A Choice Segment

All customers want a choice when it comes to the goods and services they spend their hard-earned dollars on, and it’s no different when it comes to cigar customers. The good news for cigar smokers is they now have more options to choose from than ever before.

The cigar segment has seen an explosion of new brands, sizes and flavors, according to Chris Beaulier, director of retail operations at Cigaret Shopper, a chain of tobacco shops operating throughout the state of Maine.

Beaulier joined with Keith Canning, managing partner at Winthrop, Maine-based distributor Pine State Trading Co., and Jeff Rossi, senior director of trade marketing and category management at Jacksonville, Fla.-based Swisher International, for a presentation at the 2015 NATO Show, which took place April 21–23 in Las Vegas.

When it comes to cigar sizes, the trend is leaning toward cigarillos. And looking at flavors, sweet, tropical and pineapple are among the fastest-growing options, Beaulier noted.

The most popular buys at his chain are the two-for-99-cents pouches and five-pack regular cigars. Multi-stick foil pouch cigars also grew by 33 percent in the past six months, he said.

Each package size offers good and not-so-good advantages, according to Beaulier. For example, foil pouches provide a wide assortment of flavors and are popular with young adult tobacco consumers. On the other hand, the sheer number of SKUs available and constant new product innovation add to the challenge of managing the cigar segment.

As for five-packs, they are staple items — typically high-volume items that withstand the test of time and appeal to the mature adult tobacco consumer. However, their downside is that in higher-tax jurisdictions, these packages carry a higher price point, he explained.

What is the key to finding the sweet spot? The answer is to take cues from customers and follow the trends. Becoming obsolete as a retailer will “drive your customers to the competition,” Beaulier noted. “All customers, regardless of base size, want choice. There is no way to know what the customer is looking for. The only way to know is to ask them; get their feedback.”

For its own cigar business, Brewer, Maine-based Cigaret Shopper dedicates 8 feet to the segment in all 19 of its stores, carries an average of 82 SKUs and sees five-packs as its volume driver. Overall, the chain has posted double-digit growth, on average, the past two years.

“Customers see our name on the door and know it will be a consistent set,” Beaulier said.

Swisher International’s Rossi agrees with Beaulier’s best practices. Recent growth drivers have been innovation and “the flavor blast,” foil pouches to ensure freshness, and value pricing, he cited. Swisher is a leading manufacturer of cigars, filtered cigars and smokeless tobacco.

The total cigar segment is up 3.6 percent, according to Rossi, and MSA (Management Science Associates Inc.) data predicts cigars could reach 19 billion units globally by 2019.

Resiliency is what makes the cigar business “really exciting,” added Pine State Trading’s Canning, who’s been in the business 31 years. “There was a time when people would have said cigars are down and out. These are not those times.”

Adding to the excitement is the level of information available to all the stakeholders in the business. The challenge, however, is getting the available data to them, he said.

“Give the data the level of integrity it needs so you have the desired effect at retail,” Canning encouraged. “If we align ourselves with what our manufacturers’ objectives are and focus on what the retailers’ objectives are, we can capture the tobacco consumer.”

As for cigar competition behind the back bar from other tobacco products, such as fast-evolving electronic cigarette and vapor products, Canning says to “bring it on.”

“I was thrilled when e-cigarettes and vapor came into the marketplace. Why? Retailers had become complacent; many had decreased their tobacco space. The excitement [around vapor] led to retailers looking at their total tobacco space,” he explained.

Cross-channel competition also has been a good thing for cigars and the total tobacco category, he noted. “Dollar stores in cigarette/tobacco is not having the impact we thought it would have, but it did force us to look at how we could help our retail partners be competitive with them.”