the cash register. “It’s right next to the cigarette rack behind the counter, and it’s very visible,” he said. “When you are checking out you can’t help but see them.”

Never one to miss an opportunity to promote items to patrons seeking a deal, Carter reported that whenever a manufacturer’s promotion is offered, he always passes the savings along to customers. “Buy one and get one free are popular promotions,” he said. “Whenever we have them offered, I jump in with both feet.”

RAISING THE BAR
Managing inventory and sets are two of the keys to success in cigar sales, according to FriendShip’s Campbell.

“This was the only category that was declining for me four years ago,” said Campbell. “We reduced the amount of inventory, especially on the seasonal in-and-out, limited time offers. We control that better now, and have better set integrity. We actually put one and two facings in the set that were specific for in-and-out items. We had space specifically for a Swisher Grape in-and-out product.”

In addition, he reported a definite plan of attack at FriendShip Food Stores is to “fend off the three-for-99 and four-for-99” cent cigar promotional offerings.

SMALL CIGARS ARE WARNED
On Aug. 22, 2017, the U.S. Food and Drug Administration (FDA) issued a new guidance document titled “Warning Statements on Small-Packaged Cigars.” In this document, the FDA informed cigar manufacturers that they will not be required to label each cigar individually with one of the required warning statements. Instead, the FDA said that a statement posted near the point of sale (POS) can satisfy this requirement.

The requirement officially goes into effect on Aug. 10, 2018 but cigar manufacturers must begin putting plans in place now in order to comply with this new requirement. At that time, it will be unlawful for anyone to manufacture, package, sell, offer to sell, distribute, or import for sale or distribution within the U.S, any cigar that doesn’t meet the new mandate.