Consultant: Keys to cigar success are competitive mix and lower prices

"Retailers focused on offering a competitive assortment and lower prices on cigar packs are growing faster than the market," said David Bishop, partner with consulting firm Willard Bishop, Barrington, Ill.

Retailers who manage the cigar category more strategically benefit from accelerated growth and a larger share of the market, according to Bishop, who hosted a recent Webinar, "Cigars: Accelerating Category Profits by Increasing Strategic Focus," sponsored by John Middleton, Inc., the cigar maker.

The online session featured results of a study of the cigar category conducted by Willard Bishop, and demonstrated how convenience retailers can drive stronger results.

While new cigar products are an important aspect of managing assortment, a larger driver relates to product availability, according to Bishop, who pointed out that decisions based on assortment and space cannot be easily separated. Instead, he said, they should be considered jointly. Further, sales space for cigars is expanding less rapidly than assortment, providing a rationale for maintaining a comparable pack assortment. The consulting firm’s research showed that retailers using a comparable assortment pack strategy are reporting year-over-year growth that is 15 percentage points higher than average. A large component of that growth was attributable to simply keeping top-selling SKUs in stock and on the shelf so that the consumer can buy the product, Bishop said.

To this point, a retail mantra repeated during the Webinar was that “to build the base [business], you must protect the core [top-selling SKUs].” The Willard Bishop research found that retailers who follow that strategy have the potential to grow the category by approximately two percent.

Previous consumer research indicates that pack cigars tend to be a more planned purchase, indicating that the decision to buy occurs before entering a store. "This insight suggests that more aggressive pricing on packs can drive greater foot traffic since consumers may be more likely to be sensitive to pricing tactics," according to Bishop.

"We found that retailers pricing below their primary competitor’s non-promoted price by 5% or more enjoyed sales gains that are greater than 20 points over the average." However, Bishop went on to highlight that this low-price strategy on packs doesn’t mean all packs need to be priced aggressively. He points out, "It’s important to emphasize lower prices on the top-selling SKUs because these products play a larger role in creating the retailer’s price image," implying that retailers can maintain higher prices on other, lower-selling pack SKUs and generate stronger profits per unit sold.

The retail mantra given to this point is "price for volume" as greater profit dollars can be made even with lower retail margins. The key is remembering that this strategy applies mainly to the top pack products, Bishop emphasized.

The consulting firm’s research is to be used as the basis for a guide to building cigar profits, which Willard Bishop said it plans to complete by year’s end.