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Outlet Power
Tobacco outlets, or cigarette stores, have charged ahead during the past five years. But where does their sales power come from? And will pending legislation hinder their success?
By Amy Coppe
"Smokers are the best repeat customers," Michael Wagnon, president and CEO of Discount Tobacco Outlet, Minden, LA, says, humbly, when asked to delineate the reasons for his success. His 12-store chain ranks number 47 on Tobacco Outlet Business’s TOP 50 tobacco outlets, up from a handful of stores just three years ago. "What makes us successful is no secret," he says. "We’re upscale; we’re service-oriented. We become a habit to [our customers], and we know their names [and what they smoke] when they come in. That’s a big part."
Tobacco outlets like Wagnon’s are part of a growing trend of tobacco specialty shops that, unlike traditional tobacconists, cater mainly to cigarette smokers. The number of cigarette stores, as the outlets are commonly known, has increased 54 percent over the past five years, according to Paul Walsh, publisher of Tobacco Outlet Business magazine. "In 1997, there were 5,700 outlets. By December 2001, there were 8,800," says Walsh, who predicts the trend will continue. He projects 10,000 stores by this year’s end, which will sell, he says, "more cigarettes than 60,000 c-stores."
Variety, Cost and Culture
What’s driving the outlets’ success? Darryl Jayson, spokesman for Tobacco Merchants Association, Princeton, NJ, says a combination of factors is responsible. "Tobacco outlets can have every single variety [of cigarette] and every extension of a [given] brand. They’re budget-conscious and smoker-friendly."
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| No. |
Name |
No. of stores |
| 1. |
Cigarettes Cheaper
Benicia, CA |
792 |
| 2. |
Smoker Friendly
Boulder, CO |
243 |
| 3. |
Seneca Nation of Indians
Indian Reservation, NY |
75 |
| 4. |
Smokes for Less
Springfield, OH |
58 |
| 5. |
Tobacco Superstore
Forrest City, AR |
57 |
| 6. |
Tobacco Outlet Plus
LaCrosse, WI |
43 |
| 7. |
Discount Smoke Shop
Bridgeton, MO |
42 |
| 8. |
Compton Point Inc.
Cincinnati, OH |
41 |
| 9. |
Smokeshop
Yucaipa, CA |
35 |
| 10. |
TBM Management
Pearl River, LA |
34 |
| 11. |
Mother Hubbards
Moline, IL |
32 |
| 12. |
Brookshire Brothers
Lufkin, TX |
31 |
| 13. |
Tobacco Central Inc.
Richmond, IN |
31 |
| 14. |
Tobacco Shoppe
Bowling Green, KY |
30 |
| 15. |
Fast Lane Discount Tobacco
Pikeville, KY |
27 |
| 16. |
Cigarette Outlet Ltd.
Pikeville, KY |
25 |
| 17. |
Smokers Depot
Wilmington, NC
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25 |
| 18. |
Smoke Shop Inc.
Hobart, IN |
25 |
| 19. |
Cigarette Store Retail HQ
Modesto, CA |
25 |
| 20. |
Discount Tobacco Outlet
Murfreesboro, TN |
24 |
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Reprinted with permission from Tobacco Outlet Business, May/June 2001
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The variety available in a tobacco outlet makes the store "a destination point," says TOB’s Walsh. Often, there are "500 to 700 SKUs in cigarettes" alone in the stores, he says. About 80 percent of the stores merchandise cigars and sell pipe tobacco, too.
Total Tobacco, Springfield, VA, is an approximately 700-sq.-ft. store, one of a 19-store chain based in the Washington, DC-metropolitan area. The bulk of the store ’s business is clearly cigarettes, but, if the store’s name isn’t evidence enough that it caters to all kinds of tobacco users, a visit makes it clear that pipe and cigar smokers, chewing tobacco users and even roll-your-own aficionados will not have to go away empty-handed. "Most retailers only carry a limited range of SKUs," says Total Tobacco President and Chairman Mike Drinkwater. But the idea behind Total Tobacco, he explains, is to have wide variety of products for all tobacco users. And that, says Walsh, is typical of the outlets. "The name of the game is to have a broad product mix–and to be very, very competitive."
Price is clearly important to Total Tobacco’s customers, who are greeted with price signs sticking out from the shelves of cartons, and who come in asking about sale prices on their favorite brands. (The company does do some direct mail advertising.) But price is not the only thing drawing in customers.
"[We] have to be price competitive," says Discount Tobacco Outlet’s Wagnon, "but we don’t have to be the cheapest." Good service–and other draws–keeps customers coming back. Among the attractions that Wagnon employs to increase traffic are bill collection, Western Union payments, tobacco accessories and beverages.
"We don’t get much for the bill collecting," says Wagnon. "On paper it doesn’t look good. But we do get a lot of traffic" that may pay off in other ways. Beverages are another way to increase till ring. And, says Wagnon, "wherever I can sell beer, I do. Beer and cigarettes go hand in hand."
But the biggest draw may simply be atmosphere. Total Tobacco’s Springfield store has a table, ashtray and chairs set up for smokers to take a load off and enjoy a smoke. And though all of the stores are clearly retail establishments with typical retail fixtures, there’s a difference–as easy to discern as the scent of smoke on the air. "We’re not trying to hide the fact that we sell cigarettes," says Wagnon. "We sell tobacco; we’re welcoming smokers into our stores."
Easy Come, Easy Go?
If the fact that smokers are welcomed with open arms accounts at least in part for the profusion of stores that are springing up across the country, it may also serve to explain where some of the business is coming from.
"More people aren’t smoking," says Walsh, "and the outlets are not taking much from c-store sales; they’re taking sales from supermarkets, drug stores, and mass merchandise outlets."
"I think a lot of business is coming from supermarkets," says Wagnon. "Have you seen what people have to go through to buy a carton in a supermarket?"
Total Tobacco’s Drinkwater agrees. "Our business has historically drawn from drug stores and supermarkets"–since often such stores stigmatize smokers with locked up cartons and elaborate procedures for purchases.
While some see tobacco outlets as providing competition to c-stores, Walsh believes that most cigarette sales in the future will be handled by two channels: c-stores and tobacco outlets–a powerful team for supporting a long tradition of tobacco use.
Distributors’ Takes
United Wholesalers has "about 25 pretty active tobacco outlet accounts," says LaCotti. And the business can bring "excellent" returns. But it’s not without a downside. "It’s a huge liability," she says.
Distributor Monte Kurlander, Sid Kurlander and Sons, Santa Rosa, CA, won’t do business with outlets for that reason. "They want the cheapest prices, and they want terms," he says.
LaCotti acknowledges that this is the reality, but, she says, if you "pick your customers carefully," the risk is lessened and the potential for profitability is increased.
"You might not make [much money] up front," says LaCotti, "but with [manufacturers’] programs, you can make it up on the back end because of your volume."
A Friendly Option
Del Peterson, president of Moreland Wholesale, Cheyenne, WY, has an unusual perspective on tobacco outlets. "I have six stores under the Smoker Friendly umbrella," he says. "I’m a successful retailer."
He’s also managing director for the Smoker Friendly chain in Wyoming and Nebraska. Smoker Friendly, the number two ranked tobacco outlet in the country, has a unusual way of doing business in this industry–but follows a business model that’s not unusual in, say, the fast food business.
Now, says Peterson, "anyone who wants to be in the business can be a licensee of Smoker Friendly." Among the benefits: a recognized brand name, private label tobacco products and accessories, communication with others who will offer advice, and yearly meetings of licensees. "By joining the Smoker Friendly group," says Peterson, a neophyte retailer can learn from others in an atmosphere akin to "roundtable discussions. It gets them moving ahead."
It’s an unusual position for a distributor to be in, says Peterson, but it’s not a bad one. In fact, many distributors are quietly trying their hand at retailing, he says. "If you’re selling to yourself, you’re going from manufacturer to end user," and you can profit every step of the way. It’s a way to get out of constantly being "beat down on price," he says.–AC
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