Energy Around Cigars Puffs Up

The segment is experiencing steady growth thanks to flavor variety, more acceptable pricing and new merchandising racks

It may be a more relaxing smoke, but that doesn't mean cigars are less exciting. To the contrary, convenience store operators are reporting good energy around the "other" tobacco stick — for some, an unexpected piece of positive news.

"I'm surprised how it's going in cigars, especially with the bad rap tobacco keeps getting," said Ray Marquez, tobacco buyer with Silver City, N.M.-based W&N Enterprises, operator of 12 stores. "They're definitely growing better than cigarettes, although they're growing with the cigarette contracts. Some cigarette manufacturers are pushing it."

According to a recent Convenience Store News webcast, cigars (excluding little cigars) make up 48 percent of the convenience channel's sales of other tobacco products (OTP), beating out moist smokeless tobacco. The cigar segment grew nearly 7 percent last year.

"Cigars are the only thing we have that is exploding," noted John Call, managing member of CF Capital Assets, the franchisor of approximately 200 Convenient Food Marts in the greater Cleveland area.

7-Eleven Inc., the world's largest c-store chain, also reports strong growth numbers for cigars, according to Phillip Wilhelm, the retailer's category manager of other tobacco products.

Likewise, regional chain Fast Track Inc., with 28 stores based in Wilkesboro, N.C., has been recording high single-digit cigar growth — around 8 percent to 9 percent, reported Joe Collins, general buyer. "I don't see why the growth won't continue similarly this year," he told CSNews. "We're just working with our supplier to keep them in stock."

Here's more of what's registering on the cigar barometer for convenience stores:

Flavor variety continues to keep it fresh. Wine, honey, green apple and white grape are some of the flavor varieties helping to add new life to the mix.

"It seems like when one manufacturer comes out with a good new flavor, the rest duplicate it. Everybody jumps on the flavor of the quarter or the season or the year, which keeps it interesting for consumers," said Marquez, adding that foil pack flavored cigars appeal to a mostly younger adult group — in the range of 18 to 25 years old.

Fast Track's Collins said his distributor, H.T. Hackney Co., is good about keeping the chain in stock with popular flavors and making adjustments accordingly.

Flavored cigars are showing "significant movement" across 7-Eleven, too, Wilhelm said.

Regional influences are worth watching. Flavored cigars, in particular, are "incredibly fast moving" with a lot of regional influences, according to CF Capital Assets' Call. He believes the c-store channel will never lead the cigar segment, as much as catch up to it. That's why he said it is imperative for c-stores to take cigars down to the customer level.

"With all due respect to distributors and manufacturers, they are not on the cutting edge; customers are, and so we go right up to them and ask them what flavors they want, Call explained. "Cashiers are a good source for this type of information. I actually think [cigars] are a neighborhood by neighborhood product, not just regional."

Regional trends are also being spotted for "natural" or non-flavored domestic cigars. For instance, 7-Eleven noted that in certain regions of the Northeast and along the East Coast, there is more consumer acceptance for this type of cigar.

Pre-pricing is no longer an issue. Much to the disappointment of many c-store retailers, cigar manufacturers were quick to pre-price packaging a year ago, causing a loss in retail margins. The logic was to attract more cigar customers in an effort to recoup the impressive sales gains of prior years. The move backfired, though, and led to declining and flat sales. C-stores complained they could make full-revenue gross profit if only the vendors would pull back on being so price-competitive. They listened.

Instead of pre-pricing cigar packages, the trend now is to pre-print offers on the packaging such as "buy two cigars, get one free" or "buy three for the price of two."

"This is so much better; it doesn't cut into our margins," said Marquez. "We can price them however we want, but the perception is that customers are getting a free cigar."

Manufacturers aid in better merchandising. The major domestic cigar manufacturers are receiving praise for their new acrylic display racks, which recently debuted in the segment. The racks allow the cigars to face the customers on the counter, but the products are back-loaded and still have to be handled by the store's clerks.

"It's helping our sales to have them up front on the counter rather than in the back where customers can't see them," stated Marquez. "It's visually attractive and plays to the variety that is out there."

Premium cigars can be a fill-in opportunity. Are large or premium cigars really a convenience store item? Call equates buying a premium cigar in a c-store to buying sushi in a supermarket — it's not the preferred choice of channel, but it will do in a pinch.

"We may not be the primary carrier, but we can be a good fill-in. It's just like we weren't supposed to be the ones that had the full milk selection. We were just supposed to be there for customers who ran out," he explained. "I see an expansion into the premium [cigar] category where it makes sense."

Call noted that tabletop humidors are perfectly suited for c-stores that want to delve into the higher price-point cigars.

7-Eleven has "dipped" into the premium, single-wrapped segment "to test consumers who want a premium cigar. But they are not as easy to sell as foil and do need a humidor," acknowledged Wilhelm.

Meanwhile, Collins said Fast Track carries a few large cigars but not as many as it used to. He said his chain has actually scaled back on them recently, but he is watching them should the trend suddenly change.

When it comes to regulation, take it day by day. Future tobacco regulation by the Food and Drug Administration is always somewhere in the back of tobacco retailers' minds, but it seems that as time goes on, many have learned to deal with it as it comes rather than stress before it happens.

With flavored cigarettes already banned, there was also the rumored threat of a ban on flavored cigars, which may have hindered sales. Now, a typical response from retailers is that the only way to deal with all the regulation and strife of the tobacco category is to take it day by day.

"If [a ban on flavored cigars] happens, it happens. I'm not worried about it," said Marquez. "We've seen that customers would just turn to something else and the tobacco companies would just come out with a different product to fulfill their needs. I take a more relaxed approach now and just go with the flow."