The first ever National Association of Tobacco Outlets (NATO) Show, held in April in Las Vegas, was a huge success. CSP, as the official media partner of the show, was there to document all the action.
Panel Ponders Change in Tobacco Sets, Consumer Tastes
Welcome to a tobacco manager’s life after hours. Here are just a few of the questions he/she is pondering:
Do I accept one cigarette manufacturer’s promotions over another? A wave of innovation is flooding moist smokeless tobacco (MST); what should I carry and where do I fit it in? Snus seems promising, but how do I train my folks to explain how it works?
Tobacco consultant Lou Maiellano pointed out that “one thing that is never discussed in these discussions is what is it that the consumer wants.”
Maiellano, president of TAZ Marketing & Consulting Group, moderated a panel that tackled the dramatic changes in the tobacco world.
Fundamental to the transformation are evolving consumer tastes and demands driven largely by ubiquitous smoking bans. Cigarettes may continue to anchor tobacco sets, but over the next decade they will lose incremental share to MST, cigars, RYO/ MYO and possibly e-cigarettes.
While some promote e-cigarettes as a safe alternative to cigarettes and even, potentially, as a cessation product, others are more skeptical. “There’s a market for that type of product,” said Steve Sandman, vice president of sales and marketing for Republic Tobacco, who admits he’s not a big fan. “They’re very expensive and completely unreliable.” Nonetheless, “If a better [e-cigarette] product comes along, I think it will take off,” he said. In other matters:
MST: Joe Teller, category management director for Swedish Match, said the category boasted double-digit growth for 10 consecutive months in the convenience channel. He attributed some success to traditional smokers who cross over due to smoking bans, communal pressure and climbing cigarette prices.
Plan-o-grams: Chris Beaulier, retail operations director for 15-store Cigaret Shopper, based in Lincoln, Maine, works closely with manufacturers on sets, productivity and plan-ograms. Underlying product assortment and placement, he said, are questions: “Where’s the growth? Where’s the business going in the future?” He also talked favorably about partnering with suppliers without price contracts: “What we look for is guidance— help us be a better retailer.” —Mitch Morrison
Analyst Modi Offers Insights on Sets, Menthol Bans
UBS senior tobacco analyst Nik Modi never shies away from an opinion. At the NATO Show, Modi expressed that while cigarettes may currently dominate the scene, rapid growth in cigars and smokeless is compelling retailers to modify their sets—and quickly.
Modi predicts that cigarette sales, currently representing 80% of all tobacco transactions, will slide to less than 50% by 2025. Thus, he cautions: “If you’re not best-in-class in sets in smokeless, get there.” He predicts that snus and other oral products will continue to surge.
Modi also touched on:
- Lorillard: Long dominating the menthol market with its Newport brand, Lorillard has recently stepped into the nonmenthol segment. Modi predicted Lorillard would demonstrate strong growth, especially under the leadership of former UST head Murray Kessler. “I expect to see Newport to be more expansive where they play,” he said.
- FDA’s push for graphic cigarette packaging: Modi does not believe draconian depictions will curb cigarette sales, citing the failure of such attempts across other parts of the globe. “Reality is that warning labels will not affect consumption. The No. 1 issue that affects consumption is pricing.”
- Marlboro’s new pricing option that caps retail prices: Modi said he did not support the Marlboro Leadership Price option (MLP) from a retailer perspective, nor did he believe it would boost the overall cigarette category. But from an investment perspective, he thought this would benefit Philip Morris USA and likely increase its market share.
- Consolidation: Modi predicts the Big 3—Altria, R.J. Reynolds and Lorillard—to continue growing market share, through acquisition across the broader tobacco spectrum over the next several years. Also, look for some of the smaller cigarette and OTP players to pursue consolidation.
- Menthol ban: Modi said he doubted that the FDA would actually adopt a ban of menthol products, citing strong evidence that menthol is no more dangerous than other forms of tobacco. —Mitch Morrison
How to Light Up Sales of Pipes, Premium Cigars
Getting your foot in the door in premium cigar and pipe sales requires a firm grasp of who your customer is and what products they prefer. Experts in each of these areas offered tips and ideas during a “Growing the Cigar and Tobacco Business” session.
“Stocking about 50 [SKUs] would put you into the premium cigar business,” said Joe Maldonado, senior brand manager, premium cigar division, for Altadis USA, Fort Lauderdale, Fla. He offered tips and statistics to help tobacco retailers get into the premium-cigar segment or adjust their set to make the most of the category:
- Know your customers. In some markets, full-bodied cigars may do well; in others, mild may do better.
- Know your inventory. Learn how cigars differ between the exporting countries and how flavor profiles can vary. Make sure your employees can answer questions intelligently.
- Understand proper “maintenance” of cigars. In general, a humidor should be maintained at 70 degrees Fahrenheit and 70% humidity.
According to Andrew Kerstein, president of the NATO board of directors and owner of five Smoker’s Haven stores in New Jersey, a rule of thumb is that 40% of cigars sold in a store are mild, 40% are medium and 20% are full-bodied.
For those just breaking into the business, he suggested visiting the five closest stores and comparing their stock. “That’s going to give you an indication of the top-selling brands,” he said. “But your store will tell you … what cigars you should carry.” Kerstein also predicted a resurgence of pipe sales in the next couple of years: “Since the SCHIP [tax] was put into place, there’s been a dramatic increase in people in their 20s and 30s smoking pipes.” Future tobacco taxes and regulations will likely lead to additional increases, he said. For retailers new to the category, Arron Sissom, president of Music City Marketing, a Nashville, Tenn., company that sells pipes, pipe accessories and pipe tobacco, suggested placing a pipe catalog on the counter in a store for a couple of weeks. “If you see that you have some customer interest, then we can get some product out to your stores,” he said.
Other suggestions and information:
- Consider price points. Pipes can cost from as low as $3 to “sky is the limit,” Sissom said. “Consider what your customers are paying for cigars in your stores, then ask yourself: What price point do I think I can sell?”
- Consider display/presentation options. Pipe smokers, Sissom said, like to touch and “try out” a pipe before making a purchase. However, he suggested, having a closed display provides a more regal opportunity to “present” a pipe to the customer. Either way, have a mirror available and plastic sleeves to cover the end of the pipes.
- Be realistic on expected return. “The average tobacco retailer is probably only going to get 10% to 15% of his sales from pipes and pipe tobacco,” he said, “but pipe tobacco is a great way to supplement your business.” —Steve Holtz