Cigar facings on the c-store tobacco backbar are about to be substantially reduced.
As most readers already know, the Food and Drug Administration (FDA) will soon enact its ban on flavored cigars. It may have already happened before you read this. After enactment of the flavor ban, actual enforcement won’t take place until the legal dust settles, possibly taking us to early 2025.
By the FDA’s count, 51% of current cigars and cigarillos sold in c-stores have “characterizing” flavors other than tobacco. I put characterizing in quotes, because after 15 years, the FDA still has not offered a precise measure of whether that means detectable, overriding or somewhere in between. We’ll see how it shakes out.
The Premium Imported Cigar Opportunity
C-store tobacco sales produced $67.8 billion in the 52 weeks ending Oct. 7, 2023, according to Nielsen data. Cigars were $3.62 billion of that, around 5%. The premium imported segment was only $45 million, making it about 1.3% of c-store cigar sales. But while cigar category sales declined 2.8% in 2023, the top 30 imported premium SKUs grew 18%, according to Nielsen.
Value-priced premium imported leader Cuban Rounds grew 25% and is now the No. 1 c-store premium cigar. At the same time, more costly high-end premium imported SKUs like Drew Estates, Romeo & Juliet and Macanudo saw triple-digit growth in c-stores over 2022 as they recognized the potential of millions of future empty facings.
According to the Cigar Association of America (CAA), the premium cigar market across all channels is projected to top 470 million cigars in 2023, worth $5.6 billion in consumer sales. This is mostly premium tobacconists and specialty stores along with online catalogues. Right now, c-stores are little more than rounding error. I think that will change.
First, the premium imported percentage in c-stores will double simply by doing the math. Most flavored machine-made blunts, tipped cigars and filtered cigarillos will be banned. Some of will be replaced by non-flavored cigar facings and nicotine alternatives.
Nielsen pegs 2023 vape product sales at around 5% while they face the wrath of the FDA. Nicotine alternatives are another 3%. Smokeless was the only segment besides premium cigars to grow.
Based on average SKU pricing, if premiums capture 5% of the vacated facings with singles, three-packs and five-packs, it will triple the cash register ring for many of those empty slots. The value of handmade premium cigars is not just velocity and gross sales.
Just as important is the attraction of a multi-brand premium sector to a loyal customer who pumps gas and comes inside to spends $14 on a single handmade Vintage cigar twice a week.
Making C-Stores a Go-To for Premium Cigars
Last year there were more than 600 premium cigar SKUs sold in c-stores based in Nielsen’s count of 146,000 doors. Only 36 of them sold more than $300,000. They were led by Kretek’s Cuban Rounds and General Cigar’s more costly portfolio.
While overall premium cigar distribution was less than 3% of c-store doors, the top 30 brands achieved more than 150% growth in 2023. It figures that smaller retail operators (fewer than 12 stores) would be at the leading edge in figuring out the pending flavor ban. They can move faster.
Over the decades since the Cuban embargo, premium imported cigars were a staple of chain drugstores as well as tobacconists and liquor stores. Today, Walgreens features eight premium cigar brands in 14 facings. Some 70% of chain drugstore customers are female. The opposite is true for c-stores by about the same margin.
So why did Walgreens’ premium cigar sales grow twice as fast as c-stores? I think the answer is because c-stores haven’t needed to. Yet.
Things are about to change. C-stores may want to look for ways to help a substantial number of flavored smokers discover not only the taste, but also the lifestyle value of a better cigar to relax with. The rest is placement and visibility.
An Afterthought
When it arrives, the FDA ban on flavored cigars will mark another milestone for the cigar industry. The ban will be pivotal in cigar smoking decision making and the bottom line of the tobacco backbar. The c-store tobacco section will need to come up with more than nicotine pouches and unflavored vape to sustain itself. Multi-segment purchasers will be critical. For example, 26% of menthol smokers state they also smoke cigars.
With the invention of cigar rolling machinery in the 1950s, cigar companies could make short filler cigars and wrap them in Havana or Tampa leaf. Garcia y Vegas, Dutch Masters and White Owls delivered five decent Coronas for $1.95. Flavored cigars were little more than a rounding error.
By 1960, Castro had taken over, and most premium handmade cigars were banned from import. The 1990s witnessed the discovery of blunts. Flavors masked the aroma of weed. Snoop Dogg had boxes of White Owl Peach backstage for his crew and guests. Ten years ago, cigar smokers told us they began smoking flavored cigars as a way to cut down on cigarettes. What will they do next?
John Geoghegan has spent the last 30 years in the tobacco business, including vice president strategic planning at General Cigar Co., U.S. manager for DjEEP Lighters, head of marketing for Kretek International Inc. and manager of LaMirada Cigar Co. He began his career 57 years ago at Procter & Gamble. Geoghegan is a graduate of the University of Cincinnati. He lives in Laguna Niguel, Calif.
