Photo courtesy of Lane Limited
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[FEATURE STORY]
Small Wonder
Little cigars have grown into big sellers
By Melissa Niksic
The world of tobacco products isn’t limited to cigarettes and cigars. Today’s smokers have many choices at their disposal to suit their particular tastes and budgets. Of late, more and more are choosing little cigars, an extension of the tobacco product line that has grown considerably in popularity during recent years.
“The little cigars provide a much different flavor and produce a different sort of behavior than a cigarette or cigar,” says Winton Jennette, vice president of marketing at Conwood Co. LLC.
Little cigars have certain features that distinguish them from regular cigars and cigarettes.
“Unlike large cigars, little cigars have a filter but no binder,” says Janelle Rosenfeld of Altadis USA. “Unlike cigarettes, little cigars use different filler tobacco and instead of paper use a homogenized tobacco wrapper.”
Little cigars are packaged similarly to cigarettes. They typically come in packs of 20 and are about the same size as a standard cigarette. However, little cigars are usually wrapped in brown tubes, and the tobacco used in little cigars is similar to that of regular cigar products. They also carry different Surgeon General Warnings than cigarettes.
According to Dennis Williams, national account manager at Harold Levinson Associates Inc., the popularity of little cigars is directly related to the Master Settlement Agreement of 1998, which resulted in a spike in cigarette taxes. Cigar products were not included in MSA, making them a more affordable alternative to cigarettes.
“The only reason little cigars are so popular today is because of the way cigarette excise taxes have gone way up in the states,” Williams says. “You have a lot of smokers who still want to buy the products but are put off by the high prices, so they turn to the little cigar market.”
Jennette agrees that high cigarette taxes contributed to the rise in little cigar sales. “People find the high cost of smoking to be very prohibitive,” he says. “They want to get a better value for their money.”
In addition to the benefit of a reduced cost, Jennette also thinks that the rise in little cigar sales reflects consumer demand for a variety of tobacco products.
An appeal for cigar and cigarette smokers
“There are a lot of cigar lovers out there, but it takes a long time to smoke a regular size cigar ... usually 30 minutes to an hour,” he says. “With a little cigar, you can have a very similar product, but smoke it in less than five minutes. It’s an alternative for people who aren’t cigarette smokers but who want to be able to enjoy a cigar in a more convenient way.”
According to Alan Roth, general manager of H.J. Bailey Company, little cigars are a more appealing product than the bigger version to cigarette smokers due to the size of the product.
“There are a lot of people out there who want to get away from cigarettes but still want to smoke,” Roth says. “Little cigars are more comfortable for these cigarette smokers and also less intimidating than a regular cigar. People want to handle something that’s the same size of a cigarette. They might not be comfortable switching to a full-size cigar product right away.”
Little cigars are also cheaper than regular cigars and cigarettes. “A large cigar can run you anywhere from $3 to $50 dollars per stick, on average,” Jennette says. “With little cigars, you get a pack of 20 for $2 or $2.50.”
Spoiled for choice
There are many different brands of little cigar products to choose from. Altadis USA sells both 80mm and 100mm little cigars. Rosenfeld says that popular brands include Between the Acts, Dutch Treats, Hav-A-Tampa, Muriel, Omega, Phillies, Supre Sweet and Super Value.
Another popular brand is i80 Little Cigars, which is sold by International Tobacco Partners. These 100mm products are sold in hard box packs and come in seven flavors, including Full Flavor, Menthol, Chocolate and Peach. The i80 Little Cigars retail for 99 cents per pack and $9.99 per carton, with a wholesale price of $4 per carton. Additional promotions are available to distributors.
“We offer a special introductory promotional price discount of 10 percent off per carton to the wholesale distributor on their initial i80 order,” says Jeffrey Avo Uvezian, president of International Tobacco Products. “We also support the i80 marketing campaign via advertising at the wholesale supplier level.”
Williams says that Cheyenne little cigars are Harold Levinson’s most popular brand, along with Winchester, Swisher, Hav-A-Tampa and Phillies.
Although many of these brands have been around for a long time, Cheyenne little cigars are fairly new, having arrived on the market less than three years ago.
“All of our brands are MSA-compliant, but you can really see the difference in price with the Cheyenne,” Williams says.
According to Williams, the average wholesale price for a carton of Cheyenne little cigars is $5.50, compared to $14.50 per carton of Winchester and $15.50 for Swisher.
“A lot of the newer brands came out after the MSA ruling and offered lower-priced alternatives to the existing little cigar brands,” Williams says. “That’s why the entire little cigar category has seen a lot of growth, but the newer brands are the ones that especially benefited from it.”
Jennette says that Winchester little cigars are the top-selling brand for Conwood. “All the Winchesters are unsweetened and they offer several key styles, which is a big factor in their popularity,” he says.
Jennette says that Captain Black little cigars have also become extremely popular, stating that their total sale volume grew 45.1 percent from 2005 to 2006.
“This is a brand that was completely repositioned from the ground up,” he says. “It’s also a brand that’s positioned around a world of exotic flavors, so we were able to do a lot with that theme in terms of marketing and direct-mail pieces.” Captain Black flavor varieties include Sweet Cherry, Peach Rum and Vanilla.
Another top-selling brand of little cigars is Havana Honeys, which has only been on the market for a year. Joe Gold, CEO of Havana Honeys, was already in the premium cigar business when little cigars started to gain popularity. “Since we already sold premium cigars, branching out into little cigars was a natural extension of our business,” he says.
Havana Honeys little cigars arrived on the market in 2006. They are currently available in eight different flavors, including Honey Vanilla, Mint, Cherry, Blackberry and Natural. The average retail price for a pack of Havana Honeys ranges from $1.79 to $2.99, depending on individual state taxes.
Gold isn’t surprised that the little cigar market has become so popular. “Little cigars offer a very good price point, and they’re also an outstanding product,” he says. “People love flavored cigars. Havana Honeys cigars are a high-quality product, and we knew the little cigars would be successful.”
Like most other little cigar products, the manufacturers of Havana Honeys put a great deal of effort into the promotion, wrapping and packaging of their product. “In this business, it’s all about the marketing,” Gold says. “You have to make sure your product gets noticed, and then people will try it and see what a good quality cigar it really is.”
Photo courtesy of Altadis USA |
Give sales a boost
In addition to product marketing, there are other things tobacco retailers can do to help boost the sales of little cigar products in stores. Gold suggests placing little cigar displays in an area of the store that generates a lot of traffic.
“The cigarette companies demand certain space in the stores,” he explains. “Why do you think they’re always right in the front of the store by the register? That’s no accident!”
Although retailers cannot mix in the little cigar products with cigarettes, Gold does suggest placing the little cigar displays in the front of the store near the cigarettes.
“Put it right there up-front where it’s visible, and you’ll see a response,” Gold says. “These are great products. They’re packaged great and they’re made from excellent quality tobacco. Put them where the customers can see them, and they’ll try them and love them. Retailers will see their sales grow dramatically.”
Many manufacturers offer special display cases to showcase their tobacco products.
“ITP offers attractive acrylic displays for our i80 Little Cigars, which we have found if displayed properly at retail greatly increases the sales velocity of i80s at the pack level,” Avo Uvezain says. “Retailers need only call attention to these products in their stores to watch their sales grow.”
Photo courtesy of Havana Honeys |
Retailers who are hesitant about little cigar products should express their concerns to the distributors. “You should never be negative about trying something new,” Roth says. “However, retailers can also buy with an agreement with their distributors that if the product doesn’t sell, the distributor will take it back.”
Will the advantage last?
New government regulatory changes may have an impact on the future of little cigar sales. The National Association of Attorneys General (NAAG) wants the Department of the Treasury’s Alcohol Tobacco Tax and Trade Bureau to redefine categories of cigars and cigarettes. Such a reclassification could force manufacturers of little cigars to comply with higher taxes that are generally imposed on cigarettes.
“What has transpired is a unique match of the states and the major tobacco companies sharing these unintended profits from the MSA via huge tax and price increases on cigarettes,” says Avo Uvezain. “This has given rise to increased demand for alternative price value products like little cigars. This category has been typically taxed at the federal level at a much lower rate than the cigarette category.”
Regardless of the new legislation, Jennette thinks the little cigar category will continue to thrive. “It’s had a very steady growth stream and we’re confident that consumers will still have a need for these quality products no matter what happens,” he says.
Photo courtesy of International Tobacco Partners |
Williams disagrees. “The market will absolutely change if that legislation passes,” he says. “I don’t think you’ll see the main brands like Winchester go away, because they’ve been around for a long time. However, all these new brands popped up after MSA and were very aggressive in terms of marketing and packaging, trying to reach out to the disgruntled cigarette customer and compete for shelf space. But what’s going to happen if the taxes for these products are the same as cigarettes?”
Gold says that if the regulations change, it will be detrimental to the entire tobacco industry. “It would be a complete shift in the tobacco laws that have been in place for decades,” he explains. “It’s not in the best interest of anyone concerned. There would be so much confusion and change within the industry. So many negative outcomes would occur as a result of this.”
Avo Uvezain believes that regulatory changes will undermine the entire little cigar category. “Small manufacturers and importers of these products would be financially devastated by the re-classification as cigarettes,” he says.
Even if there isn’t a reclassification, the cost advantages that little cigars have enjoyed could still face future threats.
“If the legislation doesn’t pass, states will still figure out new ways to tax tobacco products,” Roth says. “That’s what states do best.” |
