Making the Cigar Category a Top Draw

Despite a spate of regulatory ordinances, retailers expect cigar sales to continue to rise.

Convenience store dollar sales in the over $3.2 billion cigar category have grown 13.29% over last year, according to Infoscan Reviews, Total U.S. convenience store data for the latest 52 weeks ending March 25, 2018 from Information Resources Inc. (IRI), a Chicago-based market research firm. Unit sales rose 13.21% over last year.

Still driving the category, as they have over the past three years, are prepriced two- and three-for packaged cigars and flavored varieties, explained Jeremy Weiner, category director of cigars and premium products at Boulder, Colo.-based Smoker Friendly International, which operates 103 corporate-operated stores in Colorado, Nebraska, Montana and Wyoming.

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In addition to value pricing, the foil multiple packs ensure both the customer and the retailer of product freshness

“Foil packs are the place to be,” said Beau Hoffman, category manager for State College, Pa.-based Nittany MinitMart. “With the date stamped on the package you never have to worry about selling product that is past its peak of freshness.”

Hoffman pointed out that the MinitMart stores, of which there are 26 in central Pennsylvania, also does well with the 20-packs of little cigars. At its stores in larger cities and towns and around a college campus, flavored cigars really move. However, in its rural market areas, natural leaf and “old-fashioned non-flavored varieties” prevail.

PROMOTING PRODUCT

With the pricing right on the package the product promotes itself, said Carl Hitt, Jr., director of operations at Wi-Not Stop which has 12 stores in northern Virginia.

“We don’t do any additional promotion for cigars because, although the profit margin is better than for cigarettes, it’s not enough to merit special promotions,” said Hitt. “We carry them mostly for the convenience of the customers and because it brings them into our stores.”

At the Big Apple Food Stores, which counts 76 locations in Maine and New Hampshire, little cigar promotions are rarer, but the retailer does pass along any temporary price reductions that are offered by the manufacturers, said category manager Brandi Cushman. Big Apple’s sales of two-for pouches are increasing while packs are decreasing. She added that limited time offer (LTO) flavor additions to the lines of pouches usually create excitement among c-store consumers.

Weiner agreed that flavor LTOs, which usually go for 30 days in and out, are important to the category. He predicts that two hot flavors this summer will be Irish Cream, available from several manufacturers, and a spiked lemonade cigar from Swedish Match.

One issue that is facing the category in stores throughout the country is the shortage of natural leaf cigars, Weiner pointed out.

“As the demand for natural leaf continues to increase, manufacturers must find more growers to produce the leaves,” said Weiner. “It’s a problem that isn’t going away soon.”

There is no shortage of new flavors, however. Although the new flavors don’t necessarily attract new customers to the category, it keeps existing ones coming back more often to see and try something different, the retailer said.

“The flavored cigar segment is similar to the alcoholic and non-alcoholic beverage industries,” Weiner said. “People like different flavored items.”

But the deluge of new products can be overwhelming for retailers that don’t have the time, manpower and back-office system to efficiently track sales in all their stores.

“At MinitMart, we are able to go through store by store to see where the growth and decline are rather than saying a blanket yes or no on any new product,” said Hoffman. “The more information you have, the better you can target and keep up with what consumers want.”

All three retailers are optimistic that little cigar sales will continue to grow this year. MinitMart has taken a major step to make sure that happens by partnering with a new loyalty program with a tobacco company that offers consumers savings the more they purchase their favorite cigars.

“We expect this to be huge for us,” said Hoffman.

While many retailers display their cigars behind the front checkout counter, MinitMart puts them inline or on stand-alone racks so that customers can pick up the products and look at them.

“They’re more likely to try something new if they can get a good look at the package,” Hoffman said. “It’s like shopping at a shoe store.”

The downside of flavors fueling the category’s growth is in the attention these cigars are getting from state and municipal lawmakers. In Maine, for example, Cushman reported that there’s a ban on flavors except on natural leaf cigars.

Weiner said he expects to see more legislation proposed to restrict access to flavored cigars.

“It’s a hot button,” he said. “We’ll see more states and municipalities pushing for flavor bans.”

LEGISLATIVE HEADWINDS
The Cigar Association of America recently reported in New York, Bill AB (Assembly Bill) 277 would prohibit the sale of flavored tobacco products, except for menthol, mint and wintergreen flavored products. On the local front, legislation has been introduced in Philadelphia that would place restrictions on the sale of flavored tobacco products, except for menthol.

Package size is at the crux of proposed legislation in Rhode Island. The ever-popular two- and three-fers would be endangered should Bill HB (House Bill) 7976, requiring little cigars to be sold only in packs of 20, is passed.

Also in Rhode Island, Gov. Gina Raimondo is calling for a 30-cent per cigar increase to the state’s current rate. Currently, Rhode Island has a tax rate on cigars of 80 percent of the wholesale price, but it is capped at 50 cents per cigar. Raimondo would like to raise that cap to 80 cents.

State legislatures are also considering raising taxes on little cigars. According to the National Association of Tobacco Outlets (NATO), New Jersey’s governor is proposing a tax increase for cigarillos (at $.54 cents) and little cigars (at $.135).

And, 22 states are considering whether to restrict consumers under the age of 21 from purchasing tobacco products. In Maine, where Big Apple has stores, the minimum age to purchase will be 21, effective in July, Cushman said. But the state is grandfathering in consumers who will turn 18 as of June 30 of this year.

Instead, Cushman expects that the new law will have some negative impact on little cigars, but the grandfathering in of some 18-year-olds should soften the blow a bit.

The Cigar Association of America expects to see continued introductions of age restriction bills.

“This issue is getting a lot of attention at the state level and is a top agenda item for anti-tobacco interest groups,” the organization wrote in its May 14 weekly report.