Cigars: Capitalizing on the Premium Segment
With 15% volume share, premium cigars bring higher margins, larger market basket
OAKBROOK TERRACE, Ill. -- There are many reasons to take notice of the premium segment of cigars.
While, yes, the value segment is substantially larger, the premium segment provides greater margins, larger basket ring and well-known brand names that drive customer traffic.
“That is an area where convenience stores really have opportunities to significantly increase their sales,” said Andrew Kerstein, owner of six specialty tobacco shops in New Jersey and a former convenience store owner.
Kerstein said convenience stores serve the role of that “convenient location for the customer to pick up their … cigars on the run because c-store hours are typically much longer than tobacco stores are open.”
Retailers may see more affordable cigars as a greater hook for c-store customers, but premium cigars offer higher margins and potentially a broader market basket, Kerstein said. “If somebody is a premium-cigar smoker and they do go into a convenience store to purchase that cigar, odds are they are not just going to walk out with cigars. They’re going to make other purchases, whether it’s a beverage or candy or mint purchase or some other snack product.”
Jane Green, vice president of marketing at Jacksonville, Fla.-based Swisher International, said new packaging, like that of Swisher’s Gold Strike, solves a lot of the problems c-stores once faced in merchandising handmade premium cigars. The resealable pouch keeps three premium cigars in perfect condition, she said, “and retailers will enjoy the strong margins.”
Similarly, Scandinavian Tobacco Group is repackaging its Captain Black Little Cigar “to better reflect the premium quality the brand offers.” The Tucker, Ga.-based company is also debuting a Captain Black line extension and reducing the price beginning April 1.
“To reward our loyal consumers, the price is being reduced 20% to allow them to enjoy the category’s most premium little cigar at a more reasonable price,” said LaRese Armstrong,brand manager—little cigars for Scandinavian Tobacco.
“The new variant—Captain Black Dark—will launch in a black wrapper, with filter, tipping paper and a sophisticated blend of tobaccos, including Cavendish and Perique,” she said. “There is no other little cigar on the market like Captain Black Dark; the variant offers a unique opportunity to the true little-cigar aficionado.”
The premium brands may have slower turns than the value options, but premium brands continue to be a very viable part of the category because they bring a very loyal consumer base, and margins for premium brands can be as much as 10 times greater than that of the value brands, Armstrong said.
To maintain profit in the category, manufacturers recommend convenience retailers carry at least two premium little-cigar SKUs in their tobacco set.
Little Cigar Price Group Breakdown
Source: IRI. Total U.S. Retail, as of Feb. 23, 2014
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