Little Cigars Offer Opportunity for OTP Growth

The third in a four-part series with Bill Noah from Scandinavian Tobacco Group

As the CDC reports that cigarette sales have reached an all-time low, more adult smoking consumers are reaching for cigars and other alternative tobacco products.  Indeed, the cigar category has grown at a double-digit clip in recent years. In 2017 alone, Nielsen data showed cigar sales had increased 12.6%.

The filtered cigar category in particular has seen some recent growth. Case in point: sales of 20-pack Talon filtered little cigars saw a nearly 15% growth in 2016, compared to 30% in 2017 and 32% in YTD 2018, according to Management Science Associates, Inc. (MSA).

“Filtered cigars—with their low prices and convenient packaging—offer something different and niche, and adult smoking consumers are picking up on that,” says Bill Noah, director of sales operations at Scandinavian Tobacco Group. Compared to the other cigars, these smaller, filtered cigars offer more convenience in a pack because they can be smoked faster or saved for a later time.

Still, there’s room for growth. According to MSA, only 46% of c-stores are currently selling filtered cigars, yet the distribution continues to grow exponentially year-over-year. “Retailers who pick up on this trend and capitalize on it will see more revenue-building opportunities, and those who don’t might just get left behind,” Noah says.

That said, here are five ways to grow filtered cigar sales.

1. Make more space for this growing OTP.

Adding just a foot and a half of space in an OTP section can make room for at least five different brands or SKUs. “The amount of space needed for these cigars is minimal, but there is so much more profit potential,” Noah says. “On average, a pack of little cigars produces more profit (45 cents to 60 cents per pack) than a pack of cigarettes.”

2. Consider top brands and maintain inventory.

The key with value-based, filtered cigars is to get the right brands in your store to drive incremental volume. “If you’re going to carry them, you want to start with the top-selling brands and then expand with different SKUs from there,” Noah says. “We’ve done analyses showing stores that carried both of the top filtered cigar brands increased their sales volume twofold, and a lot of that has to do with more presence and choices for the consumer.”

According to MSA data, Talon and Cheyenne have seen a 13% increase in volume, compared to double-digit losses for more regional brands in specific regions. Talon alone had a 32% increase in volume between 2017 and 2018. The more visible and brand name presence these filtered cigars have in stores, the better they seem to fare.

3. Focus on niche and value.

The price of little filter packs alone offer more value compared to traditional cigars and even cigarettes. The price for a pack of VFM filtered cigars averages around $1.89 - $2.80, while in some cities, cigarettes cost upwards of $13 because of recent tax hikes.

And then there is the quality and niche learn that cigars offer versus conventional cigarettes. “Adult consumers are looking for a more crafted product at good prices,” Noah says. The top filtered cigars brands use high-quality, American tobacco for a value-added cost.

4. Variety equals more sales

“Sales data tells us that the more SKUs of a top brand you have, the better the productivity,” says Noah, citing MSA data for Talon specifically that showed that c-stores who carried four or less SKUs of the brand sold about five packs per store per week compared to those that offered five or more styles, which sold up to 23 packs per store per week. Presence, apparently, equals profit.

5. Invest in social media marketing and loyalty programs.

Traditional marketing and merchandising in the form of shelf talkers, window signage, menu boards and advertising at the pump can certainly help play up the filtered cigar products. Staying active on social media platforms and/or communicating with adult customers through brand websites offers an extended way to attract emerging c-store adult customers seeking out niche and different products like these.

Also, consider loyalty programs for your adult customers. Not only do they keep adult customers coming back in to purchase filtered cigars, they can keep inventory moving to ensure items on the shelf are fresh and frequently replenished.

As the cigar category continues to grow, investing the time and space to expand your filtered cigar section offers adult customers another value-added product that simultaneously offers better margins for the retailer. 

Read part one here.
Read part two here.

This post is sponsored by Scandinavian Tobacco