It's Going to Take an Evolution to Win With Tobacco

LAS VEGAS — Much is said about the changing tobacco landscape from a market standpoint and a legislative scope. But with these changes, retailers and manufacturers must also rise up and evolve to fit into the category's new normal.

Evolution is something that Jonathan Drew, president of Drew Estates, knows something about. As the keynote speaker at Tobacco Plus Expo 2018 (TPE) on Jan. 31, Drew described his journey from law school student to cigar retailer to president of one of the largest premium cigar companies in the world.

Drew first began selling cigars in 1996 from a kiosk in the World Trade Center in New York. Within a few years, he moved to Nicaragua to open his own cigar factory, eventually selling his business — which grew to include a factory the size of two football fields — to Swisher International in 2014.

His journey was not without challenges, and his success rose from the ashes of failures. According to the entrepreneur, it takes time, and success requires turning failures into innovation; innovation into success.

For example, manufacturer mishaps have turned into new methods for rolling cigars, and a failed relationship turned into the creation of a new segment, he said. 

Winning in the New Tobacco World

It takes evolution on the retailing side of tobacco, as well.

Speaking as part of a retailer panel on the TPE show floor, Randy Silverman, president of Klafter's Inc., said the company's cigarette volume based on cost was 82 percent in 2003 and now, 14 years later, that number has dropped to 48 percent.

What happened? Several factors: the Master Settlement Agreement, increases in tobacco taxes, Food and Drug Administration regulations, and the expansion of the State Children's Health Insurance Program (SCHIP).

"We had to react to them," Silverman explained. "In most cases, we looked at them as opportunities."

For Terry Gallagher, president of Smoker Friendly International, his family opened its first cigarette-only store in 1989 and did very well the first few years by selling that single commodity and gasoline. As more retail channels have begun to make a bigger push into tobacco, though, the company has evolved into "total tobacco."

"We continue to evolve as the marketplace — both societally and legislatively — forces us to," he said.

Looking toward the future, the panelists agreed that there are several effective strategies retailers can embrace. They recommend capitalizing on manufacturer loyalty programs, utilizing social media, and exploring new product areas — notably, accessories in the tobacco space.

For Jeff Borysiewicz, president of Corona Cigar Co., strategy has meant staying ahead of the curve and knowing the company's customers. In the end, the cigar and spirits bar retailer "started changing the recipe for the cigar experience," he explained. 

At Smoker Friendly International, the retailer began focusing on luxury, ultra-premium cigarettes and natural brands a few years ago, Gallagher pointed out. In the past two years, the company has seen its cigarettes segment grow 20 percent on account of these moves. 

"You have to have your associates engaged, which takes education," added Darren Collett, president of Collett Enterprises Inc. A key team tactic, he said, is implementing incentives at the point-of-sale for associates.

And speaking of the point-of-sale, the retailers on the panel also noted that a good POS system is one of the best tools a retailer can use for managing inventory.

The way to make money in retail is by turning inventory, according to Collett. 

Tobacco Plus Expo 2018 took place Jan. 31 through Feb. 1 at the Las Vegas Convention Center.