Popular-priced cigars and cigarillos continue to be a c-store staple, even as lawmakers consider rolling out more restrictions.
By Scott McKinney, Contributing Editor
Most recently, the U.S. Food and Drug Administration (FDA) extended comment deadlines on three advanced notices for ANPRMs (Advanced Notices of Proposed Rulemaking) on nicotine, flavored tobacco products and premium cigars, extending into July.
An ANPRM is only a request by the FDA for information, studies and data on a particular topic and isn’t a proposed regulation. Rather, the agency is seeking information to determine whether a new regulation should be proposed in the future.
The new deadlines are:
• Nicotine levels in cigarettes and possibly other tobacco products: July 16, 2018.
• The role of flavors in tobacco products: July 19, 2018.
• Premium cigars: July 25, 2018.
In the interim, cigar sales remain strong. According to IRI, statistics for the convenience store channel for the 52-week period ending May 20, 2018, sales topped $3.3 billion, an increase of 13.48% over the same period a year ago.
While volumes continue to increase, retailers report cigar sales remain largely price-driven. Premium cigars continue, as they traditionally have, to do well in specific areas and locations. That said, they are gaining wider distribution because consumers like the one- and two-count foil packs.
Experts explain that the regulatory process currently in motion is important for retailers to understand.
“You have to take all three of them—nicotine, flavored tobacco products and premium cigars—into account,” said Craig Williamson, president of the Cigar Association of America (CAA) in Washington, D.C. “You’ve got to take into account the flavorings, the nicotine content and the definition of a premium cigar. Within levels of nicotine, it really does affect cigarettes more than it does us, but they will eventually get to us. That is why we have to comment, because there really is no testing right now for cigars.”
As Euromonitor International recently reported, the general extension of public smoking bans across the country may have an adverse impact on demand for cigars as it becomes increasingly difficult and inconvenient to smoke them.
“The FDA issued an Advanced Notice of Proposed Rulemaking to obtain information from the public about the role that flavors play in tobacco products,” explained Thomas Briant, executive director of the National Association of Tobacco Outlets (NATO). “After reviewing the comments, the FDA will decide whether to restrict the number or kinds of flavors or prohibit the sale of flavored tobacco products, including flavored cigars.”
If flavored cigars are prohibited by the FDA, Briant continued, retailers will experience a decline in the sale of flavored cigars, along with a very real likelihood of an illicit market for flavored cigars. “Adults will likely seek out alternative sources for their preferred flavored tobacco products, a demand which could be satisfied to some extent by an illicit marketplace.”
On July 5, 2018, a federal judge for the U.S. District Court for the District of Columbia issued an injunction against the FDA delaying the enforcement of the agency’s six new cigar health warning statements and the new pipe tobacco nicotine health warning statement. The injunction, NATO reported, applies to the cigar and pipe tobacco warning statements on product packages and in product advertisements that were otherwise scheduled to go into effect on Aug. 10, 2018.
The CAA has been working with a variety of groups to develop testing protocols for cigars and nicotine levels. “It is not just nicotine levels; it is usage rate within the category of cigars,” said Williamson. “That is why it is important to respond, to educate them that, look, there is no testing out there. We are trying to come up with it, but it could be a year or two years away.”
Now, cigars are significantly different from cigarettes in the way they draw and are packed.
“You do a cigarette test and you find that they are all pretty close, because they are all the same shape, they are all the same size, basically,” said Williamson. “It’s not like cigars, so we are working on that, and we are responding to them about the nicotine.”
Nor are the ramifications limited to premium cigars, Williamson said. Popular-priced cigars are also potential targets for regulators.
“When they get around to regulating flavors, and they will, there’s no question of that, any one of these three has an impact. Anytime they try to take away from our ability to sell or manufacture our product, it has an impact on just everybody involved in this cigar process — from convenience stores to the brick-and-mortar cigar shops.”
Fred Faulkner, sales and marketing director for Bakersfield, Calif.-based Jaco Oil Co., which operates or leases 54 Fastrip Food Stores in California and Arizona, called his cigar business steady.
“We have a few stores that do quite well, but a lot of our stores are located in rural markets, with somewhat of a Hispanic base, and quite frankly we don’t sell a lot of cigars in those markets,” said Faulkner.
Fastrip locations carry a small selection of premium cigars, he added. “People like the pre-pack premium cigars, which come in their own little pouches.”
Cigars serve as an alternative for many cigarette smokers, which are part of the segment’s success in many of Fastrip stores.
“I think that when people cut back on cigarettes to some degree smoking cigars is, for some folks, a little bit more of a luxury,” said Faulkner. “They are switching because they can’t smoke during the course of their work day, typically, so when they do smoke they’re taking a cigar and enjoying it a little bit more.”
Staying abreast of regulatory developments is important, said Faulkner.
“You do have to pay attention to this stuff, but I don’t know if there’s anything that we can do other than just paying attention to what is going on in the marketplace,” said Faulkner. “I know we have a lot of stores, but we’re really just a small player in this thing. Everybody is still going to be dependent on the major manufacturers to go out and fight the battles over this.”
Cigar sales also remain steady at Stinker Stores Inc. in Boise, Idaho, which recently updated its set.
“We have spent some time setting our schematic and making sure that we are ahead of all of the changes and capturing cigar sales where we can,” said Kimber Simmons, category merchandising and marketing manager for Stinker. “We had a cigar set that had not been refreshed in a while, and as we look at our customers we want to make sure that we are doing a good job keeping up on flavor profiles.”
“We have allocated it the space that it deserves,” Simmons continued, “and are making sure that it is consistent throughout all of our stores. We have customers who are hitting multiple stores, so we really want to have that consistent look and feel so that they know that we have a good product offering.” Stinker operates 105 stores in Idaho and Colorado as well as one site in Wyoming.
While it is the popular-priced brands that are driving the cigar market at Stinker, Simmons agreed that the success of premium cigars in the c-store channel depends strongly on local demographics. “I definitely think there should be some offering in each of the categories. As you look at maximizing sales, it needs to really be what the demographic in that market is looking for.”