We all know a bird in the hand is worth two in the bush. Similarly, tobacco outlet retailers are discovering that cigarettes made by hand are worth factory-made cartons that sit on the shelf.
The development of the RYO/ MYO cigarette category has been likened to that of other adult consumer product categories, such as: beer/wine, distilled spirits, coffee, flavored cigars, and energy drinks.
The appeal seems to be multiplying faster than customers can roll and make their own. RYO/MYO cigarette, tobacco, and accessory sales have experienced double-digit growth over the past five consecutive years, according to industry data. Nielsen reports that the category increased by 14 percent in retail dollar sales in 2006 alone. Republic Tobacco and other industry estimates report that number to be closer to 20 percent. But everyone agrees that near-future growth will be even better. Here are the top three reasons from key industry players:
Significant Cost Savings to Consumers
“Smokers save 50 percent or more over packaged cigarettes, which are priced out of sight in many markets due to the continual rise in pricing of mainstream brands,” says Mary Beth Glynn, marketing manager for Republic Tobacco.
“The RYO/MYO category is being propelled by continued tax increases on finished cigarettes,” adds Dean Rouse, president of M&R Holdings, Inc., makers of the Farmer’s Gold product line. “When consumers try making their own cigarettes the first thing they realize is how much money they’re saving.” He says that they are then later “surprised to find their cigarettes are much fresher than the finished cigarettes in a pack,” and that they also come to take pride in the making of them—which leads to the next benefit.
A More Satisfying Experience to Boot
“Around the world, the most obvious growth answer is economics,” begins Rudiger Stuhlmuller, president of Gizeh of North America, Ltd. “There is no doubt that RYO/MYO will save you dollars, euros, or whatever currency you are buying in. However, in many countries, people also derive a great deal of pleasure from rolling or making their own cigarettes. There is a certain sense of satisfaction you get out of the entire process. I believe that people who roll or make their own smokes tend not to smoke as much. The entire process is more satisfying than simply pulling a pre-made cigarette out of a pack that you just bought. At Gizeh we believe that the best things in life are still handmade.”
“Once you have rolled your own cigarette and gotten used to that, a machine-made cigarette will never again taste good,” adds Josh Kesselman, marketing and co-director for HBI Tobacco. “It’s like the person who brews their own beer—they can never really enjoy a Budweiser again...they know they can make it better.”
The category is also offering consumers affordable variety and choice—the kind they are accustomed to getting in other growing categories, such as coffee.
“There is a growing consumer trend towards niche markets and specialized items,” says Kesselman. “We all want what we want—exactly the way we want it. Thus, consumers are realizing in increasing numbers that they can create a totally customized cigarette by making it themselves. They can add flavors if they want. They can choose the burn rate and thinness of their paper. They can choose the exact variety of tobacco, and even blend it to customize it further. They choose the size of their filter element—if they even want a filter—and much more. Variety is the spice of life and RYO gives variety.”
Better Margins for Retailers
All brands in the category have shown “outstanding margins of 30 percent or more,” according to an RYO/MYO seminar at this year’s Tobacco Plus Expo, presented by executives from Smoker Friendly International and Smokers Choice stores.
In line with this, “a lot of our retailers now tell us that the RYO/MYO category has become their ‘cash cow,’ ” reports Rouse. “As a result, upwards of 30 percent of the store contents may now be in these products, including accessories such as tubes and papers.”
“Margins are already terrific and there is an opportunity to increase them,” adds Sally Baldwin of Fresh Choice Tobacco Company. “Plus there is a lower cost of carrying inventory.”
Profit is the biggest initial angle, but it is certainly not the only explanation for why the category has become so attractive to tobacco outlets lately. The other reasons identified at the Tobacco Plus Expo seminar include:
• It provides opportunity to establish additional points of difference versus the competition.
• High quality RYO/MYO tobacco can develop clientele similar to the tobacconist.
• It creates an interactive environment within the store.
• It is easy to sample/easy to sell.
• Tobacco outlets have space and adult smoker traffic while other classes of trade do not.
• Consumers need a destination for RYO/MYO tobacco brands
• It brings new customers with higher rings to the store.
• It facilitates outstanding customer loyalty with repeat business.
• Other trade classes do a poor job with RYO/MYO.
With all of this positive category energy, it is imperative that tobacco outlets truly establish an RYO/MYO setup and distinguish themselves from the (seriously lacking) competition in other channels. Here are some of the trade’s top tips in doing so:
The category should have a “home” or section, such as the permanent floor racks that Republic Tobacco provides, according to Glynn. “This helps the retailer organize their offerings if they do not have the room to go in-line or if they simply want to add a second location for the category,” she says. “The display should clearly call out savings and quality benefits, like our display headers do. And awareness of the RYO/MYO area can be enhanced with a variety of POP materials, including an overhead hanging banner such as the retail version we provide.”
Offer a full RYO/MYO range. “There should be a good representation of key brands in the premium, middle and low ranges,” says Erik Stokkebye, president of Villiger Stokkebye International. “Then, set up a corner in the shop as the RYO/MYO center with a table for the customers to try rolling their own in the tier of their choice.”
In fact, give customers as much “selection, selection, selection—and more selection” as possible, urges Kesselman. “The store should stock a good variety of product to cater to the widest possible market,” he says. “It’s important to stock the ‘latest and greatest’ items, as well as the proven winners. The newest items will keep the RYO market in your store fresh and exciting, while the proven winners give a strong, steady following. It’s important to compete based on marketing—selection and display—rather than on price.”
But do not get caught up in carrying inferior or unknown products. “There are plenty of accessories from reputable manufacturers, importers, and distributors,” advises Stuhlmuller. Thus, “there is no need to carry and sell a tube that does not live up to a high quality standard like those made by Gizeh,” he says. “Our papers and tubes burn slowly and without residue and are made not to alter the flavor of the tobacco that is used. The other important factor in the equation is to use a high quality tobacco. As a specialty retailer, you owe it to your customers to carry a variety of tobacco that bring pleasure and satisfaction to this customer.”
Let them try it. “Our most successful retailers use old-fashioned promotions of our products—sampling,” says Rouse. “When you offer a free sample to a customer, most of the time, they’ll try it, And most of the time, consumers accept the retailers’ suggestions when looking to buy a product. Special sales are the second-most important promotion of the category because once customers try a sample, special promotions drive the sales.”
“The category should be promoted in-store on a regular basis utilizing manufacturers’ offerings such as POS, floor displays, rebates, etc,” adds Stokkebye. “Retailers should promote the idea of a better-value smoke versus the convenience factor of FMC’s.”
Really get behind the program. “Not everyone gets it,” maintains Baldwin. “People who get in early and work it the most will do the best in the long run. We’ve had parties with our electric cigarette machines in-store and had great results. Customers are often shocked to learn they can enjoy a fresh pack of all-natural cigarettes in two minutes.”
Delineate RYO and MYO in the store, and in customers’ minds. “In 1999, when I got into this business, everybody automatically called it roll-your-own,” explains Stuhlmuller. “One of the first things I did was separate the two, RYO and MYO, on all of our correspondence, advertising, marketing, etc. In RYO you either make the cigarette using only your fingers or use a small roller. MYO requires you to use a tube injector of some type such as our Silver Tip Boy, which was the first of its kind many years ago. Everybody that I come into contact with that wants to lump the two into one, gets a lesson on this.” •
