As consumers embrace roll your own (RYO) tobacco, retailers are seeing a boost in sales of accessories such as rolling papers, cigarette tubes and rolling machines.
By Howard Riell, Associate Editor.
Smokers seeking a safe harbor from cigarette tax increases have made port in the roll your own (RYO) segment. Many have been pleasantly surprised with what they’ve found, which means—for now at least—a new source of tobacco revenue for retailers.
“First of all, there are more and more people who are being converted into making their own cigarettes,” said Andrew Kerstein, president and owner of five Smoker’s Haven stores in Matawan, N.J., and president of the National Association of Tobacco Outlets (NATO). “Whether they’re rolling or injecting is a matter of personal preference.”
His sense from talking to consumers is that the overwhelming majority are attracted to it for the obvious reason: the cost savings. Those savings are generated in most cases because of taxation.
Unlike manufactured cigarettes, loose tobacco usually falls into the other tobacco product (OTP) category, which is typically taxed on a percentage of cost basis. “It ends up being less than state excise taxes,” Kerstein said.
Those savings vary by state. In New Jersey, for example, the cost savings are about 40%, Kerstein estimated. “We’re a state that has a $2.75 a pack cigarette excise tax and we’re at a 30% OTP tax. So you combine those two things and you’re saving about 40% when you make your own.”
Anecdotal research, Kerstein suggested, indicates that consumers enjoy the hand-rolled cigarettes more. “I think that comes from, first of all, the tobacco, which is pure tobacco and doesn’t have the additives that the cigarettes manufacturers use. What my customers are telling me is that they find the taste of the cigarette to be different and better,” he said.
The top-selling brands of loose tobacco in Kerstein’s stores include Bugler, Tops and Zigzag.
Prior to FDA regulation, Kerstein recalled, it was much easier to market roll your own products thanks to in-store sampling and demonstrations. “We can’t do that anymore,” he explained. “FDA regulation prohibits that, so you have to talk them through the process. It’s a little bit more difficult in that sense.”
Price pressures on manufactured cigarettes have helped negate the loss of sampling, however. “Most people, when they hear the cost savings, especially in a relatively high-taxed state, are willing to make the investment and try it.”
Meanwhile, the industry is waiting for the other shoe to drop, confident that the government will eventually get around to more heavily regulating RYO.
“It certainly is possible that additional taxation is going to happen,” Kerstein said. “I think it is more likely for the federal government to equalize the tax before the state governments do. But even that, for right now, is not immediately staring us in the face.”
C-store owners that want to get behind RYO must first make a commitment not just to be in the category, but to promote it properly. “First of all, stock a variety of tobaccos,” Kerstein advised. “You have to know the different tobaccos so if a customer comes to you and says, ‘I smoke X brand,’ you can steer him toward the right combination of tobacco and tubes to most closely approximate that cigarette.”
Retailers also have to provide options. For customers who want to roll, they must also stock a selection of rolling papers and rolling machines. Those who prefer the injector will need the tubes and a few varieties of injector machines.
“You can get into the roll your own business with a relatively modest investment in tobaccos and the machines, tubes and rolling papers,” Kerstein added. “Set up a little area, pay attention to the basics and you’re in business.”