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Cigars Heat Up Competition In OTP Race

In the field of other tobacco products (OTP) players, cigars are making their move up the leader board as the category takes strides to close in on smokeless, which still remains the clear segment to beat.

According to the CSNews 2011 Industry Report, smokeless recorded $32,067 in average sales per store in 2010, which represented an 11.6-percent change from the year before. The number is even more impressive when you look at the whole OTP picture: overall, the category posted $55,960 in average sales per store. In that scope, smokeless sales rule more than half of the category.

The favorable smokeless numbers could be a direct result of the segment's push to gain traction on the cigarette industry. As more cities enact smoking bans — not just indoors anymore, but even at public beaches and outdoor places such as Times Square — adult cigarette smokers continue to look for alternative tobacco products, and smokeless is more than happy to fill that need.

The favorable smokeless numbers could be a direct result of the segment's push to gain traction on the cigarette industry.

While the smokeless segment raced to catch up with the cigarette segment, it should have been looking over its shoulder, as cigars continue to quietly narrow the field. In 2010, cigars posted $20,569 in average sales per store. The figure represents a 10.8-percent increase over 2009.

In terms of percent of dollar sales, all OTP segments held relatively steady with smokeless registering 57.3 percent, cigars registering 36.7 percent, papers 3.5 percent and pipe/cigarette tobacco 2.4 percent.

The battle for first place between the two segments has been going on for a few years. Past CSNews research shows that, in percentage of dollar sales, the smokeless segment began declining in 2008, posting 61.9 percent that year, compared to 62.1 percent in 2007. In 2009, the drop was even more noticeable when smokeless came in at 57.0 per-_ cent.

Leaders in the smokeless segment are trying to put a stop to the decline, and maybe even reverse it. Earlier this year, Philip Morris (PM) USA and R.J. Reynolds began testing new smokeless tobacco products. In March, PM USA debuted its Marlboro and Skoal smokeless tobacco sticks. Out of the gate, the products will be available in limited distribution in select markets in Kansas.

That same month, RJR launched the second round of testing for its Camel Sticks, Camel Strips and Camel Orbs. The company tapped Denver and Charlotte, N.C., as markets for the second test phase of its Camel Dissolvable product line. This round came two months after the tobacco manufacturer wrapped up its first test phase in Columbus, Ohio; Indianapolis; and Portland, Ore.

In addition, RJR initiated a New Year's campaign marketing its Camel Snus as a potential New Year's solution for smokers. To this end, it took out ads in major consumer magazines, as well as free and alternative publications.

In the cigar segment, single-serve foil has been selling better than multipack, according to industry insiders, who note that both manufacturers and retailers have done a great job promoting single-serve cigars.

But the wild card in the OTP category is electronic cigarettes (eCigs). Although eCigs have been on the market for several years, they got a big break late last year when a three-judge appellate panel ruled in the case of Sottera Inc. vs. Food and Drug Administration that the FDA should regulate e-cigarettes as tobacco products unless they are marketed with specific claims that the devices help smokers quit or provide other remedies. That decision was backed up earlier this year when the entire U.S. Court of Appeals for the District of Columbia Circuit ruled eCigs and other products are not drugs/ devices unless they are marketed for therapeutic purposes, but that products “made or derived from tobacco” can be regulated as “tobacco products” under the Federal Drug and Cosmetic Act.

In response to this latest ruling, the FDA is now developing a strategy to regulate eCigs as tobacco products under the Family Smoking Prevention and Tobacco Control Act.

One trend that doesn't seem subject to change anytime soon is OTP competitive channel market share. C-stores still rule the roost with an 90.87 percent dollar share, which is up slightly from 2009. Drugstores came in with a 2.73 percent dollar share, and supermarkets at 6.40 percent.

— Melissa Kress

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