Attention convenience retailers: there’s a fast-growing, alternative tobacco profit stream potential, and it’s all thanks to innovations in packaging.
We’ve all seen LIHPs (Locked in Humidity Packs) for lower-tier cigars, but now, more tobacco suppliers are filling these packs with premium, hand-rolled cigars, allowing convenience stores to bypass the need for costly, maintenance-heavy humidifiers that these craft versions would otherwise require.
New LIHPs are essentially “putting the convenience in premium, both for the c-store and the customer,” says Bill Noah, director of sales and operations at Scandinavian Tobacco Group. And for good reason, he notes. According to STG data, the sale of just one premium cigar LIHP is equivalent to the sale of seven to nine mass market cigars.
LIHPs for premium cigars using vacuum-sealing technology and packaging innovation to maintain the cigars at a 70% humidity level, which keeps them fresh and shelf stable for nearly two years. When traditional, brick-and-mortar retail shops and even mass market retailers realized they could bypass the purchase of humidifiers to offer these products, large c-store chains started to jump in the game.
Even better, these LIHP products take up little space. “The least c-stores can do is give up just two slots, or about six inches of space on back bar sets to make room for these products,” says Noah. Even better, by replacing a couple of lower-performing, mass market cigar products with these premium versions, “they wouldn’t miss a beat, and in fact, would be on the positive side with their profit margins.”
There’s a convenience value for the customer, too, with these LIHPs. Typically sold in boxes of 20 to 25, LIHPs allow consumers to be able to purchase premium cigars for enjoyment on-the-go, such as on the way to the beach, boat docks, golf course, outdoor entertainment venue, or other trip where they might not otherwise want to lug around a heavy box and/or a personal humidifier, says Noah. LIHPs also entice the occasional premium cigar smoker, typically younger generation consumers like millennials, who may just want one or two for the weekend, rather than committing to an entire box.
These hand-rolled products offer that allure of a “craft” or “artisan” that millennials seek, too. “These cigars are becoming a good match with craft beers and wines and small batch bourbon, often offered in conjunction at outdoor festivals and other social occasions,” Noah says. Even the artwork on the LIHP packaging has changed to evolve to the changing preferences of the modern c-store shopper.
“As a result of selling these products, many c-stores—including the major chains—are finding they’re able to attract customers who would not otherwise have stopped in the store at all. In fact, our research finds that there are customers who will actually walk out of the c-store if they don’t see these products being offered.”
There’s plenty of growth potential, Noah notes. Right now, a little over 16,000 stores stock premium cigar LIHPs, and that’s an increase of 15% from last year.
Still, it’s not as simple as buying the product and making room for them. C-stores who want to get into this profitable game do need to pay attention to other sales support in the form of traditional and non-traditional marketing. In-store signage is one trick to educating the consumer about these products, but social media is also important, Noah points out. There are even apps that use location-based data to alert consumers of the nearest c-store or other retail outlet selling their premium cigar of choice.
And this makes sense, because understanding location data can make a huge difference when it comes to knowing how to stock and sell these products.
“We have strong data showing who is buying these cigars and where,” says Noah. “While premium cigar LIHP sales occur from coast to coast, we’re seeing the highest concentrations in the Northeast, Midwest and South, but sales in Texas, Southern California and the Northwest are growing. We’re also seeing the higher rates of return at c-stores and other retail outlets closest to golf courses, lakes, boat ramps and outdoor venues.”
“In my opinion, premium cigar LIHPs will continue to become part of the normal set of convenience products in the next couple of years,” he says. “Back bar space is tight, but we’re seeing more retailers make room for these products, which is just one indication that c-stores are understanding the need to find additional profit margins while satisfying the needs of a rapidly changing customer base.”
Offering premium products allows the opportunity to break into a game that c-store retailers may not have previously considered. And with cigar LIHPs, there’s almost no effort involved in getting started.
This post is sponsored by Scandinavian Tobacco