A Combustible Matter

Flavor innovation is boosting the cigar category, grabbing both shopper and FDA attention

By 
Steve Dwyer, CSP Reporter

The votes poured in: A tropical-flavored cigar would serve as the next SKU to join Cheyenne International’s little-cigar lineup—thanks to brand loyalists who voted on social media.

The warning letter was delivered: The U.S. Food and Drug Administration (FDA) in 2016 began a crackdown on little cigars when four manufacturers—Cheyenne, Swisher International, Prime Time International and Southern Cross Tobacco Co.—landed under the agency’s microscope for allegedly selling flavored cigarettes labeled as little cigars or cigars.

The FDA-issued warning letters said the alleged activity was a violation of the Family Smoking Prevention and Tobacco Control Act. Flavors cited included grape, cherry, wild cherry and strawberry.

Will this blow slow the success of flavor-driven limited-time offerings (LTOs) for the category?

The jury’s still out. With this regulatory development hanging in the air at press time like a smoke plume, cigar makers expect to cautiously move ahead with domestic new-product innovation plans.

One tobacco executive, who requested anonymity, says the FDA warning letter is nothing more than a “shot across the bow,” and that cigars have long been properly classified as cigars and not cigarettes under federal law and are not subject to regulation as “cigarettes” under the Tobacco Control Act.

A cigarillo universe with stripped-down flavor profiles is like a snack aisle being robbed of jalapeno chips. It’s a scenario that has both suppliers and retailers waiting for more  information and, in the meantime, leveraging other key attributes such as cigar packaging aesthetics, freshness and LTOs.

Convenience retailers—who view the rise in LTO and core flavored cigars and cigarillos as key sales drivers—are eager to learn of the FDA’s next step. “The tobacco industry is always going to be a heavily regulated industry,” says Celeste Lucas, price book manager and merchandising associate for Kocolene Development Corp., Seymour, Ind.

“We believe it’s too early to speculate on the latest regulations. However, as regs are enforced and new ones introduced, we will continue to operate in compliance,” says  Lucas, whose company owns 14 Smokers Host Discount Tobacco stores in Indiana and Kentucky.

Cigars make up about one-third of total tobacco sales at all Smokers Host locations.

Cherry-Picking

When Grover, N.C.-based Cheyenne asked adult consumers to select its new little-cigar flavor, the objective was to “create instant demand,” says Jessica Fratarcangelo, marketing director for Cheyenne. “Our Tropical SKU stands apart. … It’s not what you’d typically expect to see in a line extension.”

Flavor development is a driving force behind small-cigar innovation—and it can be a tricky undertaking. “The only tried-and-true measure is ensuring that, as a marketer, the flavor profile is strong enough to stand up to the cigar experience,” says Paul Marquardt, chief operating officer for Phoenix-based Prime Time International.

The cigar consumer harbors an “ever-evolving desire for variety and new options,”  Marquardt says, and in that opportunity, marketers are seeking strategies to sustain segment growth in the face of competition from the likes of e-cigarettes and vaporizers.

Cigar devotees who shop at Cumberland Farms, Framingham, Mass., seek out rich flavor but also freshness and value-added elements. “Ziplock packages promote freshness and allow consumers to take [cigars] out of the package and know freshness is being maintained—that’s key,” says Stephanie Lorance, tobacco specialist for the chain, which has more than 600 locations.

Foil pouches have also created a new standard in the industry for freshness, says Jane Green, vice president of marketing for Jacksonville, Fla.-based Swisher International.

“The great thing about innovation (within cigarillos) is that we haven’t seen any  cannibalization (that takes from other SKUs in a brand’s cigar portfolio),” says Green. “The introduction of a new category such as vapor was a catalyst for some consolidation of cigars. However, innovation within the OTP category has strengthened the segment, and we’ve seen a lift.”

Likewise, Swedish Match has seen strong response for its FoilFresh packaging. “Having two or four cigars in each purchase delivers a significant amount of convenience for consumers, as they often have a second cigar on hand,” says Joe Teller, director of  category management for Richmond, Va.-based Swedish Match North America.

Swedish Match recently used its foil pouch to test a new product. It introduced FoilFresh “2 + 1 packaging,” in which two White Owl Sweet cigars were joined with a free Game Leaf Sweet & Aromatic in one package.

Get It Now

New cigar offerings in 2016 were abundant, and retailers anticipate more excitement to drive growth in 2017—if the FDA regulatory dilemma is reconciled.

Last year saw Prime Time’s multiple-flavored cigars available in little and large styles cross

singles, packs and cartons. Packaging innovation came via Optimo Natural Leaf Cigarillos in four new blends.

Swisher’s multitude of Sweets featured Arctic Ice limited-edition cigarillos; Summer Twist; BLK Tip Cigarillos, which expanded to Grape and Berry flavor profiles; and Caramel Little Cigars. Cheyenne rolled out Cushion Tipped Cigars.

Expect limited-timed offers to remain a cornerstone of the category. “Popular LTO flavors and styles usually sell through in most of our stores within two to four weeks,” says Lucas of Kocolene. “The loyal cigar user wants to buy their favorite brand and style but is willing to try new offerings. That’s why limited-edition cigars do well.”

“LTOs serve as a huge driver, and we added space dedicated to them,” says Lorance of Cumberland Farms.

Of course, SKU management is crucial. Limited-time cigars should remain “limited” to sustain the momentum of the short-term offer. “With so many options in the cigarillo category today, all of the choices can be overwhelming to the consumer,” says Lucas. "LTOs provide a temporary variety option, which is good because most flavors/styles are not strong enough to maintain long-term sales.”