Smoke Signals

Value brand cigarettes, smokeless and tobacco-free options are helping tobacco remain a viable category. By Craig Levitt State and federal tobacco taxes are sky-high and every day it seems as if new restrictions are being placed on where Amer­icans can smoke. Yet, annual tobacco and tobacco accessory sales hover around the $10 billion mark. As the cost to consumers continues to rise, more and more smokers are looking for less expensive or alternative ways to satisfy their tobacco needs. Buying by the carton has also been a way to reduce costs, though many consumers are hesitant to layout as much as $70 per carton. National brands, such as Marlboro,  still rule the day in the tobacco category, though another way consumers are reducing their tobacco spending is by purchasing  less expensive value brand products. Thomas Delorimiere, vice president of marketing for Smokin Joes, says the Lewiston, N.Y.-based company has cultivated a loyal following of consumers looking for these less expensive options. "We are 40% less expensive then the premium brands, that's where our niche is," says Delorimiere. "We use premium tobacco, but our marketing budget is just not equivalent to that of the premium brands, so our name is not really out there. We find that people having financial difficulties may look to us and that has gotten people to try us a single time. We are also finding that they come back and purchase us again." Smokin Joes cigarette brands include Smokin Joes, Lewiston, Market and Exact. In addition to value brand cigarettes Smokin Joes provides alternatives to cigarettes with its cigars and bagged tobacco products. "Consumers are looking for viable options for cigarettes," says Dave Savoca, president of Smokey Mountain Chew. "A lot of consumers are moving to snus. Once they become comfortable being an oral tobacco consumer, it opens other options in the moist smokeless category." Industry observers say sub-segments such as moist snuff, loose tobacco and accessories have become profitable for retailers. Es­calating cigarette prices have also led many smokers to explore products for rolling and making their own cigarettes. With the plethora of options available to consumers, along with the constantly changing laws, observ­ers note that the lucrative tobacco category merits the close attention of retailers. "Retailers must educate themselves and be engaged," says Bill Greiwe, CEO of Cheyenne International, based in Grover, N.C. "[They should] join retailer organizations, work together to inform government of the impact of legislation on the ability to do business. [They should] stay on top of the regulations so they do not have regulatory compliance problems." To help, Cheyenne provides retailers with simplified interpretations of the complex regulations. Greiwe adds that retailers should also educate store personnel so that they are aware that they cannot sell products to minors and are able to explain the products. While some smokers are switching to different tobacco options, others would like to eliminate tobacco and nicotine use completely, yet still enjoy the taste and sensation tobacco provides. One option for these consumers is Sm0okey Mountain Chew's line of tobacco- and nicotine-free products. "We are the O'Doul's of the smokeless tobacco category," says Savoca. "Our target consumer is an adult smokeless tobacco consumer that is seeking a viable alternative, the same way one who likes to drink beer is looking for non-alcoholic beer." Savoca adds that as tobacco taxes have increased, Smokey Mountain Chew has enjoyed tremendous growth, outpacing sales in the smokeless tobacco category. Smokey Mountain's line consists of seven tobacco-free snuff flavors (wintergreen, classic, arctic mint, cherry, straight, peach and grape) and two pouch flavors (wintergreen and arctic mint). While Smokey Mountain products are typically merchandised in the same behind-the-counter area as tobacco, Savoca says because they are tobacco-free, if retailers choose, they can be merchandised as self-serve items. Since Smokey Mountain products are taxed as a food item, they are also substantially less expensive than tobacco products in many states, generally retailing between $2.99 and $3.89, with margins around 30% to 40%. Savoca adds that tobacco-free products, of which Smokey Mountain has about an 80% market share, are incremental to the smokeless category. "If a retailer has two wintergreen smokeless tobacco products, they are both competing for the same dollar," says Savoca. "We are actually bringing a different dollar into the category. [These consumers] have decided they either want to stop using moist smokeless tobacco or reduce consumption. So they are looking for an alternative purchase. If that alternative isn't there, they don't buy anything."