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The song that rises from the tobacco category always carries the same refrain: Cigarettes are struggling while other tobacco products (OTP) are picking up the slack. And when it comes to OTP, smokeless usually gets top billing. But what about cigars?
According to the 12th annual Convenience Store News Industry Forecast Study, released in January, the cigars segment is expected to see a 1.4-percent increase in unit volume per store this year. However, dollar sales — both per store and overall — are expected to drop 2.6 percent and 1.7 percent, respectively. The figures for dollar sales have been consistent over the past two years, while volume has been riding a rollercoaster of sorts — registering a 0.1-percent year-over-year increase in 2012 and then climbing to a 4.9-percent year-over-year gain in 2013.
Cigars have the highest crossover with cigarettes when it comes to users, according to David Bishop, managing partner of Balvor LLC, a sales and marketing firm. Speaking at the Tobacco Plus Convenience Expo in Las Vegas in late January, he said unit sales of cigars are up mostly due to aggressive foil pouch offers. He added, though, that multi-pack cigars are struggling as prices rise and consumers continue to feel the effects of economic pressures.
Bishop explained that the core convenience store consumer is more financially challenged as wage growth remains flat and fuel prices remain high compared to a few years ago. Specifically, consumers have $8 to $10 less in their pockets to spend inside the store because of the prices at the pump, he cited. That figure is in addition to the elimination of the payroll income tax, which has resulted in even less money in consumers’ wallets.
“Consumers are finding it more challenging to buy that five-pack of cigars,” Bishop explained. “As a consequence, retailers are making adjustments.”
The future of cigars is also facing some uncertainty as questions swirl around the possibility of Food and Drug Administration (FDA) regulations. The Family Smoking Prevention andTobacco Control Act, passed in June 2009, gave the FDA the authority to regulate cigarettes, as well as smokeless and roll-your-own tobacco. The act does not call out cigars by name, but does allow for the agency to apply the measure to other tobacco products through deeming regulations, noted Nancyellen Keane, counsel in the tobacco practice at Troutman Sanders.
The FDA prepared deeming regulations and submitted them to the federal Office of Management and Budget (OMB) for review in October, but the question remains: What will these regulations look like? Many tobacco industry watchers widely believe the deeming regulations will address electronic cigarettes, but what about cigars? Will flavored cigars be banned? And what about online sales?
For the FDA to expand a flavor ban — which currently applies to cigarettes and cigarette tobacco, but not smokeless tobacco — the agency must prove that it would be appropriate for the protection of public health, said Bryan Hayes, partner at Troutman Sanders. He also questions whether the FDA has the authority to restrict online, or remote, sales.
As of press time, the industry was still waiting for the OMB to release the deeming regulations to the public, so for now, only time will tell what tune cigars will be singing in the future.