July/August 2007
With a good deal of premium buzz swarming around, do tobacco outlet retailers need to be popularly persuaded about their cigar set-ups? What is often considered the entry-level segment of the category still has mass consumer attraction on its side. So the first aspect to consider is the dwindling mass-market competition. “With drug and grocery stores continuing to reduce the amount of space given to the department, or discontinuing it all together, there continues to be a huge opportunity for growth in tobacco outlets,” says Bill Holliway, president of CTS Concepts. These consumers, who have been abandoned by their traditional outlets, will seek out tobacco outlets, but only if the popular-priced cigar selection is up-to-date and apparent upon their first visit.
Meanwhile, convenience stores are very conscious of trying to beat out the tobacco outlet trade for this business—and have made a good leap in recent years. According to the National Association of Convenience Stores (NACS) State of the Industry Report, c-store cigar unit volume increased 159 percent from 2000 to 2006. Jane Green, vice president of marketing with Swisher International, Inc. says that the c-store channel has clearly recognized what tobacco outlets need to remember: “Popular-priced cigars offer high turns and strong margins, particularly single-sale cigars.” Non-humidified domestic cigars typically offer margins in the 22-30 percent range, according to Cusano Cigars, which is lower than bundle or premium cigars, which often range in the 30-50 percent margin zone. However, as Green mentions, their turns and volume keep them a very viable segment. Indeed, ACNielsen’s most recent year-to-date dollar sales data shows the mass market domestic cigar category up by 8.7 percent. “Any time you have a product that is more affordable in a popular category, you’ll sell more, because they reach out to more people, they get through to the masses,” says Joe Gold, CEO of Havana Honeys. Mass market cigars can also be sold where premiums can not—out of a humidor. “They can cross any market because they do not have to be humidified,” Gold maintains. “Our Havana Honeys little cigars will stay fresh out of a humidor for one year, for example.” Popularly priced cigars are also well known for their “wider range of flavors, providing something for everyone,” according to Sara Cline, marketing representative for Heavenly Cigar Company. “Because they’re economical, consumers can try a multitude of flavors,” adds Gold. “Retailers, too, can break open a pack and sample them out for customers, with little cost to their bottom-line.” “Consumers can also choose from a number of sizes from small, such as our White Owl cigarillos, to larger sizes, like our White Owl Invincibles,” offers Brian Love, director of mass market cigars for Swedish Match North America (SMNA). In flavors, SMNA has just unveiled White Owl Sweet, to join its already popular varieties of peach, grape and strawberry. In addition to variety, consistent quality is being emphasized in the category. In recent years, SMNA domestic manufacturing facilities are “ISO 9001 registered and employ state-of-of-the-art quality programs like Six Sigma monitoring and improvement,” maintains Love. At Swisher, “we believe making a quality product is the key to keeping our consumers,” says Green. “We work continuously to update our machinery and processes, and to educate our personnel to produce the best-quality cigar possible, and to do it consistently. Whether it’s the first cigar made that day, or the 100,000th cigar, every detail of filler, binder, wrapper, and packaging must be exactly what our customers expect—consistent quality at an affordable price.” Havana Honeys is soon coming out with a higher-quality display for its little cigars, which holds eight flavors in two sizes. Available by the end of the summer, the new merchandising vehicle will be “a little stronger” in getting its message to consumers, according to Gold. While five-pack cigars continue to have the “lion’s share of the sales” in the segment, according to Holliway, “continued growth in this category must come from better-quality cigars that will truly be a bridge to premiums,” he states. CTS Concepts is offering such a product—called Perfect Cut, an imported cigar for the mass market. “With the gap in prices between mass market and premium cigars closing, the quality of the products in this department will need to improve from what has been the norm,” explains Holliway. “As an example, Perfect Cut offers retailers a 100 percent all natural leaf imported Dominican cigar, a major step towards a better cigar outside of the humidor.” In addition to requiring no humidification, this “middle road” cigar delivers the higher end of the category’s profit margins (32-34 percent) for tobacco retailers than current mass-market products. Perhaps the biggest challenge for the category will be to produce a similar “better” mass-market cigar on the domestic end. “The industry must understand that if mass cigars are to continue to grow they must be of better quality and taste—closer to that which is offered by a humidified product,” believes Holliway. “They must also be a true bridge to the outlet’s finer cigars. Marketing these better quality cigars to both the Baby Boomer and Generation X consumer groups will be of the utmost importance. Then, the future of domestic cigars in outlet stores will continue to grow at the expense of the grocery and drug stores.” •
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