Lighting the Way to Profitability

Lighters can be an afterthought. There are relatively few manufacturers, everyone merchandises them near the front counter, liability issues have cut down on cheap products and differentiation is only skin deep.

But even given the limited number of companies supplying products, lighters produce an excellent margin—between 40% and 60%—and sales have been steady for the past decade, despite the decline of cigarette smoking. With an effective price point and proper marketing, lighters can be extremely profitable.

“The category will never be a top seller,” said Keith Broviak, director of marketing for 50-store Ricker Oil, of Anderson, Ind. “But all the little pieces matter when it comes to maximizing overall store profitability.”

Broviak and other retailers back up industry reports of strong sales, putting to rest the supposition that with fewer smokers there would be fewer lighters needed. Don’t forget the cigarette smokers who convert to cigars, Broviak said. OTP has been resurgent in the past couple of years. A 2010 report from Chicago-based NPD Group showed OTP grew the most of any category in the store in gross margin dollar percentage and dollar sales percentage.

“Cigars have helped grow lighters somewhat,” Broviak said. “Our numbers are very positive with unit growth in lighters. It’s not following cigarette declines at all.”

Broviak said his rules for merchandising are simple: stay abreast of seasonality like holidays and major sporting events, stock the best-sellers, display a variety of styles and don’t risk cheap and unsafe lighters.

Approximately 70% of Ricker Oil’s lighter sales are from two BIC products (classic and mini) and the chain’s store-branded lighters. The other 30% are BIC’s featuring tattoo art or lighters with art from late tattoo artist Ed Hardy.

Sales Stay Strong
Darrin LiCausi, tobacco category manager for Lisle, Ill.-based Royal Buying Group, said hot BIC lighters in 2010 include those licensed by Playboy and NASCAR. He said BIC dollar sales for his stores in the first half of 2010 were up 10% over the same period in 2009.

Calico Brands, Scripto and Kretek’s DjEEP lighters are other top-selling industry brands.

Lighters alone accounted for more than $411 million for the 52 weeks ended Dec. 27, 2009, according to Information Resources Inc. (now Symphony IRI) of Chicago. While overall sales dollars suffered a modest .83% drop, the average price of a lighter in U.S. convenience stores was up four cents in 2009 to $1.31. Total unit sales, however, dropped 4.18% to 312.96 million. IRI reported the top three SKUs in units sold in c-stores in 2009 were BIC products.

According to IRI’s latest U.S. convenience figures for total pocket disposable lighters sales (excluding novelty and refillables), in the 24 weeks ended Aug. 26, 2010, dollar sales were up 12.5% and unit sales rose 9.8%. In the 52-week period ended Aug. 26, 2010, dollar sales increased 7.3% and units climbed 4.3%.

“Lighters continue to be a stable product selection in c-stores,” said David Bishop, managing partner at Balvor LLC, a convenience store consulting group in Barrington, Ill.  While the traditional $1-$2 lighters remain the core offer in c-stores, premium lighters that retail for $20-$25 and the accompanying butane fuel refills are not very large contributions to unit sales, but do offer a large profit per unit.

“Low sales in premium lighters are not indicative of opportunity. If you compare selling 36 $1 lighters to selling one $25 premium lighter, you see there are still benefits to serving the premium market,” Bishop noted.

Plus, lighters that need to be refilled also give customers a reason to return to the store.

Jared Sturtevant, directory of category management for Nice N Easy Grocery Shoppes of Canastota, N.Y., is unsure of the source of the counterintuitive relationship between fewer smokers and more lighters.

“With the huge decline in cigarette sales we are experiencing in New York, it is puzzling to see an increase in lighter sales,” said Sturtevant. “I don’t know how we have grown the category. Placement hasn’t changed and the space hasn’t increased, but I do know what is growing.”

Nice N Easy also has a store-branded lighter and it as well as the BIC mini—the lowest-priced lighters in the stores—have led the growth in Nice N Easy’s lighters sales.

“The next 20-plus lighters showing growth are all various BIC limited edition series and a few off the wall novelty lighters, such as fishing pole and M-16 replicas,” Sturtevant said.

Margin Driving Profits
Mike Turco, category manager for 189-store Tedeschi Food Shops of Rockland, Mass., also reported strong lighter sales—as of early September the company was 40,000 units and $65,000 ahead of 2009 figures. So, lighters may not be sexy, but at 48% margin, said Turco, “that’s $31,000 profit. If you want to throw that into the wind, go ahead. I’m not.”

BIC is also Turco’s No. 1 seller—165,000 units sold at $1.39 in 2009—and his No. 2 is the Tedeschi branded wheel lighter (125,000 units sold at 99 cents). Private label has done so well that Tedeschi will soon put its logo on an electronic lighter, Turco said. All his stores carry BIC and store-branded lighters, while 35 of them also carry the Zippo brand as a result of either a manager or franchisee request.

Turco said BIC’s variety and low price point has helped attract consumers.

“BIC is the most popular with our customers because they make one kind of lighter the customers are familiar with, and then keep putting new skins on them to keep the design fresh,” Turco said. “They’ve done a good job proving to the customer that their lighter works. Then they make their lighters relevant.”

BIC’s Special Edition (tattoos, astrology, Americana), its Pro Series (team logos for major sports) and its Collectors Series (Playboy, rock bands, etc.) rule the roost at Tedeschi. For instance, Turco said, in two months the chain sold 3,500 lighters decorated with logos of rock bands like Aerosmith, KISS and Ozzy Osbourne.

Turco is obviously experiencing the same strange phenomenon of growing lighter sales during a decline in cigarette smoking. He has at least one theory that because smokers buy fewer cartons, they make more trips to get cigarettes and thus have more exposure to the impulse occasion of 10 tiers of lighters by the POS. Turco said he used to bundle a lighter free with a purchase of a pack of cigarettes, but hasn’t for a couple years.

“I don’t think it will increase the category,” he said. “There’s not going to be any natural growth (in lighters) because more people aren’t going to smoke.”

The lighter offering at Tedeschi’s is planogrammed—BIC’s six-tier Powerhouse display and a four-tier Tedeschi set. Just as in other markets around the country, there are municipalities that don’t allow lighters to be accessible to customers, so they have to be asked for from the back bar.

“It does inhibit sales when they’re not self-serve,” Turco said.

And when lighters are self-serve, Turco said, the shrink is much less than you would expect for such a small item—less than one-tenth of a percent for Tedeschi. He said the proximity to the clerk is the reason.

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