Tracking Cigar Sales

C-stores hoping to grow share of cigar market should work with their vendors and distributors, and be willing to try new items to keep the category fresh

George Stergiopoulos knows something about cigars. So do some of his regular customers.

Almost every Wednesday night for the past four years, the owner of The Greek Islands Restaurant in Indianapolis, Ind., has welcomed cigar aficionados to his popular eatery for Greek food accompanied by great cigars and stimulating conversation.

On a typical Greek Islands' Cigar Night, some 50 guests, most of them men in their 40s (although Stergiopolous happily reports a few females do attend), gather for hours. Some bring their own cigars, others sample those Stergiopoulos has on hand.

"Cigar smokers are a bunch of characters — all of them have something special to say, so I started Cigar Night to bring all the characters together," the congenial restaurateur said. "It is reminiscent of my ethnic roots. It's a chance to visit and talk with people who all enjoy good food and a good cigar."

Stergiopoulos' Cigar Night is not an anomaly. Just 65 miles away in West Lafayette, Ind., the Pipe & Cigar Club of Purdue (PCCP) meets on Thursday nights somewhere on or near the Big 10 University's campus. "We enjoy the smoking of fine tobacco products including but not limited to cigars, cigarillos, pipes and hookahs," the PCCP's Web site explains.

Cigars have even become a social networking phenomenon. PCCP has a Facebook page with 76 members, while the page for the Cigar Enthusiasts Meetup Groups boasts 2,867 members spread among 41 groups in 38 cities — which means finding a fellow cigar aficionado is as easy as typing in www.cigarmeetup.com and entering a country and zip code.

Clearly, cigar buyers are an active, diverse demographic group, which bodes well for the industry's future.

"Our customers' age range is 18 to whatever," said Terry Schmitz, zone leader of Tobacco Outlet Plus, a division of Wisconsin-based Kwik Trip Inc. that debuted in May 1997 and now operates 17 stores in Wisconsin and 21 in Iowa. "We are seeing more younger folks purchasing the domestic and premium cigars in the last couple of years, which is a sign of growth."

STATISTICS SPELL SUCCESS

Cigars' popularity is nothing new. Once dismissed as a passing fad, cigar smoking has been growing steadily since 1993, and more recently has escalated substantially. Between 2000 and 2006, cigar consumption increased by more than 37 percent, while cigarette smoking declined by 13 percent, the U.S. Department of Agriculture's Economic Research Service revealed.

According to the Convenience Store News 2010 Industry Report, cigars enjoyed an impressive 24.6 percent sales increase between 2008 and 2009, growing from $14,897 per store in 2008 to $18,567 per store in 2009. That growth has continued, with retailers reporting a jump in cigar sales (especially the little cigar sub-segment) since the 2009 federal excise tax (FET) increase on cigarettes and tobacco products took effect. Many cigarette smokers switched to cigars as a less-expensive alternative after the FET boosted wholesale prices by more than 32 percent. Cigars, in fact, now own the top spot in the OTP segment, holding the largest share on the basis of unit volume, at 49.6 percent (nearly half of the OTP category), according to the CSNews report.

A Datamonitor Report, "Tobacco in the U.S. to 2013," unveiled similar trends. The market for cigars and cigarillos sold in the U.S. was worth $2,678.9 million in 2008, with a Compound Annual Growth Rate (CAGR) of 4.8 percent over the 2003 to 2008 period. "This market increased by U.S. $121.2 million between 2007 and 2008, while the sales increase over the last five years (2003 to 2008) was U.S. $560.3 million," according to the report.

Within the cigars and cigarillos category, small cigars accounted for 54 percent of total sales, followed by large cigars with a 29.2 percent market share and cigarillos with a 16.8 percent market share. In terms of volume, the cigars and cigarillos market totaled 7,544.2 million pieces in the U.S. in 2008, with a CAGR of 2.3 percent between 2003 and 2008. This market increased by 158.9 million pieces between 2007 and 2008, while the volume increase over the last five years (2003 to 2008) was 805.8 million pieces.

Small cigars accounted for a 55.9 percent share, followed by cigarillos and large cigars, with a 32 percent and 12.1 percent market share, respectively. For the five-year period spanning 2003 to 2008, the overall cigars and cigarillos category saw a year-on-year value growth of 4.8 percent, with a 2.3 percent volume growth, Datamonitor reported.

WHAT'S SELLING?

The numbers appear impressive. But what are retailers reporting from the field?

"On the premium side the sales are slightly down mainly because of the tax increase and the availability of a place to smoke — there are many smoking bans," Schmitz said. "On the domestic side there was somewhat of an uptick. Manufacturers have moved the weight of the domestic cigar from a small cigar to a large cigar to save on taxes, creating a less expensive purchase."

Specifically, said Schmitz, the Gambler, Wrangler and Santa Fe little cigars, and also the new foil wrapped cigars, are selling most briskly, although he sees a slowdown in overall sales on the Tobacco Outlet Plus horizon. "Being we are in the northern states, the warmer months are good selling times for us. With winter, we will lose about 20 percent business just because of weather," he said.

On the flavored cigar and cigarillo front, CSNews 2010 Industry Report notes the wave of years' past has subsided, with retailers reporting that new flavors and variants in the cigar category have been reduced to three core flavors — wine, grape and strawberry.

Strawberry and white grape, in fact, are among the best-selling cigar and cigarillo flavors at True Discount Food Mart, a convenience store, Manager Raj Kumar calls "a tobacco store," in Oak Park, Ill. Peach, mango, cherry and apple also do quite well. "Cigars are more popular here than chewing tobacco," Kumar reported, "and the flavored [products] sell better [than non-flavored ones]."

Echoing Schmitz, Kumar said True Discount's key cigar buyers are "younger people in their late twenties."

FUTURE IN FOCUS

The next five years look bright for convenience stores that purvey cigar products.

If predictions stay on target, the U.S. cigars and cigarillo market will be worth $3,221.9 million in 2013, with an expected CAGR of 3.8 percent between 2008 and 2013, according to Datamonitor. "This market is forecast to increase by U.S. $543 million in sales over the five-year period spanning 2008 to 2013," the report said.

By the end of 2013, the small cigars segment within the cigars and cigarillos category is expected to account for 54.1 percent of the total market, followed by large cigars and cigarillos, with a 26.1 percent and 19.8 percent market share, respectively.

The news is just as positive where volume is concerned. The U.S. cigars and cigarillos market is forecast to be 8,409.5 million pieces in 2013; will increase by 865.3 million pieces; and have a CAGR of 2.2 percent over the five-year period spanning 2008 to 2013. By the end of 2013, the small cigars segment is expected to account for 55 percent share, followed by cigarillos with a 36 percent market share and large cigars with a 9 percent market share, Datamonitor predicted.

Whatever the future holds, c-stores hoping to capture a significant share of the cigar market can benefit from Schmitz's advice. "Work with your vendors and distributors — they have the knowledge and understanding of the product," he stressed. "And be willing to try new items and switch up. It will keep the category fresh."

Cigar Fun Facts

• The word 'cigar' originated from 'sikar' (the Mayan-Indian word for smoking), which became 'cigarro' in Spanish probably from the Mayan word 'sicar,' which means to smoke rolled tobacco leaves; from 'sic,' which means tobacco; or from or influenced by the Spanish word 'cigarra,' which means grasshopper. The word 'cigar' itself, and variations on it, did not come into general use until 1730.
• Explorer Christopher Columbus is generally credited with introducing tobacco to Europe. Two of Columbus' crewmen during his 1492 journey, Rodrigo de Jerez and Luis de Torres, are said to have encountered tobacco for the first time on the island of Hispaniola, when natives presented them with dry leaves that spread a peculiar fragrance. Tobacco was widely diffused among all of the islands of the Caribbean and therefore they again encountered it in Cuba where Columbus and his men had settled. His sailors reported that the Tainos on the island of Cuba smoked a primitive form of cigar, with twisted, dried tobacco leaves rolled in other leaves such as palm or plantain.

—Source: http://en.wikipedia.org/wiki/Cigars