diversified tobacco offering

Specialty and imported tobacco brands offer retailers an opportunity to cultivate a promising profit center.

Retailers looking to develop an effective strategy forboosting sales would be wise to examine specialty andimported tobacco brands. Specialty tobacco shops havealready come to realize that brands like Djarum are attractinga new base of consumers that expect quality and value.

Frank Armstrong, who owns and operates eight Blue RidgeTobacco shops in North Carolina and Virginia, said the numbersspeak for themselves. While overall cigarette consumption is downabout 10% nationally over the past two years, the National Associationof Tobacco Outlets reports the number of retail outlets with distributionof specialty tobacco brands jumped 7.2% to 64,400 stores. Thosestores sold an average of 121.2 cartons in 2005, up 10.4% from 2004.

Armstrong believes tobacco shops will continue to garner thelion’s share of specialty tobacco primarily because they own themarket on leading brands, which currently have limited penetrationin convenience stores and drug stores.

“The potential in all trade channels is enormous,” Armstrong said.“When you consider price, quality and value, specialty brands arequietly building loyal customers with moderate levels of disposableincome and an appreciation for upscale products.”

And Armstrong is hardly a novice at tobacco retailing. He spentnearly two years in sales and marketing with R.J. Reynolds andanother four years as vice president of retail operations with QualityOil Co., managing its chain of Shell-branded convenience stores inWinston-Salem, N.C.

Study the Market
Armstrong offered the following tips for growing the specialtytobacco business:

* Start with leading brands.

* Survey the competition (other c-stores, drug stores and tobaccoshops) to find out what specialty and imported cigarettes they arecarrying. “Visit your competitors as often as possible to get sense ofhow the products are moving or buy a few packs and ask employeeshow well the products are selling,” Armstrong said.

* Price competitively. “If retailers in your area are already carryingspecialty brands, make sure your pricing is no higher than theirs,”Armstrong said. “Underpricing by as little as 25 cents a pack could bethe boost you need to get the business.”

* Improve the display presentation. If competitors have oldertobacco displays, contact specialty tobacco distributors andmanufacturers like Kretek International to request the latest point-of-purchase[P-O-P] merchandising materials. Armstrong recommendsmulti-brand display racks in three- and six-foot sections. Have betterknowledge of the category. “Become the local expert,” Armstrongsaid.

Demographics for Success
The market for specialty tobacco is a little different than traditionalcigarette smokers, Armstrong said. For example, instead of attractingthe 18- to 25-year-old male demographic, specialty brands reachboth males and females from ages 21 to 60. Other characteristics ofthe specialty shopper include:

* An average Household income of approximately $45,000;

* Smokes an average of two packs of specialty cigarettes perweek;

* Relatively brand loyal, but will expand brand usage within thecategory;

* Great word-of-mouth ambassadors for the brand; and

* More likely to shop where selection, service and product knowledgeexists.

Armstrong is hardly alone in his belief that specialty and importedtobacco brands are keys to growing the cigarette business. TerryGallagher, president and CEO of Smoker Friendly International, a 300-store chain of tobacco store licensees, is also bullish on the segment.He believes the specialty segment will develop similar to other adultconsumer product categories like beer and wine, distilled spirits, coffeeand even bottled water.

“This provides significant cross-marketing occasions to grow thebusiness across several prominent categories in the conveniencestore,” he said.

One proven marketing strategy, Gallagher pointed out, is to workwith manufacturers to feature brand styles monthly, weekly or evendaily. This makes sure a brand is out in front of the customer everytime they enter the store. Other marketing tips include free productsampling in markets where it is legally allowed and local store specific-brand specific advertising in daily or weekly newspapers.

Another crucial detail to remember when considering whetheror not to carry these specialty brands is that they are much moremature than typical third or fourth tier tobacco brands, which boasta range of problems from inconsistent quality, inferior ingredients,poor distribution and many of the manufacturers are constantlydogged for their lack of participation in the 1998 Master SettlementAgreement (MSA).

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