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March/April 2008 |
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Making cigarettes is making profits for many tobacco outlet retailers. Wanting to recoup lost sales in branded cigarettes, as well as meet the demand for a cheaper, perhaps more “engaging” cigarette alternative, many have turned up the category volume. Two leading retailers—Smoker Friendly and Smokers Choice—recorded steady category growth for the past five years; for 2007, they estimate RYO/MYO tobacco to have grown to 9-10 percent of their total cigarette volume. Industry-wide, RYO/MYO cigarette tobacco and accessory sales have experienced double-digit dollar sales growth for the past five consecutive years; the most recent sales gains have been in the neighborhood of 15-20 percent for the entire category and a whopping 50 percent just on tubes alone, according to various industry sources. Meanwhile, manufacturers have been recording impressive gains of their own. “Our sales continue to increase about 38 to 40 percent annually on our premium line, with approximately 35 percent increase on our other RYO products,” says Dean Rouse, president of M&R Holdings, Inc., DBA Farmer’s Gold RYO. “Our Peter Stokkebye series grew 20 percent in volume last year on the heels of a growing category,” adds Erik Stokkebye, president of Villiger Stokkebye International. Other players use words like “steady climb upwards,” “banner year,” and “skyrocket” to describe their recent sales increases in the category. But will the novelty of RYO/MYO eventually wear off for consumers? Can retailers expect continued growth in sales?
“We really don’t see the ‘newness’ wearing off at retail at all,” says Steve Sandman, vice president of sales and marketing for Republic Tobacco, echoing the sentiment of many others in the industry. “The RYO/MYO category has continued to grow steadily as more smokers recognize the benefits of making their own cigarettes. Consumers find value in making their own cigarettes, and they like the ability to mix different blends on their own.” “It’s 70 percent cheaper to roll your own cigarettes than to purchase machine-made ones; plus when you roll your own, you get the benefit of customization—you can choose your own paper size, shape, material, thickness, flavor, and filter, as well as blend your own tobacco,” agrees Josh Kesselman, marketing and co-director for HBI Tobacco. He believes the more smokers try it, the more they will want to be “in tune” with their own cigarette. “They are not just a smoker, but a roller, and thus, they get more enjoyment out of each puff,” Kesselman adds. “Think of it as the person who brews his own beer; suddenly, he’s not just a drinker, but a brew master. The same goes for RYO.” From the retail perspective, “the stores that have embraced the product have come to rely on this category as an incremental part of their entire tobacco mix, and while they may not be experiencing the same rate of growth as when they first ‘rolled out’ the category, they rely on the steady sales of RYO/MYO,” says Sandman. In line with this, “a lot of our retailers now tell us that the RYO/MYO category has become their ‘cash cow,’” reports Rouse. For chains like Smoker Friendly International and Smokers Choice, all brands in the category have shown outstanding margins of 30 percent or more. So the goal now is to keep the momentum rolling along as the category inevitably becomes more established. Incorporating more quality and specialty brands is one way of accomplishing that. “The category is hot and growing, but mostly in the direction of specialty RYO products,” maintains Kesselman. “We actually saw a downturn in our sales of big, mass-market brands. Clear papers were a big hit in early 2007, but now have slowed to normal paper sales levels. The biggest increases are in niche-market brands and blunts.” He adds that “even Philip Morris is now advertising in the genre of specialty marketing with ‘I want a cigarette that’s as unique as I am.’ Specialty brands are where the new growth is and where retailers can make the most profit.” As with other indulgences, the category is also pointing in the direction of quality. “Every retailer owes it to his customers to carry products that cover the entire spectrum on the cost scale,” begins Rudiger Stuhlmuller, president of Gizeh of North America, Ltd. “However, there is no substitute for quality, whether it be our RYO and MYO products, or a great wine, a good meal, etc. Retailers must remember that cheap is temporary, but quality always makes a lasting impression. Not all RYO and MYO products are created equal—it just doesn’t get any better than our Silver Tip, Mascotte, and Twister products. In order to roll or make the best cigarette, you have to use quality papers, filters, machines, and, of course, tobacco.” Farmers Gold believes freshness is tied into quality. “We do not stockpile our products, but instead, manufacture our products for sale and shipment within a 48-hour period,” says Rouse. “No other brand in the world does this. We continue to promote fresh quality to retailers so they can promote that to their customers.” The time is also ripe for a total category reevaluation. “It’s a good idea to take a fresh look at merchandising and product selection by taking a step back and really assessing the department,” says Sandman. “The growth of RYO/MYO has evolved over a number of years, and sometimes that’s resulted in accommodating the needs of the present for a retailer, and before the store knows it the department has very little continuity.” |
