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Copyright © 2005
Tobacco Outlet Business
Updated September 24, 2005

TOB: You offer six brands of luxury cigarettes. What are the distinguishing features of your products in the category? Do you plan any new products?

Joel Sherman: First, it's important to understand the difference between luxury cigarettes and novelty cigarettes, anything imported is not automatically luxury, and does not automatically fall into the category of a regular day-to-day over-the-counter cigarette that is more aspirational and enjoyable than other brands. To some, anything that isn't generic is considered luxury, but that is really not the case. There is a definite market for novelty and imported cigarettes, but generally it will not have the mark of a high quality, American-blend, all natural cigarette.

In terms of new products in the luxury cigarette sector, we have the New York Cut, which is doing very well. It's a product that maintains the quality we're known for, but is somewhat more affordable than our Classic line. The New York Cut price is closer to mainstream, just slightly above a Marlboro. It is also a venture into more standard sizing, 85 mm with a 25 mm circumference. We have traditionally done the 100s, which is a longer cigarette.

We are always looking at new ideas and new products. We are known for innovation and it's something we enjoy. Being creative is one of the fun parts of business. Certainly, today's political and the business climate make it more difficult to come out with new products as quickly and easily as we once could. The contracts and the pressures being put on retailers to give up control of own businesses makes it very difficult for a legitimate independent because it's more difficult for retailers to show new products even when there is a market.

TOB: What trends or preferences have you observed among consumers in the luxury cigarette category that merchants should be aware of?

JS: As we perceive it there is a definite increase in sales which is based on the concept, "if I can't smoke as much, I will smoke better." We have never been a product for the chain smoker. We have them, but that's not what we go after and it's not what our product features appeal to. Our customers enjoy the smoke; they don't just habitually puff on it-and that's one of the trends-along with fourth tier, for example-of where smoking is going.

TOB: As prices continue to climb, many manufacturers are facing increased competition from discount brands. How have rising prices impacted the luxury cigarette sales?

JS: Price hikes and the confusion and the unintended consequences of the MSA have complicated and confused the marketplace, and I would say it is an additional product to be solved. It doesn't affect sale of luxury product in particular, but I'm sure it has had some affect in that it's a very complicated marketplace out there and it's very difficult for the retailer to operate his or her store. That impacts everybody in the tobacco industry. It's just a reality we all have to adapt to.

TOB: What can outlets do to maximize the profit potential of luxury cigarettes?

JS: I think that making a clear delineation between novelty and luxury is very important. A novelty cigarette is a product that may be a fad, but may be volatile and will rarely develop a regular smoker. A luxury product will develop a lasting, loyal clientele. To delineate between the two, display and placement is key, as are knowledge by the retailer and the retailer's clerk as to what the products are and what to recommend. Retailers have the ability to upgrade someone, to say, here is an all-natural cigarette that has a great taste. If it's allowed in the state, offering them a cigarette to try will help. It makes the customer happy and lets retailers increase their gross margin on a pack of cigarettes and develop a captive consumer, because products like our are not available everywhere.

We will work with retailers on sampling if the state and location permit it. There's nothing we would rather do than have customers try our product, because the customer who tries it will usually become a customer.

TOB: How wide of a variety of luxury cigarettes should outlets offer to promote the category effectively?

JS: I think variety depends on the venue, but having just two different brands doesn't really make a statement. If you are a pure tobacco shop, you may want to have six to 12 to really make a statement.

TOB: What new products or packaging have you launched in the cigar sector?

JS: We have brought out a new Maduro in the Metropolitan line. It took us a while to get a good blend to go with this great wrapper we have. It took a few years, but we're very pleased with it now. We also have the Navigator, a handmade, small-shaped cigar with a built-in, molded plastic tip. It is a great little smoke and an interesting product. With today's smoking restrictions you can't smoke a big cigar all the time, so this is a small cigar that provides a shorter smoke. This provides that with a comfortable mouthpiece and a cigar size that offers a 15- to 20-minute smoke.

We are also coming out with a glass tube selection. We are expanding that. We have the Broadway Selection, which will be a 10-pack with different sizes in a gift box and a five-pack holding all one size. Glass tubes have a great romance to them and they make for great celebratory gift stores. Those will be out by January.

TOB: What is your view of the growth potential of the cigar segment in outlet stores? What can outlet owners do to maximize sales and/or profits on cigars?

JS: I think the outlet store is the tobacco shop of the future in many ways. While outlets started out with plain steel shelves, they have become much more sophisticated. And cigarettes basically drive the tobacco business. Many cigar smokers, while they don't admit it, grab a cigarette during the day and enjoy cigars in evening and on weekend. People are not one or the other, so I think having cigarettes is a draw or advantage for the outlet store in marketing cigars.

Retailers who want to build the category should be professional in their approach. Price is much less of a factor with cigars than with other products. Cigar smokers look for quality assortment, freshness, proper handling, and good advice. You need to understand the category. I am a strong advocate of the concept that there is only one expert in the cigar and tobacco business, and that is the smoker. If you disrespect that and tell him or her that this is what you must smoke because it has a certain rating or name, you are doing a disservice to the customer and yourself.

You should explain the nature of the product rather than assert that this is the right tone or the right shape. You should guide but not tell.

TOB: How are your pipes/pipe tobacco products faring? What trends do you see among pipe smokers?

JS: Pipes increased during the cigar boom, more people coming into shops that traffic creates more sales for all the products there. So I think that there is a generation out there that almost forgot pipes, but now they're enjoying a comeback as people who go into tobacco shops notice them. At the same time, it will always be a moderate market because of difficulty of carrying, handling, holding, and packing a pipe. It has its limitations, so I don't think it will boom, but it will have a steady business with modest growth rate.

TOB: What do you see as the biggest challenges ahead for your company and the industry as a whole?

JS: The biggest challenge is certainly government regulation and the public's acceptance of what is often referred to as "the big lie," meaning the total evils of not only tobacco but industry itself. We have been villainized for the sake of profit by pharmaceutical companies, the so-called researchers, grant givers, and politicians. We are the only group in the U.S. that has actually been denied our constitutional rights. Some might say we gave them up voluntarily, but I don't think when you have a gun to your head, it's truly voluntarily.

One of the biggest problem dealing with that is the fact that many in the industry are ashamed of what they do and have come to believe many of the studies that are totally bogus. Government figures for years have said secondhand smoke has a carcinogenic affect of 1.29 and the scientific community has said very clearly that anything under 1.8 is insignificant. Homogenized milk is above 2.0. And yet a plethora of laws around country are based on the potential harm of secondhand smoke.

TOB: Is there anything else it's important for outlet retailers to know about Nat Sherman?

JS: We have been a family business for more than 70 years and three generations. We are proud of our products and of the people that work for us. We have some of the best people on every level, manufacturing, products, and sales. We are in the business for the long haul.

We are also appreciative of our retail customers. We know that you can make the best product in the world, but if the retailers don't help get the sales made then we will have a warehouse full of the best products in the world. ¤

Copyright © 2005 Tobacco Outlet Business