Are tobacco outlets ready to step it up? Because leveraging little luxury items has become synonymous with successful American retailing—cigarette stores included. In short, it should be out with deep discounting and in with more premium presentation—a strategy that will surely distinguish tobacco retailers from c-store and other mass market competition.
The specialty cigarette players, who have based their entire businesses on this premium concept, are in sync with current consumer trends that have the potential to expand a tobacco outlet’s bottom line and customer base.
“We’re continually seeing a trend in the U.S. towards premium products; we have always been focused on that niche for our existence, but I think it continues to get more and more attention,” says Larry Sherman, executive vice president of Nat Sherman, which has the unique perspective of looking at the category from both a manufacturer and retailer perspective. Nat Sherman just re-opened its single flagship store in a standalone building in New York. “So while there’s a growing number of consumers looking for an alternative smoking experience, retailers are also looking—they don’t want to see the decline in cigarette sales, so they need to get creative looking for where the tobacco opportunities are.”
Making parallels with other “gourmet” consumer products is perhaps the first creative step in stepping up the presentation. “Whether it’s coffee, automobiles, or fine wine, super premium brands share many common elements: meaningful differentiation, premium price, high-touch consumer engagement, and limited, but high-quality distribution to key outlets and geographies,” says Mark Smith, spokesperson for Santa Fe Natural Tobacco Company, makers of the Natural American Cigarettes brand. The idea is for tobacco outlets to position their stores as these key outlets and attract ancillary business.
“The specialty category is really an opportunity, not only for increased margins, but also for getting a different customer coming into the store,” says Sherman. “It doesn’t have to cannibalize the existing customer base at all.”
But first, the channel must move beyond the typical lackluster attention it currently gives to the category. The majority of tobacco outlets are not quite tuned in to the premium side of the business nor do they see it as a focal point.
“To date, the specialty and imported section has been a loosely defined niche between the major brand section and OTP/little cigars,” states John Geoghegan, director of brand development for Kretek International, Inc. He reports what is mostly lacking: “a unified section that gives customers the sense of quality and uniqueness that many of these brands deserve.”
As specialty brand makers have become better marketers, the potential for better category merchandising has greatly improved. Here are a few of their top tips:
Create a cohesive display
“My best advice is to work toward a unified section with shelf sets by brand and turns,” says Geoghegan. “I can’t imagine that a mid-sized outlet chain can’t get import marketers to work cooperatively to put something like this together and design a system that exudes quality and luxury.”
The way Geoghegan sees it, there’s also “no reason why a retailer can’t create his own carton mix of different brand packs. Smokers trying luxury brands are still in the experimental stage,” he explains.
Draw Customers in
“Merchandising is about telling a story, and you need to tell a story to customers about why premium brands are different at the very first glance,” says Sherman.
Consider Primping the Whole Store
Once tobacco retailers get serious about becoming purveyors of premium products, there’s a golden opportunity to reevaluate the entire store. “It’s no longer about how they merchandise the category, it’s about how they merchandise the whole store,” believes Sherman. “It should be inviting, there should be diversity in products, and it has to be clean and orderly. Premium consumers have to be confident that the selection is fresh and well taken care of. And that just makes sense for all tobacco customers. No one wants a crinkled up box in the corner that they have to brush dust off of.”
Become a wealth of Premium Information
Tobacco outlet retailers need to know why premium tobacco costs more and they need to be able to convey that to curious consumers. For instance, here’s what Smith says is in Santa Fe Natural Tobacco Company’s natural tobacco products: “high quality, premium tobacco; whole leaf, natural tobacco; up to 25 percent more tobacco per cigarette than other leading brands; and tobacco hand-picked by our leaf experts.”
And here’s what’s not and will never be in Natural American Cigarettes, according to Smith: “tobacco additives, tobacco preservatives, tobacco flavorings, reconstituted sheet tobacco, scrap tobacco, processed stems, and expanded tobacco.”
Earth-friendly tobacco growing programs add another premium notch. “In the early 1990s we started our Organic and Purity Residue Clean (PRC) programs to teach participating farmers how to grow tobacco while promoting sustainable, earth-friendly land stewardship practices,” Smith explains. “Because of these programs, our farmers have seen a recovery of area wildlife, including butterflies, doves, and wild turkeys. Earth-friendly tobacco growing programs might be more expensive, but we think they’re worth it.”
Get Creative with HolidayHighlights
“When selling luxury or specialty products, it’s not really about price promotions. It’s more about cross-selling and highlighting the products, especially during the holidays when consumers are buying so many gifts for others, they also end up buying nice things for themselves, too,” says Sherman. He suggests that tobacco retailers create their own premium gift baskets of all sizes with an assortment of items that would be appropriate for consumers to give as is, or perhaps break up and distribute. Another holiday idea from Sherman is party-related—putting together a list of the “top 10 things people need to host a fabulous holiday party, including, of course, specialty cigarettes such as Fantasia and Black & Gold—both ideal, he says, for cocktail parties.
“This is what really gets the category moving—planting the seed for a more premium, occasional smoking experience that is often viewed as a celebratory experience,” maintains Sherman.
The category brings a more promising future to tobacco outlets because it is on-trend with companies that are more closely targeting smaller groups of consumers. “We’ve been alone in this category for such a long time, we try to set some trends ourselves,” begins Sherman. “But now we’re definitely seeing a continual flow of new products out there—everyday products, not just tobacco—where manufacturers are trying to connect with different consumers in different ways. Rather than staying so sterile reaching broader audiences, the focus is on niches and reaching out to different groups.”
Kretek keeps on the pulse of premium consumers through its research, and wants tobacco retailers to be aware of the different types of specialty cigarette customers that are out there, perhaps already shopping in tobacco stores. Each customer anecdote is a clue to the market’s success: “During our focus groups earlier this year, we heard from an Ohio woman in her mid-50s who had been a Djarum smoker during her college days,” Geoghegan says. “That social scene had given way to motherhood in the suburbs, but she still enjoys the occasional close escape to her summer garden. She told us about the time her own college-age adult daughter paid a visit. They retreated to the garden where to their surprise—they each pulled out a pack of Djarum. Now it’s a weekly event to share a close moment and talk about books.”
The real key is that no other channel is catering to customers like this and others who are smoking less, but better. “I don’t think other channels have caught on yet to the idea that this is a real section and not just a grab bag of niche brands,” says Geoghegan. “There’s too much volume and money in loyalty programs from the major brands for mass retail chains to pay more attention to something that is much smaller in the grand scheme of things.”
The time is now for tobacco retailers to jump on the little luxuries of their trade. The category is hot, it has world appeal, and the price variances between a specialty cigarette and the mainstream brands are not such a hindrance anymore. •
10 Reasons to Pay Better
Attention to Premium
1. Little luxuries are what more consumers want.
2. The margins are good.
3. It attracts a desirable, ancillary customer base.
4. There is meaningful differentiation—such as “green” attributes
5. As other tobacco prices go up, price variances are less, and value is even greater.
6. It can elevate the quality and value perception of
the entire store.
7. It opens up the opportunity for celebratory displays and promotions.
8. The “world market” nature of the segment is on-trend.
9. Other channels have not yet caught on.
10. There are no manufacturer contracts—tobacco retailers can be true merchandisers again. •