Not much has been predictable about the tobacco category over the past 18 months. Huge tax increases have renewed questions about just how much money smokers are willing to invest in their habit, and whether cigarette smokers would merely switch their nicotine fixes to other tobacco products, such as cigars.
Amid the upheaval, the cigar category has thrived, and in a most consistent way. A report by Chicago-based research firm Mintel noted, “Cigars are the most popular non-cigarette tobacco product purchased by smokers, with a quarter of smokers claiming to use them. Half of smokers who have not tried cigars express an interest in trying them.”
Rather than letting the doomsday tale of cigarette use be a self-fulfilling prophecy, many retailers are realizing that smokers who switch their form of tobacco ingestion are among their best customers.
According to Information Resources Inc. (IRI), cigar sales in c-stores totaled $2.36 billion for the 52 weeks ended Dec. 29, 2013, a slight drop of 2.87% from 2012. Many analysts, however, are predicting a strong 2014 for the category.
“Cigars, for a growing number of retailers, are too hot to handle,” said Tom Pirko, president of BEVMARK LLC, a retail consulting firm in Buellton, Calif. “There is always concern with any type of tobacco that the government will ruin a good thing, but right now, this category is strong and should remain strong for the foreseeable future.”
Tracking Taxes and Regulations
But like any tobacco product, the threat of government interference hovers like a black cloud over the category.
“Cigar legislation is a moving target,” said Corey Fitze, director of government relations for NACS. “Every single year we see new legislation that pops up, whether it be on mini cigars versus large cigars or the taxation of cigars.”
A big advantage the convenience store channel enjoys, according to J. Michael Marks, managing partner of Melbourne, Fla.-based Indian River Consulting Group, is that much of what happens is predictable. “C-stores have a fairly well-defined demographic in terms of the bulk of what they’re selling,” he said.
One of the challenges is that store managers have to turn inventory. “You can’t let things sit,” Marks added.
Keeping the assortment vital is a function of mass market trends and programs from suppliers.
The most important way to strike that difficult balance is to help consumers understand the differences between brands, Marks suggested.
“In other words, somebody behind the counter, if asked, should at least, in 10 words or less, be able to explain the differences in the products. There has got to be meaningful differentiation,” Marks said.
While many c- store operators have found success in transitioning some cigarette customers to cigars, Robert Perkins, vice president of marketing, Rutter’s Farm Stores based in York, Pa., said he has not seen much of that sort of movement.
“I think there are still some other alternatives that they are actually switching to, such as electronic cigarettes, snus and even moist smokeless,” he said.
Rutter’s 59 stores typically go with about a three-foot vertical space. Its cigar offerings range from 80 to a maximum of 120 SKUs. ◆
Mixed Results for Cigars
It was a mixed year for cigars with units sold increasing, but dollar sales dropping by nearly 3%, IRI reported. While taxes have impacted the category, customers in 2013 appear to have traded down to singles and smaller foil packs. For 2014, many analysts are predicting a big bounce back year for higher-priced large cigars.
Dollar Sales Sales % Change Unit Sales Sales % Change Avg. Unit Price
Total Cigars $2.36 Bil (2.87) 1.51 Bil 1.45 $1.57
Source: Information Resources Inc. (IRI), Total U.S. Convenience AllScan, 52 Weeks Ended Dec. 29, 2013