Led by the Gallagher family, Smoker Friendly continues the fight to sell tobacco legally and responsibly.
By John Lofstock, Editor.
While the federal government seems intent on eliminating tobacco products altogether, tobacco remains a legal product in the U.S. enjoyed by legal-aged adults exercising their right to smoke, dip or chew. The right to enjoy these products, however, is getting more and more difficult as the Food and Drug Administration’s (FDA) marketing regulations have kicked in along with numerous local bans on smoking in public places.
These barriers come on the heels of more than a decade of states milking tobacco taxation as a cash cow to cover budgetary shortfalls. Who knew those would become known as the good old days for tobacco retailers?
If enjoying tobacco is becoming difficult for adult consumers, selling tobacco legally is becoming a challenge that could define an entire generation of retailers as the long arm of the FDA stretches beyond the front counter to the back bar.
Fortunately, convenience stores and tobacco retailers remain firm in their resolve, fighting to sell tobacco responsibly to adult consumers. Helping to lead this charge is Smoker Friendly, which has emerged as an industry leader when it comes to being a responsible tobacco retailer.
The privately held tobacco store chain nestled in Boulder, Colo. is owned by the Gallagher family—Terry Gallagher Sr. and his children, Terry Gallagher Jr., Kathleen Gallagher, Dan Gallagher, Mary Szarmach and Mike Gallagher.
The goal of Smoker Friendly is to provide existing operators the ability to have their own house tobacco brand to attract customers with quality products at a competitive price. Smoker Friendly’s SF brand is the only private label available in the market today that runs from cigarettes to premium cigars and every tobacco product in between. Combined with a comprehensive training program for dealers on how to sell tobacco responsibly, Smoker Friendly offers unparalleled brand support.
“The dealer companies that come on board see the value of having the exclusive right to sell Smoker Friendly products and typically don’t have the buying power to go out and negotiate their own private label manufacturing agreements because they can’t hit the volume requirements,” said Kathleen Gallagher. “Smoker Friendly has negotiated pricing with our manufacturing partners that’s competitive with the lowest prices in the marketplace.”
This buying power allows Smoker Friendly to work with big tobacco manufacturing firms that produce a quality product at a fair price. “We’re able to negotiate because of the volume we can deliver,” Dan Gallagher said. “This gives store operators the ability to not only get behind the Smoker Friendly brand as their private label, but also gives them an every day low price with a margin that is typically better than most products in any of their tobacco segments. The incentive to push the Smoker Friendly brand is that the penny profit is typically better, and every penny counts.”
Now in its third decade, Smoker Friendly has grown to be the largest cigarette and tobacco store chain in the U.S. with more than 90 authorized dealer companies that represent 854 tobacco stores across 38 states, including 85 corporately-owned sites.
The majority of its dealer companies are multi store operators with the largest being Daily’s convenience stores, a division of Tri Star Energy in Nashville, Tenn., which operates 101 stores.
Smoker Friendly has evolved steadily through the years. After a lengthy career in the oil business, Terry Gallagher Sr. bought the retail arm of Gasamat Oil in 1984. The Gallaghers saw an opportunity with tobacco and switched the Gasamat name to Smoker Friendly International in the mid-1990s.
During this time, Gasamat simultaneously formed a partnership with Boulder Distributing, a local candy and tobacco distributor that had opened a cigarette store in Joplin, Mo., in 1988. Using this model, the company saw an opportunity to boost its cigarette business. Focusing on tobacco items led the chain down a nontraditional road that allowed its stores to become an unconventional specialty destination for convenience customers.
“We needed to find a niche to differentiate ourselves from other c-stores,” said Terry Gallagher Jr., president of Smoker Friendly stores. “We’ve always embraced our gasoline roots and stayed active within the industry. We are also very active within the tobacco side as well. Tobacco and c-stores go hand-in-hand.”
After testing the new format in a handful of Gasamat stores, tobacco sales began to flourish. Even Terry Gallagher Sr. was surprised by how much tobacco stores were selling, so he came up with creative ways to market the products.
In 1991, Gallagher formed The Cigarette Store Corp. and eventually merged the retail operations of Gasamat with Cigarette Store Corp. to form one cohesive company. To further the company’s hand in tobacco, Gallagher Sr. and several tobacco distributors came together to form the Smoker Friendly brand, which would become a license program that developed cigarettes and tobacco products.
Kathleen Gallagher and Mary Szarmach now run the Smoker Friendly International division. Dan Gallagher runs Cigarette Store Corp.
The success and growth of the company can be attributed to strong business ethics, a long-time presence in the retailing industry, a dedicated team of professionals working hard to build the best business possible, smart partnerships and the development and continued growth of the Smoker Friendly authorized dealer program.
“The dealer program is aimed at existing tobacco store operators who wish to market their own brand of competitively priced private-label products in an exclusive territory that is geographically protected,” Kathleen Gallagher said. “The company ensures an exclusive territory by zip codes to give operators a competitive advantage.”
Growing the Business
Smoker Friendly has a long history in convenience retailing, which it maintains with 21 Gasamat c-stores in the Rocky Mountain region. But its growth will come from the tobacco side of the business. As part of its growth plans, the company continues to expand its Smoker Friendly SF private label tobacco line to cater to adult tobacco consumers.
Smoker Friendly products include cigarettes, cigars, smokeless tobacco, pipe tobacco and e-cigarettes to go along with a full line of tobacco accessories, such as lighters, cigar cutters, cigarette rollers and cigarette tubes, and licenses these products to other retail store operators that agree to co-brand with Smoker Friendly.
“Consumers recognize the quality of our house brand products,” Terry Gallagher Jr. said. “We supply anything that can be branded under tobacco.”
While supplying independent operators with Smoker Friendly products, the company continued to develop its stores to have a unique brand offering competitive with other c-stores. Most stores have walk-in humidors and some even host cigar nights where customers enjoy a glass of wine and a cigar. Customers treat the store as their neighborhood stop, a place where managers know them by name and have their favorite products waiting at the counter.
Plus, the company has expanded its customer outreach by sponsoring the Rocky Mountain Cigar Festival in Boulder every year to serve as a thank you to its loyal patrons, in addition to hosting the Smoker Friendly Tobacco Conference annually for its dealers and distributors.
“We are a very unique retail experience,” Terry Gallagher Jr. said. “I pride myself on not being a cookie-cutter operation, especially since this is something I’ve been building my whole life with my family. I feel that we cater to the niche customer looking to enjoy tobacco products while also providing everyone with established c-store merchandise.”
Meeting Tobacco Challenges
As one might expect, the past 18 months have been extremely difficult for tobacco retailers. Starting with SCHIP and the massive tax increase that we had to endure, then rolling right into the FDA and the tobacco bill, tobacco has endured a whirlwind of change,” said Dan Gallagher. “From my perspective, our biggest challenge is making sure we have a good understanding of FDA regulations and what they really mean on a day-to-day basis to make sure we’re compliant.”
While embracing compliance is difficult for an 85-store chain, it’s even more of a challenge for a chain with more than 850 branded sites. Smoker Friendly makes it a priority that all authorized dealers selling the SF family of products has access to all the latest training materials and has owners committed to selling tobacco responsibly.
“Every store must stay compliant in the event of an FDA inspection because there’s a lot at stake,” Dan Gallagher said. “The reality is our right to be a tobacco retailer is on the line every day, and we’ve got to make sure that not only our management group understands that challenge, but that all those people out in the field do.”
To that end, Smoker Friendly hired a former FDA attorney out of Washington to help put into place a training program to plan and prepare for FDA inspections. This is supported with training offered by the We Card program, widely considered the industry gold standard for educating employees about the nuances of responsible tobacco retailing.
“We feel like we’re ahead of the game in terms of how we’ve been operating for the last 15 years to meet our goal of being a responsible tobacco retailer,” Dan Gallagher said. “One specific example would be that FDA requires employees to card anybody that appears to be 27 years of age or younger. Our corporate policy for many years has been to card anyone that looks 35 or younger. While that may sound like a subtle difference, what we have done is build a corporate culture that instills in our people the understanding that we need to be cautious, and that we are and always will be a responsible tobacco retailer.”
Additionally, Smoker Friendly contracts a third party to routinely ghost shop its stores to ensure employees are asking for IDs. Should they fail, employees are issued a red card that goes in their permanent file. A third red card results in termination. No exceptions.
As with credit card swipe fees, convenience store and tobacco shop operators have done a good job engaging their local politicians to explain how legislative issues are affecting their businesses, but there is a lot more work to be done.
“When retailers unite they can make a difference—a big difference,” Terry Gallagher Jr. said. “But we all can do a better job of picking up the phone and voicing our opinion to the politicians in charge. It’s intimidating for some people, but take the interchange issue. Our industry fought it, put a lot of money towards it—which pales in comparison to the money the banks and the credit card companies spent to fight back—but we still had some success. The bottom line is we’re all busy, we all get tied up, but that shouldn’t be an excuse for not getting engaged.”
That said, Smoker Friendly split with NACS over FDA legislation to regulate tobacco. “It was Smoker Friendly’s position that we should have continued to fight the FDA, and we did right to the bitter end. It’s never good to have more government in your business,” Terry Gallagher Jr. said. “NACS ultimately fell back and took a neutral position, which we saw as a position of support for tobacco regulations.”
Marketing tobacco in this regulatory era may have its challenges, but it has its rewards as well. “The chains that do it right will be rewarded,” Kathleen Gallagher said.
Despite these new developments, Smoker Friendly continues to emphasize its dedication to their consumers. “Cigarette sales are our base and still the most important part of our business,” Terry Gallagher Jr. said. “As we grow, we will develop our brand and product offerings, but won’t lose touch with the people coming into our stores and what they want. More importantly, we will meet their needs as a responsible retailer.”
At a glance: Smoker Friendly
Headquarters: Boulder, Colo.
Number of Stores: Operates and franchises 854 Smoker Friendly tobacco shops, including 85 corporate stores in 38 states, and 21 Gasamat convenience stores.
Authorized Dealers: 90
Products: Smoker Friendly’s SF-branded products include cigarettes, cigars, smokeless tobacco, pipe tobacco and e-cigarettes to go along with a full line of tobacco accessories, such as lighters, cigar cutters, cigarette rollers and cigarette tubes.