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Nostalgia appears to be a gift that keeps on giving, and these days that retro mystique combined with do-it-yourself independence has created an interest in the sleepy tobacco segment of roll-your-own cigarettes, according to retailers and their supplier partners.
“I hear some 20-something consumers say, ‘I’m going to try roll-your-own for the first time because my grandfather smoked it,’ ” says Sam Odeh, CEO of Elmhurst, Ill.-based Power Mart Corp., who owns and operates six Illinois c-stores. “For some, trial leads to repeat sales, and some of the new innovations with tabletop machines add additional rise to the value.”
Still recovering from a 2009 federal tax imposition, RYO sales fell 17% in 2013 spanning all retail channels, according to data from Chicago-based IRI.
“A troika of high unemployment, higher gasoline prices and delayed tax refunds contributed to people cutting back on essentials, and this included roll-your-own cigarettes,” says Leonard Wortzel, vice president of marketing and product development for Tucker, Ga.-based Scandinavian Tobacco Group Lane Ltd., which offers the upscale Peter Stokkebye brand plus middle-tier Bugler and Kite.
Indeed, federal excise taxes stifled RYO in 2009, which financed expansion of the State Children’s Health Insurance Program. The tax saw RYO costs rise from $1.09 per pound to $24.78. In the meantime, related category pipe tobacco’s tax jumped from $1.09 to only $2.83 per pound.
According to those with a stake in RYO, a new day looks to dawn in 2014 for the segment, buoyed by an improving economy, the allure of retro elements and DIY access, and new accessories and machine innovations that facilitate easier rolling.
To entice consumers to buy into the RYO phenomenon, Lane introduced its “Built by Hand” marketing campaign that describes Bugler as the “last real cigarette.”
“With RYO, you’re appealing to this blue-collar ethos,” says Wortzel. Bugler in a 0.64-ounce pouch (SRP of $3.75 to $4) outperformed the category, he says, gaining 4 share points as of Dec. 29, 2013, per IRI data.
Weighing Options
Economic conditions might be rebounding, but not so fast. IRI’s MarketPulse shows that shoppers in general plan to be more conservative throughout 2014, with 39% feeling that their personal financial situation is worse today than a year ago.
Moreover, IRI’s Shopper Sentiment survey for fourth-quarter 2013 indicated that consumer sentiments have fallen— unlike the previous three quarters of 2013, when they rose. Shopper sentiment dropped 10 points among millennials alone, the budding demographic group with an appetite for RYO.
What might shopper sentiment trends mean for the fate of roll-your-own cigarettes? Strapped consumers might actually find the offer more appealing, some believe.
“RYO consumers are waiting to be tapped as taxes and regulations have an effect on pricing. So since RYO allows a consumer portion control, this in turn allows for controlling cost of use,” says Steve Sandman, president of Glenview, Ill.-based Republic Tobacco Co., which in addition to Gambler offers TubeCut, Drum, Top and Tin Star, a lighter and smaller, 0.30-ounce package at $3 per tin.
Complicating matters for full-fledged premium and middle-tier RYO brands is the fact that pipe tobacco became a cheap option after the 2009 tax hit, a trend recently reflected in the 13% dollar sales increase pipe tobacco registered in 2013, according to IRI Convenience AllScan data for the 52 weeks ending Dec. 1, 2013.
“Pipe tobacco had astronomical growth, going from zero to 40 million pounds in the space of a year,” says Wortzel. “There were crazy year-after-year increases of pipe tobacco, but we saw velocity begin to level off last June.” With people still feeling a pinch in personal finances, pipe tobacco might look appealing. But RYO purists say bottom-feeding brands in any product category typically produce “you get what you pay for” results.
“The premium connoisseur smoker has kept the segment strong,” says Wortzel. “There are die-hard fans that had all the reasons to switch to cheap brands but didn’t. From a category-management viewpoint, if you want to be in this business, make sure you have No. 1 menthol and regular brands, and make sure you have a premium brand to represent you. Consumers tell us they consider factory-manufactured smokes as generic commodity and a harsher smoke. They regard pipe tobacco as poor quality.”
Exposure and Promotions
Segment players say that to better leverage the RYO value proposition, retailers and supplier partners should put their heads together and treat in-store merchandising with the same brio they do other categories in the store.
“If retailers treat the category in this same fashion, RYO could up its position,” says Sandman. “A store might sell one Starburst SKU well; they add another and then another until they see sales peak, according to their ROI,” Sandman says. “C-stores should continue to expand the RYO assortment until they maximize their opportunity, as opposed to just thinking subjectively that they have enough items in their assortment.”
To enhance appeal, Republic Tobacco introduced a merchandising rack that adds traction to the RYO conversation, making it more appetizing to drive trial and repeat sales. Rack sizes vary from countertop units all the way up to a 4-foot rack, with one popular model 15 inches deep, 24 inches wide and 68 inches high. Depending on product mix and store type, racks can be placed either on the floor or behind the counter.
Lou Maiellano, president of Sevierville, Tenn.-based TAZ Marketing & Consulting Group, is impressed with the merchandising. “The rack provides the presence to properly showcase this product, and it’s modular: You can position it on the floor, in the corner at the checkout area, or behind the counter,” he says.
“POP materials are also key,” says Wortzel. “We happen to be embarking on a sweepstakes programs through couponing, and currently are advertising in 30 niche consumer magazines to drive awareness back to the brands. C-stores will be participating in our couponing programs.”
Odeh of Power Mart says rarely has a calendar quarter passed in which his half-dozen stores failed to launch a promotion behind RYO brands. The proper display of tabletop machines and all the allied accessories “play a big role—make sure you have the machines, paper and bags all bundled together.”
Retailers understand that if they want to win in this category, they have to take advantage of all that it offers—starting with potential add-on purchases with tabletop machines and hand injectors. “If you don’t find some space for it, you’re probably missing out on sales,” says Wortzel. “If Bugler is your top brand, you might want to have the rolling papers that pair well with it.”
To reinforce the role ancillary accessories play, Republic in January launched its PoweRoll Electric King Size Cigarette Machine under the Top-O-Matic brand that offers a one-touch automatic operation and makes rolling cigarettes easy within a three-step process.
Segment ‘Workhorse’
Selling 70% of the RYO volume, all channels considered, c-stores are definitely viewed as a RYO “workhorse,” says Wortzel, who predicts that dollar stores will jump headlong into the RYO category with more gusto in 2014. Therefore, savvy c-store retailers should push the envelope on creative programs—racks, accessories, promotions and strategic product placement that includes one-stop bundling—to remain relevant.
“These varieties carry a retro component; don’t forget that a century ago, roll-your-own is how cigarettes started,” says Odeh, who cites Republic Tobacco’s Gambler as his leading brand. “My personal opinion is the category will always have a place. Building awareness in the store is crucial to feed demand because some people don’t realize we carry it.”
For as long as RYO has been around, some retailers are just dipping their toe into RYO merchandising. Encouraged by his local tobacco distributor to carry Bacco Pipe Tobacco bags at his Fuel Zone store in Decatur, Ala., independent retailer Naryan Baddam put it in last year, where it was merchandised as RYO stock. Baddam says he sells 10 to 15 6-ounce bags per week at about $7.99; he also carries a 16-ounce bag at $13.99.
To generate sales of all tobacco products, including RYO, Baddam, who also owns the Danville Park Shell in Decatur, created a large sign mounted along with his street-side fuel sign that announces “Tobacco Outlet” to build awareness. But in summing up the lack of knowledge novice RYO retailers have when it comes to introducing a new product variety, Baddam says he figured Bacco was primarily intended to be an RYO offering, relying on a local wholesaler to maintain the section. He says that the core consumers of RYO products are 40-year-old and older males, with some female consumers as well.
“Retailers will say, ‘All right, I’ll put RYO in,’ but they don’t hold the supplier accountable,” says Maiellano of TAZ Marketing. “Years ago, when I was with Sunoco, a Lane brand manager came in regularly to educate our retailers about the RYO product. Every single category in the c-store needs its own plan.
“Sit down with manufacturers and establish that plan,” Maiellano continues. “If you have 80 stores, introduce RYO in the five that appear capable of supporting it. If it ultimately works in three or four stores, then concentrate on that lean-and-mean merchandising strategy.”
Earlier this year, Glenview, Ill.-based Republic Tobacco introduced a merchandising rack for properly spotlighting its RYO brands. Rack sizes vary from countertop units all the way up to a 4-foot rack.
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