With consumers reaching for interesting flavors at still low prices,
cigars—especially cigarillos—continue to move briskly off of convenience
store shelves.
According
to IRI’s convenience store statistics for the 52 weeks ending July 10,
2016, cigars notched nearly $2.7 billion in sales, a 6.19% increase over
2015. Units rose 10.17%.
To take best advantage,
c-stores should pay heed to customer preferences, keep the appropriate
SKUs in stock, hit the key price points and stay on top of the latest
line extensions.
Rich Jacobs, director of packaged
beverages and tobacco for RaceTrac, which operates 420 convenience
stores in Georgia, Florida, Louisiana and Texas, said cigars remain a
strong category for the retailer
“I would say it’s a
growing, innovative category. In the past it’s been kind of dry and
drab, no new innovation, nothing coming out that was exciting in the
category,” Jacobs said. “But over the past few years it’s been very
innovative as far as flavors go. There has been an influx of limited
time offers, which are driving a lot of the profitability and growth.”
Top
brands like Swisher Sweets, White Owl, Game and Black and Mild do
“very” well across the chain, he said. Plastic-tipped cigars also do
well. “But when we look at the overall business, tipped is a small
portion of the category share that cigarillos are.”
Like
other players across the convenience store channel, RaceTrac sees
consumers strongly favoring cigarillos. “What I have seen across the
category is that there has been a lot of two-for-99-cent offers that I
think are doing very well.”
Some c-store chains have
embraced larger quantities for 99 cents, Jacobs pointed out. “We have
never dabbled in it. We didn’t want to devalue the two for 99 cents so
we held strong with that offer and never got into the three-, four- or
five-for 99 cents. A lot of the cigar companies just want to keep
marching down that ladder of value, for the people who are buying the
multiple cigars.”
From what Jacobs and his colleagues
have seen over the past couple of years, however, that strategy harms
the price-value equation. “Those companies have really fallen. Category
leaders like the Swishers and Swedish Matches of the world have kept on
growing, while those have declined.”
CUSTOMER PREFERENCE
Like
other c-store operators across the country, Horizon Market in Bismarck,
N.D., adapts its product selection and store design to the specific
needs of its community. With that in mind, it has downplayed its tobacco
set at times.
“It just hasn’t been a strong part of
our brand to where we have really promoted tobacco,” said Casey Clement,
Horizon’s president. “We’re right next to a middle school and an
elementary school, our neighbor is a church, and we have a frozen yogurt
shop that we operate inside of our c-store called Swirly’s. We’ve kind
of softened the signage around our tobacco. We don’t even take the
discount on cigarettes because we’re not going to have the Marlboro
signs above our cigarette racks.”
That said, cigars remain a viable and profitable category as customer demographics have slowly changed.
“What
I have seen is a definite change over the years in the typical cigar
customer,” said Patrick Shannon, Horizon Market’s manager. “The typical
customer has definitely gotten younger, with the majority of the sales
of the single or two-pack variety as compared to the larger-pack sales.
Most of the younger customers are looking for the cheaper
two-for-99-cent deals.” They also look more for the fresher foil packs.
The
older cigar customers, on the other hand, lean more toward the premium
brand cigars in the larger packs, Shannon added. “But I am seeing less
and less of this type of customer.”
As for flavors, the
ones that have been around longer, like grape and blueberry, are
clearly the best sellers. “They keep coming out with the new flavors
that people may try,” Shannon said, “but on a consistent basis I see the
customer going back to the older flavors that they know.”
Regarding
flavors: On July 29, 2016, the U.S. Food and Drug Administration issued
guidelines designed to assist retailers in complying with the tobacco
regulations relating to the sale of various products. For cigars, they
include:
Check photo ID of everyone under age 27 who attempts to purchase cigars. Only sell cigars to customers age 18 and older.
Do not give away free samples of cigars, including any of their components or parts.
Do not sell cigars in a vending machine unless in an adult-only facility.
Of
course, flavored tobacco products of all kinds have been a favorite
target of legislators who cite fear over potential sales to minors. The
National Association of Tobacco Outlets (NATO) has countered that such
legislation accomplishes little besides harming retailers: “A flavored
tobacco ban disrupts the free marketplace by interfering with normal
transactions between legitimate, responsible retailers and adult
consumers desiring to purchase legal tobacco products.”
“Adults
will simply turn to ordering flavored tobacco products over the
Internet or traveling a short distance to another town, city or
neighboring state that does not have a flavored ban law to purchase
their favorite tobacco products,” NATO added.
“At
GetGo, we work to identify industry trends and deliver our customers an
appealing selection of cigars,” said Jannah Jablonowski, a corporate
communications consultant at Giant Eagle, which operates 200 GetGo
locations. “Recently, we have noted increased customer interest in
seasonal flavors and pouches containing multiple cigars. As such, we
have incorporated these varieties into our assortment, where
appropriate.”
Chris Pelletier, the manager of Bradley’s
CITGO & C-Store Car Wash in Presque Island, Maine, has noted the
same product trends. “What we sell the most of is pretty much
cigarillos, especially flavored cigarillos—grape, white grape,
pineapple, mango.” Promotions aimed at the low end—79 cents each, or two
for $1—generate the most consumer interest.
The
demographic range for the vast majority of cigar buyers has remained
steady, Pelletier added. “Anywhere from college guys to a few older
guys.”
WHAT WORKS
The three-foot section
that the store devotes to cigars is not expected to grow any time soon,
Pelletier said, nor will the number of SKUs. “We just stick with what
works.” Only occasionally will a limited time item become a permanent
addition. “Black & Mild Jazz was a temporary one, but it did well
and I can get it all the time now.”
Jacobs conceded
that legislators cracking down on flavored cigars for fear they might
attract under-age smokers could be an issue going forward.
“It
depends on how the FDA/deeming regulations flush out as far as what
they deem to be a flavor, and then how the big manufacturers look at the
flavors and actually brand those flavors. Some have suggested
manufacturers could replace flavor names with colors, which could hold
restrictions at bay, at least for a time,” Jacobs said. “It would slow
down innovation, but I think long term it will flush out to where we
will still have some flavors that will keep the category growing.
Swisher and Swedish Match have done a great job of creating new flavors
and bringing them to the market on a quarterly rotation.”
Those
drivers could include the two-for-99 cents limited time offer for a new
flavor, or a different promotional offer on cigars that are not
pre-priced and have a big impact on the category.
The
category, Jacobs said, can be expected to continue to grow through 2016
and at least into 2017. In the meantime, operators can help fuel sales.
“Retailers
need to really define what their SKU optimization process is going
forward,” Jacobs concluded. “That is a big driver for us and other
people who really think that cigars are an important category. What I
mean by that is, making sure you have the right SKUs at the right stores
in the right demographic area.”
Resource:http://www.cstoredecisions.com/2016/09/16/cigars-lighting-sales/