Cigars Light Up Category

Cigar sales continue to show positive traction in the c-store channel despite regulatory pressure.

By Howard Riell, Associate Editor

Popular-priced cigars remain strong in c-stores, premium cigars remain promising in at least some markets, and the threat of additional regulation—primarily impacting flavored product—remains a looming threat.

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Americans still like to buy cigars at c-stores. For the 52-week period ending Sept. 9, 2018, IRI scan data shows cigar category sales in convenience stores at just over $3.4 billion, an increase of 12.96%.

According to Euromonitor International, cigars and cigarillos continue to grow, fueled in part by the increasingly heavier tax burden imposed on cigarettes.

“When it comes to cigarillos, their lower cost is certainly a factor which may attract cigarette smokers,” the research firm stated. While the federal government imposes the same tax on cigarillos that it does on cigarettes, state governments can design their own tax schedules, and are able to assign lower tax rates than those on cigarettes.

“Cigars, in some instances, benefit from the same relatively beneficial tax structure as cigarillos, but also have the added advantage of being perceived as status symbols and premium products, which are saved for special occasions,” Euromonitor continued.
While cigars continued to record positive steady volume growth over the review period, value growth has accelerated in recent years, and is expected to remain strong.

FUTURE QUESTION
“Singles cigars are big right now,” said Jon Fleck, merchandising manager for Cenex Zip Trip, which owns and operates about 70 convenience stores in Minnesota, Montana, North Dakota, South Dakota and Wyoming. Owned by St. Paul-based CHS Inc., Cenex Zip Trip is part of a network of nearly 1,500 fueling stations in
19 states.

“By brand, Black & Mild has eight of our top 11 cigars by units sold. The multitude of flavors by the tobacco companies is what is driving the category. The consumers love them,” Fleck added.

The realization, however, is that flavored tobacco is potentially on the chopping block in many states, noted Fleck.

“If these changes are implemented it will derail the increasing sales trend in flavored cigars, as well as vaping products and the overall cigar category,” Fleck said. “The thought is the flavors are what is drawing in the new users, but consumers should be given that option and the government should let the customers decide what products to purchase.”

Indeed, the future well-being of the category hinges, in large measure, on legislation, Fleck suggested. “If the ordinances don’t pass, and if voters strike down many states’ attempt to implement higher tobacco taxes, I see the category increasing with more innovative flavors.”

The price range that works best at Zip Trip stores is up to $1, with 89 cents proving to be a popular price point. Singles continue to represent the majority of his chain’s sales, Fleck noted. “They are great for not only the daily cigar smokers, but also the occasional users.”
Zip Trip stores do not carry much in the way of high-end cigars.

“The highest retail cigars we carry are Backwoods, and they along with others in that price range are increasing big in our stores,” Fleck said. “The Millennials seem to be big on flavors, and I believe that has something to do with it.”

Convenience retailers must develop a close relationship with vendors, Fleck suggested, so that they understand that there must be some give and take when it comes to sets, especially the ones that draw out the schematics.

“Every product they carry isn’t the best in that category, and the good ones will make sure those products that are the best for us to have are in the sets,” Fleck said.

CIGAR HAVEN
Other regions are racking up healthy cigar sales, including Texas.

“Cigars do pretty good in some locations,” said Irfan Walimuhamad, a principal in Siran Investments Inc., which operates seven convenience stores around the Dallas-Fort Worth Metroplex including Seagoville Food Mart. “Not everywhere, but we have seen over the last five or so years that overall cigar sales have gone up by about 10-15%.”

Walimuhamad credits economics, a combination of the high price of cigarettes— $6 or $7 per pack, and the low price—two for 99 cents; in some cases five for $1, for certain cigars.
Walimuhamad said he sees a market for premium cigars in c-stores. He hasn’t explored it yet only because they have not found a local supplier that carries premium cigars, but added that when they do, they will. “Yes, I will try it in several of our locations.”

Though he remains undaunted by anti-tobacco legislation, Walimuhamad feared that restricting flavored cigars, as many wish to do, would substantially discourage trial.

EXPANDING THE CONCEPT
Ed Kashouty, the owner of a handful of Exxon-branded convenience stores in Brick Township, N.J., and cigar maker and retailer Hiram & Solomon Cigars, recently installed a walk-in humidor in one of his c-stores, with more to follow. “We are trying to expand the concept,” he said.

Retailers need to realize that if executed right, this could be another potential revenue stream for them, Kashouty said. “It will not be the biggest-sold item in the store, but surely it will bring in customers that are willing to spend money on luxury items along with other stuff.” He called it a good match as long as it is positioned in the spot and executed the right way.

“Let’s not forget that cigars are very delicate items, and extreme care is needed to ensure that the cigars are kept in their optimum status,” Kashouty said. “With that come sales of other related items, such as cutter holders and lighters.”

For the last 10 years, premium cigar sales have seen annual increases, Kashouty pointed out, and will continue to do so for at least the next decade as long as the FDA and other government agencies resist the temptation to interfere.

C-store retailers who do best with premium cigars are those that invest in them, Kashouty said. “They need adequate space and an attractive humidor, fully stocked and with the right temperature, 70 degrees, and humidity, 70%. The one-stop factor plays the biggest role.”

C-store cigar customers are more inclined to smoke brand-name cigars, said Kashouty, as opposed to smokers who frequent cigar lounges, who are more inclined to look for new boutique cigars. The best-selling price point for premium cigars in a convenience store setting is $8-$10, he added.

Raising a convenience store’s profile among premium cigar smokers, said Kashouty, is a matter of adhering to basic retailing fundamentals: providing enough humidor space, and keeping it well-lit and well-taken care of.

“It needs a decent variety that appeals to different-strength smokers, along with a nice price range,” Kashouty said.

Higher-end cigars will continue to flourish in 2019, he predicted.

“It is a growing business that c-store owners need to pay attention to,” Kashouty said. “More consumers now are being introduced to the pleasures of smoking real premium cigars.”

Arkansas Reg Reflects Local Push
Many retailers can attest that the most progressive tobacco laws are proposed by local legislatures. For example, the Harrison City Council in Arkansas on Sept. 27 approved Ordinance No. 1441 unanimously.

The law sets out that the sale or distribution of any tobacco product to a person under the age of 21 is prohibited. It shall be unlawful for any person to sell tobacco products, electronic cigarettes or tobacco product paraphernalia to a minor. Also the purchase or attempted purchase of any tobacco product by or on behalf of a person under the age of 21 is prohibited.

The law was proposed by members of Ignite, a youth group supported by North Arkansas Partnership for Health Education and the Boone County Substance Abuse Prevention Coalition.

Alathea Bright, Ignite chairman, explained to the Harrison Daily Times that Tobacco 21 is a nationwide effort to raise the age of buying tobacco and e-cigarettes to 21. The initiative is being proposed to local governments.

“Individuals under the age of 21 who unlawfully purchase or attempt to purchase tobacco products may be subject to tobacco-related education classes, or diversion programs, community service, or other penalties the City of Harrison, Ark., believes will be appropriate and effective,” the ordinance reads.