RYO Rolls Into 2010

RYO Pounds Sold Per Year

Roll your own (RYO) cigarettes is a growing trend. Sales have climbed during the past five years, yet took a dive in 2009 as customers started using pipe tobacco to roll cigarettes as a result of increased taxes. On the other hand, customers used 10.6 million pounds of pipe tobacco through November, according to 2009 sales figures provided by the U.S. Alcohol and Tobacco Tax and Trade Bureau. During the same period in 2008, customers consumed just 3.37 million pounds.
RYO pounds sold through November 2009 were down to 10.7 million from 18.7 million in the same period in 2008.

Given the state of the current economy and soaring taxes on cigarettes, more customers are turning to RYO, where they can save 50% or more versus factory made cigarettes, said Lou Maiellano, president of TAZ Marketing and Consulting Group in Sevierville, Tenn. Where retailers properly market the roll your own (RYO) category it has the potential to increase sales of overall tobacco in 2010.

“You not only have the tobacco as a sales and profit generator, but also the tubes and accessories. The profit margins on all these items are two to three times more than traditional cigarettes,” Maiellano said.

Taxes Ahead
Following SCHIP, which hit last April, per pound taxes on pipe tobacco inched from $1.0969 to $2.8311, while RYO rocketed from $1.0969 per pound to $24.78 per pound.

“As a result, I’ve seen vast reductions in brands of RYO tobacco for cigarettes, however there has been an explosion of pipe tobaccos marketed as pipe tobaccos, yet are (intended) for RYO usage,” said Mark Tucci, owner of 7 Valleys Custom Blends, a six-store brand in Pennsylvania and Virginia. “I can tell you a lot more people are rolling their own cigarettes whether it be tobacco labeled for pipes or not.”

Ray Calderon, director of marketing and merchandising for Discount Smoke Shops, which operates 50 stores in Illinois, Missouri and South Dakota, said his stores have experienced continuous growth on all RYO product lines in the last two years. He agreed the biggest impact on the category has been pipe tobacco. “At this point in time about 80% of volume or more going to pipe tobacco is in essence (being used for) RYO.”

But this all could change in 2010, as the government is currently proposing a tobacco tax equalization bill, known as H.R. 4439, which is circulating through legislative channels and, if passed, would increase the tax on federal pipe tobacco from $2.8311 per pound to $24.78 per pound, the same federal tax rate as RYO tobacco.

Still, RYO has a bright future. “Retailers who thought RYO was dead were sadly mistaken,” said Maiellano. “Many retailers are all expanding their departments. The mistake some made was cutting back on RYO, the smart retailers are expanding the offer.”

Calderon concurred. “We’re still doing a good job with traditional RYO product,” he said. “We are expecting at least a 10-15% gain in our RYO products (in 2010).”

Tucci also sees new laws requiring pre-manufactured cigarettes to be fire safe leading customers to the RYO category. “Now all cigarettes have to go out if they’re not puffed on in a set period of time. We get a lot of customers because fire safe cigarettes have a chemical taste and we sell only natural tobacco,” he said. “In RYO especially you have people gravitating more toward natural tobacco.”

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