Once upon a time, growing an outlet store into a thriving chain of locations was, if not precisely simple, at least relatively straightforward. Sure, an outlet owner had to choose a location with care, manage his or her finances well, build and maintain good relationships with manufacturers and customers, negotiate contracts, and watch out for thieves. But in those early days of the retail channel format, an operator could break even and even turn a profit by simply opening a store and stocking it with a wide assortment of cigarettes.
You basically had to really goof up to lose money,” says an outlet owner who preferred not to be named. “Today, the game has changed.”
“There are more things it’s critical to be on top of now,” agrees Mickey Falconburg, vice president of sales and marketing for Colorado-based Smoker Friendly, who adds the growing your outlet business is about more than selling cigarettes in today’s ultra-competitive environment. “For example, OTP has grown tremendously in the last 10 years. You have to be successful with that to be successful period.”
Falconburg would know. His company is now 84 locations strong and continues to thrive. And Smoker Friendly is not alone—a number of retailers report continued growth despite the challenges of constricting margins, tougher taxation, and the disappearance of manufacturer contract payments. TOB polled merchants on their expansion tactics. Here’s what had to say.
Stellar Service: Ask any retailer with a loyal customer base how he or she builds and keeps a following and they invariably answer: strong service. “In order to be successful you have to be better than the guy down the street on service,”says Falconburg. “If you’re not friendly from the moment someone walks in until the time they leave, you’ve lost an opportunity.”
At Smoker Friendly that directive translates to more than smiling and greeting customers. The chain asks manufacturers to donate products for events to educate customers about products, such as premium cigars or RYO/MYO. “We stress sampling—which our state allows—and having our employees get out from behind the counter to chat and interact with customers. That can mean just a friendly chat or demonstrating how to roll a cigarette,” says Falconburg. “That’s the kind of attention you won’t get at a convenience store or a mass merchant.”
Unfortunately, achieving the holy grail of consistently good service is no easy feat—particularly as your business grows. As a single shop owner, you may be able to be on hand to offer or at least ensure your employees provide top-notch customer care. But add another store or another 10 and it’s a whole different story. The solution to overcoming that hurdle dovetails with the next step in growth tactics.
Teach, Train and Retain: For many retailers, employee training is reserved for new hires and often involves the new hire “shadowing” an experienced employee. While there’s nothing wrong with learning on the job, to be truly effective, a training program should be formal and ongoing. For example, employees should be provided with documentation that clarifies their responsibilities, from what you expect them to do during their downtime to how they should handle disgruntled customers. Employer and employee should review and update this material together on a regular basis and address any questions the employee might have.
Ideally, employees should also be educated on the store’s products. Smoker Friendly enlists the aid of manufacturers in this endeavor—inviting representatives into its stores to offer presentations that will better enable staffers to assist customers with their purchases or questions about products.
Extend Your Base: With margins on cigarettes razor slim, it’s more essential than ever to build sales in other categories of merchandise and to lure customers into impulse purchases. That said, expanding into new categories such as premium cigars can be a risky venture, representing a huge investment in inventory and expertise. Stocking a 12-foot by 12-foot humidor, for example, can run more than $50,000, notes Falconburg, who reports that Smoker Friendly has already installed 25 such units in its stores and is adding more at the rate of one per quarter.
“There are so many brands, wraps, blends… it’s a scary undertaking,” says Falconburg, who equates learning about cigars to learning about fine wines. “But it’s also worthwhile; we have stores that do $700 a day in cigars.”
At the same time, deciding which ancillary category to invest in requires careful consideration. For example, depending on your customer base and your local competition, it may be RYO/MYO or even a nontobacco category rather than premium cigars that affords the best opportunity to boost sales. The products retailers have had success with range widely—from economically priced private label cigarettes to upscale imports sold under the “smoke less, but smoke better” philosophy. But one thing is certain—retailers who want to thrive in today’s environment will need to identify a product that offers potential and put some effort into building sales of it.
Make Connections: There’s no better source of great ideas and business insights than experienced peers. So savvy outlet owners take advantage of every opportunity to meet with one another, as well as with retailers in other channels and local entrepreneurs. The Tobacco Retail Expo is one great venue for networking informally with peers, as well as for participating in formal discussions about industry challenges and educational seminars.
Defend Your Business: It can’t be said strongly enough: the outlet industry is under attack. The number of legislative proposals that would adversely impact outlet shops continues to swell each year. From smoking bans and display restrictions to tax hikes, the amount of potential legislation is mind-boggling. Yet, many retailers fail to represent their own interests to their Congressmen or to inform customers about pending legislation and enlist their support. The National Association of Tobacco Outlets fights on behalf of the industry, but it needs the active involvement of outlet owners to support its efforts.
“We need every voice we can to fight,” says David Kepler of Brownsburg, Indiana-based Smoker’s Choice, who points out that proposals that seek to fill state coffers by taxing tobacco often backfire by prompting smokers to purchase cigarettes over the Internet or across state borders. “Legislators don’t realize the impact of these bills unless we tell them.” •