Pouches Fire Up Cigar Growth at C-stores

BARRINGTON, Ill. — Cigar dollar sales at convenience stores posted a gain of 6.4 percent for the four weeks ended March 29, increasing average-per-store-week sales to approximately $475. Retail units sold also advanced 7.6 percent vs. last year, based on the Balvor LLC Retailer Composite (BRC).

“The vast majority of the growth in cigars came from pouches as convenience retailers carried significantly more variety in this package segment,” said David Bishop, managing partner of Barrington-based Balvor, a sales and marketing consultancy. Pouch assortment expanded, on average, by more than 20 percent vs. 2014 whereas the other segments all contracted on a SKU count basis.

The sales growth of 20 percent-plus for pouches continues to be driven by intense manufacturer competition in the segment, which drove weighted average retails down 70 basis points to under $1.25 per unit sold. While three-for-two pouches are helping drive up retails slightly, this segment mainly sells the two-pack configuration.

Dollar sales on single cigars dropped more than 6 percent in four weeks ended March 29 as the price gap between singles and pouches narrowed further during the month vs. last year. One reason for the gap shrinking is a slight shift in the sales mix toward higher-retail single SKUs — another positive sign for improving conditions around cigars.

Cigar packs in March posted a nearly 3-percent gain in dollar sales even as average retail prices edged up by almost 2 percent vs. last year. 

“Growth — no matter how small — in packs is generally a good thing for retailers as packs generate over five times more gross profit per unit sold than pouches,” Bishop noted.  “And beyond that, it indicates that consumers either have more money in the pocket or confidence in their outlook.”

Little cigars, meanwhile, registered declines in retail units and dollar sales of more than 9 percent and 11 percent, respectively. Bishop speculated that some of the decrease may be attributed to demand shifting to electronic nicotine devices given similarities between the flavor profiles of the two product segments. 

Gross margins contracted to 33.6 percent during March, decreasing penny profit by around a nickel compared to last year. This performance reflects a broader trend that retailers are experiencing across other tobacco categories.

The Balvor Retailer Composite is based on item-level data from 14 convenience retailers, representing retailers of different sizes and from various regions across the United States. Balvor utilizes custom segmentation and equalizes chainwide data to an “average per store week” (APSW) basis. This approach removes much of “noise” associated with changes in store count between periods; minimizes sample bias that would skew toward larger-store operators; and provides more actionable insights.

Companies interested in learning more about this report or about participating in the quarterly tracking service should contact David Bishop at [email protected].

Bishop will put overall trends in the OTP (other tobacco products) category, including the electronic cigarettes segment, into context during a special Convenience Store News webcast. Taking place Wednesday, May 13 at 2 p.m. eastern time, this free webcast is sponsored by Logic Premium Electronic Cigarettes and will examine the latest c-store data across the OTP category and subcategories.

The webcast will also review and provide perspective on the latest regulatory and taxation issues, and examine the tactics of leading retailers who are profitably growing their category sales with best-in-class category management strategies. To register for the webcast, click here.