Cigar Sales Still Holding Strong

Tobacco products continue to stay at the top in sales, even with many changes and protective measures attached to national, state and local regulations.

Over the past few years, cigars have incurred excise taxes at both federal and state levels. According to IBISWorld, that trend is expected to gain momentum for at least the next four years. Of course, industry associations continue to lobby against such legislation. For example, last month, the Cigar Association of America announced it managed to persuade Pennsylvania lawmakers to exempt cigars from a new proposed tobacco tax. If signed by the governor, the latest law would tax cigarettes, smokeless and pipe tobacco and vapor products, but omit cigars.

Some U.S. municipalities have passed ordinances against flavored cigar products. As of this year, convenience stores in both Boston and Minneapolis, for example, are banned from selling flavored cigars and other flavored tobacco products.

“Folks like their flavors. Ironically, though, one of the stronger flavors today is unflavored,” said Lou Maiellano, president of TAZ Marketing and Consulting Group. “We’re seeing incredible growth in the unflavored cigar segment, up as much as 68%. That’s followed by sweet and tropical flavors. In the past, you were looking at strawberry or grape.”

The most far-reaching regulation to impact the cigar industry to date, however, is the final deeming ruling handed down by the U.S. Food and Drug Administration (FDA) in May, which takes effect in early August. In essence, cigars, e-cigarettes and pipe tobacco now fall within the purview of the 2009 Tobacco Control Act. The industry had hoped the FDA would exempt premium cigars, but to no avail.

Despite the potential impact each of the aforementioned circumstances could inflict on the cigar category, including cigarillos, minis and blunts, the category continues to pack robust sales. “To all those who thought the cigar business was dying, well, it’s not dying,” Maiellano said. “Resiliency in this business is what keeps it moving. In fact, recent performance indicates strong unit and dollars growth for cigars.”

For the four weeks ending June 12, unit sales of cigars in U.S. convenience stores jumped 11.8% compared with the same period last year according to IRI, a Chicago-based market research firm. On a year-to-year basis, unit sales are up nearly 10%, and dollar sales recorded an increase of 5.6% over 2015.

Although the FDA deeming rules officially go into effect this month, analysts don’t expect the full impact to be felt just yet, especially in the retail environment. The agency has allocated a two-year period for manufacturers to submit applications for approval and another 12 months for review. In the meantime, the products remain available for sale. Maiellano suggested that c-store operators take advantage of this period by mixing up product selection, even dedicating shelf space to showcase promotional items, other tobacco product offerings and premium cigars.
“Stores don’t change their sets up enough. I always recommend to retailers that they have a small section for specials, a flex section, where they can take on products new to their offerings without affecting their planograms. That way when a new offering comes out, or they want to enhance their offerings, they have a spot for it without having to making wholesale changes to the entire set,” said Maiellano. “This allows retailers to have a 90-day program, and if the product doesn’t sell, then move it out.”


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