cigar sales smoking

Retailers report strong sales and profits in OTP boosted by cigars.

According to the National Association of Convenience Stores’ 2006 State of the Industry (SOI) report, retailers can expect the other tobacco (OTP) category to keep on growing with flavored cigars driving that growth. Cigar sales last year jumped 5.2% and accounted for 30.48% of OTP sales. As a category, OTP accounted for about 4% of the convenience store industry’s $145 billion in-store sales.

Like many c-store operators, Miller Mart has taken note of the tremendous growth in the profitable OTP category, and cigars are steam rolling this growth. Terry Johnson, director of marketing for Norfolk, Va.-based Miller Oil Co., which operates 55 Miller Marts and Millers Neighborhood Markets, manages the cigar category and made it a priority beginning in 2004 to increase his sales and presentation of OTP products, specifically cigars.

Johnson began by conferring with Ft. Lauderdale, Fla.-based Altadis USA (www.altadisusa.com

) to put together effective planograms and to provide merchandising racks that would put Miller stores on the front line of the cigar category. He also requested that the sets have a large focus on the increasingly popular flavored cigars, natural wrap cigars and a section dedicated to the high-margin, “single-stick” cigars.

Flavored cigars currently account for 40% of all large cigars sold and Altadis USA is the cigar manufacturer driving the growth in the flavor cigar segment. With recent additions of popular flavors like Phillies Cinnamon, Sour Apple, Peach and Honey, Altadis has a portfolio of more than 15 different offerings in the flavor segment that also includes Cigarillo and Tip Cigarillo size cigars. Altadis also produces popular handmade cigar brands like Montecristo, H. Upmann, Don Diego and Te-Amo.

Working with Miler Oil, Altadis put to use its cigar tray inserts, which effectively merchandise pack cigars and, in some cases, a floor rack, which is available in a variety of widths. For the single-sale cigars, which offer margins exceeding 50%, Johnson chose to use an acrylic display unit also provided by Altadis.

In his units, Johnson wanted the top single-sale cigar brands, and by looking at sales data it was determined that 76% of the cigar singles’ retail dollars were being generated by Dutch Masters and Phillies. Natural wrap Dutch Master Cigars provides a higher dollar ring, which increases penny profits. The leading Dutch Master natural wrap SKUs are Corona Deluxe, Corona Sport, Collection Palma and Corona Honey Sport.

“As a result of the objective category approach that Altadis took with my category, we have saw a 66% increase in retail dollars,” Johnson said.

Altadis USA said it is committed to the OTP category and always takes the stance of providing the straight facts when it comes to helping retailers grow cigar sales. New products and flavors will continue to be introduced in the Miller Mart chain which will keep the category fresh, relevant and present opportunities to grow in-store sales and foot traffic.

But it’s hardly just Miller Oil that is benefiting. Altadis has overhauled the cigar offering with dramatic sales increases at chains like Fas Mart Convenience Stores, Exprezit!, Town & Country Food Stores and PDQ Food Stores.

Another chain the cigar manufacturer invested countless hours in was Stop-N-Go, which operates 39 stores in Wisconsin and Illinois. The retailer recently updated its cigar planograms to take advantage of the strong demand for flavored cigars as well as the continual growth in the cigar industry’s most established brands, such as Backwoods, Dutch Masters and Hav-A-Tampa Jewels.

George McIntyre, Stop-N-Go’s director of marketing, said the company recognized the importance of the cigar category and the impact it has on store profitability. To grow the cigar business, he turned to Altadis and its line Phillies line of flavored cigars.

As it did for Miller Mart, Altadis went to work putting together detailed velocity reports that ranked the current category items by dollar sales and unit sales.

“I look to Altadis to notify me immediately-when a new flavor hits the market,” McIntyre said. “Stop-N-Go is now considered a destination stop for cigar enthusiasts as well as the novice.”

To remain current and ensure Stop-N-Go has the most popular flavors, McIntyre and Altadis review the cigar planograms every six months. “The one thing that separates Altadis from its competitors is that regardless of the manufacturer, if a hot product hits the market, it will be certain to let me know I need to incorporate it into my set,” he said. “They do what’s best for Stop-N-Go, not what’s best for Altadis.”

McIntyre understands the value of the cigar category, but, more importantly, he understands the value of a strong partnership with his supplier partners. “If you feel you cigar category is underperforming, contact Altadis to get a full category analysis to maximize your cigar category’s profitability,” he said. “You won’t regret it.”

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