Rouseco Goes foR the Gold with Golden haRvest filteR tubes

NOVEMBER/DECEMBER 2010 VOLUME 13 n NUMBER 6

Retailers are boosting profits by widening assortments

ALSO IN THIS ISSUE

Alaska: One Retailer’s Survival Story

Profiting from Less Pricey Premiums

Retail Profile: St. Augustine Tobacco PUBLISHER’S LETTER BY ED O’CONNOR

Giving Thanks

Thanksgiving is next week or the week after, depending faiths. To those closer to us, the Judy Browns, to the U.S. upon when this issue hits your desk—and the chickens are Coast Guard for saving Dave Tewksbury, to generous gay. More on happy chickens later. people such as Gates and Buffet, and for the good health Thanksgiving is that time of year when we celebrate our and happiness of our families, we give thanks and say: forebears’ landing at Plymouth Rock, giving thanks for be- Happy Thanksgiving. ing off the high seas, having made the crossing without Now, what about those happy chickens? Our kids want prescriptions of Dramamine and Promethazine—no more to know the rest of this Thanksgiving story: motion and no more nausea. It’s said that Captain Smith told one of the Puritans, “Don’t worry, Ethan, seasickness The story I tell is one quite sad, won’t kill you.” Responded Ethan,“It’s only the hope of dy- It tells of a turkey, a turkey so bad. ing that’s keeping me alive.” A braggart was he, to the chickens he’d say, So much for the first Thanksgiving. Three hundred and “I’m much better than you in most every way.” eighty-nine years later, we give thanks closer to home in our own industry: Imagine a retail/wholesale tobacco As he preened and he strutted throughout the day, company committing millions of dollars to build a beau- The chickens would sicken with sour dismay. tiful new school, giving community young’uns a head Fervently they hoped the end was in sight, start on their education. That’s exactly what Judy Brown That a kind person would notice their plight. and the Lil’ Brown Smoke Shack company have done. We give thanks for this special brand of generosity. See Thanksgiving is here and the chickens are gay, the school and read more on page 78. Or what about the ‘Cause ol’ Farmer Brown came and took him away. Coast Guard’s lifesaving rescue of tobacco retailer Dave The chest he puffed out in vanity great, Tewksbury from the arctic wilds while on a 50th birthday Is now roast turkey on somebody’s plate. fishing trip—a friend saved from near-certain death? For his rescue, we give thanks. Hear Dave’s story in his own words on page 52. And what about the gift of fortunes bestowed by Bill Gates and Warren Buffet? For this mag- nanimity we are all enriched and give thanks. And so it is that at this time of year, each year, we reflect and give thanks to the seasick Puritans for establishing the right to believe in and to practice the tenets of our personal

4 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 INSIDE THIS ISSUE

SPECIAL SECTION News & Trends ...... 10 FDA regulatory developments, prospect of menthol ban protested, harm reduction product update, and more.

CIGAR SENSE Welcome, Affordable Premiums—And More .....24 In a world where legislation and innovation coexist at all-time highs, open-minded manufacturers respond more quickly to changing demand and the latest category trends, such as less-pricey premium cigars. Adventure at Bug Lake, page 52 FEATURES Cover Story: The Great Tobacco Mix-Up ...... 32 A few handfuls of cigars, a bowlful of RYO, a pinch of e-cigarettes and a splash of beverages—the new and improved recipe for tobacco retailers’ success is to keep mixing it up.

Lighting Up with Calico ...... 42 Variety and quality are king for this California-based lighter manufacturer.

Adventure at Bug Lake ...... 52 How two friends survived an Alaska fishing trip gone horribly wrong.

Oliver Twist: A New Product with a Past ...... 62 At a time many view as a new era for smokeless tobacco, a brand with a long and venerable history is reinventing itself. Smoker Friendly Celebrates, page 30 Trench Marketing: Sitting Pretty ...... 70 In the midst of a scenic resort town, the St. Augustine Tobacco Co. steadily builds business by targeting tourists.

Departments Publisher’s Letter ...... 4 Giving Thanks Trade Talk...... 22 FDA Training Requirements Questioned Event Spotlight ...... 30 Smoker Friendly Celebrates Product Profile ...... 80 A guide to new and popular outlet products

The Great Tobacco Mix-Up, page 32 NOVEMBER/DECEMBER 2010 INTERNATIONAL VOLUME 13 n NUMBER 6

PUBLISHER ...... Edward R. O’Connor GENERAL MANAGER, SALES AND ADMIN . . . Lea Edmondson EDITOR-IN-CHIEF ...... Jennifer Gelfand CONTRIBUTING EDITOR ...... Renee M. Covino CONTRIBUTING EDITOR (PRINT/WEB) . . . . . Matthew Mullen MANAGER OF PRODUCTION AND DESIGN . . . . Karen Rogers Smith COPY EDITOR ...... Lisa Whittington WEB MASTER ...... Mitch Ostapchuck CIRCULATION MANAGER ...... Carol Calini

TMG INTERNATIONAL Edward R. O’Connor, President Lea Edmondson, General Manager of Sales and Administration Susan Reuter, President of Reuter Exposition Services and Manager of Tobacco Plus Expo

TOB ADVERTISING TOBACCO PLUS EXPO SHOW 8311 Six Forks Rd., Suite 211 Reuter Exposition Services Six Forks Office Park 33 Flax Mill Road Raleigh, NC 27615 Branford, CT 06405 Toll-Free: 877-702-4427 Susan Reuter, Show Manager Tobacco Outlet Business is published bimonthly at 8311 Six Forks Road, Suite 211, Six Forks Office Fax: 919-844-6866 Toll-Free: 888-737-3976; Fax: 203-483-5778 Park, Raleigh, NC 27615. Printed in USA. Copyright 2010 by TOB, LLC. Subscription rate is $45.00/year. Send paid subscriptions to Tobacco Outlet Business at same address as mentioned above. For re- EDITORIAL OFFICES print information, contact Ed O’Connor at 877-702-4427. Copying: Permission is granted with users of the 101 West 23rd Street, Box 115 Copyright Clearance Center Inc. To photocopy any article, with the exception of those for which separate New York, NY 10011 copyright ownership is indicated on the first page of the article, provide a base fee of $1.25/copy. Tobac - 212-727-0750 (voice) co Outlet Business is a registered trademark of TOB, LLC. POSTMASTER: Send address changes to Tobacco Outlet Business, 8311 Six Forks Road, Suite 211, Six Forks Office Park, Raleigh, NC 27615. TPE_11_Foundation_Ad_TOD_10-2010 10/25/10 12:00 PM Page 1

To Exhibit or to Attend Call (888) 737-3976 or (203) 483-5774 • www .tobaccoplusexpo.com Built on a Strong Foundation Las Vegas Convention Center • March 2-3, 2011

Highlights of the upcoming TPE 2011 include: • A Charity Golf Tournament and Auction • Opening Night Reception with Music, to Benefit Cigar Rights of America Open Bar and Great Food • FREE Educational Sessions with • Premium Cigar Bar & Lounge Serving Complimentary Breakfast Free Beverages • Cigar Blending Demonstrations • Giveaways at the Spin to Win Wheel in the Exhibit Hall • People’s Republic of China Pavilion Some of the many products • Hundreds of Show Specials exhibited include: Plus… More Brands and Tobacco Cigars • Premium Cigars • Bundled Products Than At Any Other Event! Cigars • Cigarettes • Premium Cigarettes • RYO/MYO • Smokeless Tobacco • Electronic Cigarettes Pipes • Loose Tobacco • Hookahs Accessories • Humidors • Air Purifiers Lighters • Cutters • Fixtures Software POS • Financial Services & much more. The Tobacco Show That Has Provided the Industry with a Forum for Over 15 Years! NEWS & TRENDS NOVEMBER/DECEMBER 2010

marketing in the United States. Prior to filing FDA Overstep? an NDA, a firm submits to FDA an Investiga- tional New Drug application (IND) in order to Regulatory body was hasty in citing unsubstantiated claims and lawfully gather data on investigational prod- poor manufacturing processes, say experts. ucts during animal studies and human clini- cal trials.” The U.S. Food and Drug Administration today involve violations of good manufactur- The FDA’s campaign against e-cigarettes issued warning letters to five e-cigarette ing practices, making unsubstantiated drug will be dealt a hard blow if Njoy’s lawsuit is distributors—E-CigaretteDirect LLC, Ruyan claims, and using the devices as delivery successful—which is exactly what Godshall America Inc., Gamucci America (Smokey mechanisms for active pharmaceutical in- predicts after reading the oral arguments Bayou Inc.), E-Cig Technology Inc., and gredients like rimonabant and tadalafil.” presented in the case in September. “It was Johnson Creek Enterprises LLC—for vari- In its statement, the FDA also said it has clear to me that the district attorney grossly ous violations of the Federal Food, Drug, determined that electronic cigarette products misrepresented the evidence,” he says. “I and Cosmetic Act (FDCA). The FDA says are subject to FDA regulation as drugs. Un- am more confident than ever that the FDA the warning letters were for unsubstantiated der the FDCA, a company cannot claim that will lose. And I believe this court decision will claims and poor manufacturing practices, its drug can treat or mitigate a disease, such decide for many years to come exactly what but industry observers charge that it’s the as nicotine addiction, unless the drug’s safe- is a claim and what is not.” FDA’s claims that are unsubstantiated. ty and effectiveness have been proved. The “These letters were meant to intimidate FDA says all five companies have claimed, these companies,” says Bill Godshall, found- without FDA review of relevant evidence, How to Reach the FDA er of SmokeFree Pennsylvania. “The prob- that the products help users quit smoking Have a question? Or something lem I have is that the FDA is trying to take cigarettes. Godshall, however, disputes that. to communicate? Here’s how to away First Amendment rights. They’re say- “It’s the FDA that’s going around linking reach the FDA: ing, ‘We don’t care if this statement is true, we these companies with claims of smoking just care if it is what we consider marketing a cessation—not the companies themselves,” Consumer questions: product as a drug device.’” In the case of one he notes. “And in fact, all the evidence to date [email protected]. company, Godshall points out, the FDA cited indicates they are in fact effective smoking the claim of a customer that he had reduced cessation aids, but the FDA won’t consider Tobacco industry questions: his smoking consumption after using the any evidence other than clinical trials.” TobaccoIndustryQuestions@ product as evidence that the company was The FDA reported that certain compa- fda.hhs.gov. positioning its product as a smoking cessa- nies received warning letters for additional tion device. “They ignored the rulings inNjoy reasons, such as marketing drugs in unap- Small-business industry vs. FDA [a pending court case between Njoy proved liquid forms. The FDA cited Johnson questions: and the FDA over the agency’s attempt to Creek Enterprises, which markets Smoke [email protected]. ban the import of e-cigarettes], which found Juice, a liquid solution used to refill -de that a customer testimonial cannot, in and pleted cartridges in e-cigarettes, for alleged Formal correspondence, speech of itself, be construed as a drug claim,” says deficiencies in its manufacturing processes, and meeting requests: Godshall. “In fact, they didn’t even acknowl- including failure to establish quality control [email protected]. edge the lawsuit.” and testing procedures required under the In addition to letters to individual compa- FDCA. FDA Call Center: nies, the FDA also sent a letter to the Elec- The letter to the Electronic Cigarette Asso- 877-287-1373 tronic Cigarette Association stating that ciation outlines an arduous-seeming regula- (7:30 a.m. to 6:00 p.m. EST). the agency intends to regulate electronic tory pathway for marketing drug products in cigarettes and related products in a man- compliance with the FDCA. “The regulation FDA Ombudsman (for complaints ner consistent with its mission of protecting of drugs in the United States (that are not part and disputes): the public health. “FDA invites electronic of FDA’s Over-the-Counter Drug Review) [email protected] cigarette firms to work in cooperation with is governed by the New Drug Application or 301-796-9239. the agency toward the goal of assuring that (NDA) process,” states the letter. “The NDA electronic cigarettes sold in the United States is the vehicle through which drug sponsors To submit comments on proposed are lawfully marketed,” stated the letter to formally propose that FDA approve a new rules, dockets, and guidance the association. “The warning letters issued pharmaceutical drug product for sale and documents to the CTP, visit the public comment page at www.regulations. gov. To get the latest news on FDA 10 regulation, visit www.fda.gov/ TOBACCO OUTLET BUSINESS TobaccoProducts/. NOVEMBER/DECEMBER 2010 NEWS & TRENDS NOVEMBER/DECEMBER 2010

FDA Text Campaign Launched The FDA will deliver messages to retailers’ mobile phones.

The FDA’s Center for Tobacco Products a weekly tobacco legislation quiz contest message per week for the next five months. launched a six-month text messaging each Friday. The winner of each quiz con- While there is no charge for participating in campaign to deliver important tips and test will have the opportunity to be fea- the program, standard text messaging and educational messages about FDA tobac- tured on the FDA’s biweekly podcast se- data rates from wireless carriers may apply. co product regulations to retailers’ mobile ries, “Tobacco Control Act: What Retailers Retailers who want to participate in the phones in September. The campaign be- Need to Know.” program can sign up by texting “Break- gan with plans to send educational mes- After the first month of three messages Chain” to number 87000 from their mobile sages on Mondays and Wednesdays and per week, the FDA plans to distribute one phones.

NACS Argues Against Menthol Ban A ban would spur black-market activity, says association.

The National Association of Conve- of-the-store perspective, but also from making any quick decisions on a menthol nience Stores sees the U.S. Food and a public health perspective.” Beckwith ban,” the NACS Online report asserts. Drug Administration’s Center for Tobac- equates the possible impact of the ban “The market needs to be reviewed, and co Products’ consideration of a ban on to the impact alcohol prohibition had in considerations for criminal activity and menthol cigarettes as ill advised. NACS the 1920s—spawning both unregulated the potential for an increase in access to believes there would be many unintend- producers of these products and crimi- youth must be taken into account.” ed consequences if such a ban were put nal sales of products that will no longer While the issue is being debated by in place, most notably the creation of a be going through any FDA regulation the FDA’s tobacco panel, manufactur- black market for menthol products. or abiding by any state or federal laws. ers appear to be bracing for the possi- Lyle Beckwith, senior vice president “The potential for underage consumers bility of a ban. Lorillard, the third-largest of government relations for NACS, is to obtain access to these cigarettes will cigarette company in the U.S., plans to quoted on NACS Online as saying that be higher [because] no black-market launch a non-menthol variety of its flag- “fanning the flames on a black-market sellers check identification,” states an ship Newport menthol brand in Novem- economy is something we’re very con- NACS Online report on the topic. ber. The brand is currently No. 2 in the cerned about, not only from a viability- “NACS strongly cautions the FDA in menthol marketplace.

General Tobacco Closes Its Doors Heightened competition and MSA issues extinguished the value-priced manufacturer.

General Tobacco, a maker of low-priced ecutive vice president and general coun- 2004, but its market share subsequently cigarettes that was once the sixth-largest sel, reportedly told The Wall Street Journal dwindled—in part, company officials U.S. tobacco company, is shutting down, that the company struggled against intense have asserted, because of competitive having failed to make payments it owed to competition from other value-priced manu- advantages peers in the market gained states under the Master Settlement Agree- facturers until it was unable to meet its under the MSA. General Tobacco sued ment (MSA). According to a report in The obligations to states under the MSA. After several attorneys general and tobacco Wall Street Journal, the Mayodan, North several states banned it from selling within companies in 2008, alleging that the Mas- Carolina-based company stopped produc- their borders, the company stopped pro- ter Settlement Agreement violated fed- ing cigarettes and other tobacco products, ducing cigarettes. It is now winding down eral antitrust and constitutional laws, but including brands such as Bronco, Silver and operations by selling off inventory in foreign a U.S. judge in Kentucky dismissed the GT One, several months ago and is winding markets. case. Despite its financial troubles, the down operations. Founded in 1997, General Tobacco company plans to continue to pursue the J. Ronald Denman, General Tobacco ex- posted annual sales of $335 million in case, reported The Wall Street Journal.

12 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 NEWS & TRENDS NOVEMBER/DECEMBER 2010 HIGHLIGHTS NACS Show Draws 21,983 Attendees San Fran Ban In September, San Francisco, Calif. legis- Attendees browsed a 370,000-plus-square-foot lators voted 7-3 in favor of expanding the exposition floor. city’s law that bans tobacco product sales in pharmacies to include grocery stores and big-box wholesale clubs that also contain Nearly 22,000 representatives of the global convenience and petroleum retailing pharmacies. industry turned out for this year’s NACS Show, according to attendance figures released by NACS. The show, which took place in Atlanta in October, ranked as one of the 50 largest annual trade shows in the United States. Tobacco Trafficking In addition to a 370,000-square-foot exposition floor featuring 1,300 exhibiting The black-market cigarette trade in the Unit- companies, the show included 75 educational workshops and five training ses- ed States costs many states hundreds of mil- sions, including a closing general session address by President George W. Bush. lions of dollars a year in lost tax revenue and “Our solid attendance numbers demonstrate that the convenience and petro- has been linked to organized crime groups leum retailing channel remains strong, while many other channels have strug- with ties to Vietnam, Russia, Korea and Chi- gled during the economic downturn,” says NACS Vice Chairman of Convention na, according to a Sept. 19 National Public Steve Loehr, vice president of operations support for Kwik Trip Inc. “The NACS Radio news broadcast. The report said that Show continues to be embraced by both retailers and suppliers who come to criminals target tobacco because the penal- the show to grow their businesses as they find new products and services, make ty for trafficking in black-market cigarettes is new business connections and share new ideas in our educational workshops. five years in prison at most, compared with 10 years for trafficking in illegal drugs. Your News Here! Cigar Shift What’s going on in your neck of the woods? If you have some news During the 14 months that have elapsed about your state or store that you’d like to share with industry peers, since the federal excise tax hike on tobacco we’d love to hear it! Just e-mail us at [email protected]. took effect in April 2009, sales volumes of Please include your contact information so we can get in touch. cigars classified as large more than quadru- pled to 12.3 billion units, according to data from the Alcohol and Tobacco Tax and Trade Bureau. Meanwhile, sales of little cigars, or Toraño Names Lewis those weighing three pounds or less per thousand, fell by 79 percent. Some point to The Toraño Family Cigar Co. recently named the shift as suggesting that manufacturers Bruce M. Lewis, a veteran in the cigar industry are exploiting a “loophole” in the State Chil- with more than 20 years of experience, as vice dren’s Health Insurance Program legislation president of sales and marketing. Lewis joins by increasing the weight of their little cigars, Toraño Cigars at an important time for the com- taxes on which rose to $50.33 per 1,000 pany, which has recently undergone several key pieces, or about $10.07 per carton, so that changes, including establishing a new brand they would be considered large cigars, identity. The company, which recently took over which are taxed at 52.75 percent of the man- its own distribution, has changed its name from ufacturer’s price, or about $2 to $4 per car- Toraño Cigars to reestablish itself as the Toraño ton for smaller products in this category, ac- Family Cigar Co. cording to a recent article in The Wall Street “I am excited by the changes Toraño Family Cigars is undergoing and feel Journal. Tobacco industry observers coun- privileged to be part of their continued growth,” said Lewis, whose career in- ter that the federal excise tax itself forced cludes posts at Dunhill and General Cigar. “I look forward to playing a key role in manufacturers to make product modifica- building the organization and developing sales and marketing strategies that will tions to adapt to an onerous tax that would shape the company in the years ahead.” have made it impossible to compete—and ultimately to survive.

14 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 NEWS & TRENDS NOVEMBER/DECEMBER 2010

EU and Imperial Tobacco Global Report Partner to Fight Smugglers

Imperial Tobacco Group signed a cooperation agreement with the European Tobacco Growers Commission and EU member nations in September to jointly combat the smug- Protest WHO Ban gling and counterfeiting of tobacco products. Imperial pledged to pay $300 mil- lion over 20 years to fund initiatives aimed at deterring illicit trade. The International Tobacco Grow- ers’ Association (ITGA), a nonprofit Canada Goes Underground organization representing growers from 26 countries who produce There are an estimated 50 secret cigarette factories in the Kahnawake Mohawk ter- 85 percent of global leaf output, ritory and other native communities in Ontario and Quebec, reported the National reports that thousands of tobacco Post in a series on the underground tobacco industry in Canada. The series went farmers gathered in major cities in on to report that growers in Ontario, including those who took part in the federal the Philippines, Indonesia, India and quota buyout two years ago, sell their crop to illegal manufacturers for as much as Malaysia on Sept. 29 to protest Ar- usd$9.73 per pound, compared to about usd$2.14 per pound in the legal market. Tim ticles 9, 10, 17 and 18 of the World Montour, a wholesaler at Kahnawake, estimated that as much as 80 percent of the Health Organization’s Framework raw tobacco used in the reserve’s 17 cigarette factories comes from Ontario farms at Convention on Tobacco Control. the time of the fall harvest, and a former grower said the largest single concentration Articles 9 and 10 call for a ban on of farms still growing tobacco after the buyout are clustered around Six Nations, a the use of ingredients other than to - community with a number of unlicensed cigarette factories. bacco in cigarette production, while Additional reports in the series noted that organized crime is believed to play in Articles 17 and 18 were intended to the contraband cigarette trade, with the crime syndicates using cigarette profits to provide viable crop alternatives to bankroll trade in drugs and guns, and noted that some estimates suggest that illegal leaf production, but failed to do so, sales account for more than 30 percent of the national cigarette market. says the ITGA.

HARM Reduction Troopers Decry Menthol Ban UPDATE National Troopers Coalition asks FDA to consider impact on smuggling.

The National Troopers Coalition chairman, said the potential increase el to fully examine the impact further asked the FDA’s tobacco scientific in tobacco smuggling sparked by regulation of menthol could have advisory panel (TPSAC) to study a ban could present a challenge for on efforts to interdict illicit smug- whether a possible ban of menthol law enforcement officers. “Tobacco gling efforts. Tobacco smuggling cigarettes would significantly in- smuggling is a serious problem con- enforcement is extremely difficult, crease smuggling of contraband to- fronting law enforcement, and the and further regulations could place bacco. National Troopers Coalition would detrimental demands on our already Michael Edes, the organization’s like regulators and the advisory pan- strained enforcement resources.”

16 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 NEWS & TRENDS NOVEMBER/DECEMBER 2010 HARM Reduction UPDATE AHA Stance On Smokeless Flawed, Say Experts Critics say the American Heart Association’s findings are based on faulty data.

A number of critics—including the of all, the data do not support their ers quit, says Ross. He admits that American Council on Science and statements that smokeless tobacco there’s scanty evidence that smokeless Health (ACSH) and Brad Rodu, pro- is associated with a somewhat in- tobacco has helped U.S. smokers quit, fessor of medicine at the University creased risk of heart disease. Most but says that still doesn’t justify head- of Louisville—have come out against of the studies that are cited did not lines such as “smokeless tobacco won’t a statement by the American Heart find an increased risk of heart disease help smokers quit.” Association (AHA) that condemned from smokeless tobacco. Adds ACSH Associate Director Jeff smokeless tobacco as a means of Further, the smokeless tobacco Stier: “If your organization’s goal is spe- harm reduction and smoking cessa- they analyzed is a mélange of dif- cifically to combat heart disease, harm tion. ferent types of smokeless tobacco, reduction should be your mission, not AHA researchers have argued that most of which are unpurified and your opposition.” smokeless tobacco may increase the unprocessed, and have nothing to do Rodu also came out against the risk of a heart attack and hasn’t been with modern snus-type smokeless AHA in his RoduTobaccoTruth found to help smokers quit in the tobacco. They analyzed spit tobac- blogspot post, “The American Heart United States. But the ACSH says the co, dip, snuff and chewing tobacco, Association Has No Compassion for AHA’s stance stems from incorrect along with snus, and they’re using Smokers.” The professor, who holds data and lumps U.S.-style smoke- the generic term ‘smokeless tobacco’ an endowed chair in tobacco harm less tobacco in the same category as for that. Such an amalgam is com- reduction research, questions why Swedish-style snus. pletely unrelated to modern smoke- the AHA would seek to deny smok- The AHA’s analysis of the risks of less products, upon which the Swed- ers a “vastly safer alternative.” smokeless tobacco are highly flawed, ish cessation data is based.” “The American Heart Association says Dr. Gilbert Ross, medical and The researchers dismissed data from has rejected tobacco harm reduction executive director of the ACSH. “First Sweden showing snus did help smok- for the thinnest of reasons,” he wrote.

E-Cigarettes Go Hollywood More and more actors are being spotted smoking vapor cigarettes. A taste for e-cigarettes seems to be sampling the e-cigarette, Letterman said, growing among the Hollywood set, with “This is remarkable.” the increasing popularity attributed to This trend echoes what is a grow- the fact that the devices are viewed as ing chorus from former smokers now healthier alternatives to traditional ciga- turned electronic smokers. “Hollywood rettes. loves smoking,” says celebrity insider Grey’s Anatomy star Katherine Heigl Mimi LaTelle. “But in general, celebrities recently smoked an e-cigarette during are very health-conscious and they also an appearance on the Late Show with don’t like the stigma or the smell that David Letterman. During a brief discus- goes along with traditional cigarettes, so sion about her appreciation of the de- in the past most celebrities were in the vice—which Letterman said he initially closet about smoking, but we are seeing mistook for “a dog whistle”—he joined more and more celebrities come out and her for a puff and won applause from tout the benefits of electronic cigarettes the crowd for his talent at exhaling. After publicly.”

18 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 NEWS & TRENDS NOVEMBER/DECEMBER 2010

Government Limits HLA Joins Smok- In-Store RYO-Making er Friendly Family Retailers prohibited from selling cartons produced by rolling machines. Nine independent tobacco stores will become autho- The U.S. Alcohol and Tobacco Tax and cigarettes they make. Trade Bureau issued a ruling in October The stores in question reportedly use rized dealers. banning outlets from making and selling high-speed rolling machines capable of cartons of cigarettes produced by rolling producing a carton of cigarettes in eight In October, Smoker Friendly Inter- machines without obtaining manufactur- minutes, which run as much as $16 less national signed nine new locations ing permits and paying applicable federal than half the cost of leading brands such as working with the Harold Levinson As- taxes. According to an article in The Wall Marlboro and Camel. “We do not believe sociates sales team. The independent Street Journal, about 150 tobacco out- that Congress intended for a consumer stores are tobacco customers of HLA, lets in some 20 states have been making to be able to purchase at retail commer- which chose to license with Smoker cartons of RYO cigarettes in stores using cially manufactured cigarettes upon which Friendly International as authorized high-speed rolling machines. Under this tax has not been appropriately paid,” the dealers to get access to an exclusive ruling, these stores will now be required bureau said in its ruling, which will make private-label program. to obtain permits from the bureau, comply it cost-prohibitive for retailers to continue The stores, located in northern New with record-keeping rules, and pay $10.07 to engage in owning and running the RYO York and Massachusetts, are Subway in federal excise taxes for each carton of machines. Shop in Howard Beach, N.Y.; Fanto- mas in Gloversville, N.Y.; Court Street Book Depot in Binghamton, N.Y.; Toraño Family Cigars Supports 5th Pronto Lotto in Elmhurst, N.Y.; Super Street Gym Reopening Convenience in Westbury, N.Y.; and Quick Stop Convenience Inc. in New A South Beach Florida legend gets a new start. Bedford, Mass. Smoker Friendly International cur- South Beach is once again ready to be the Guests included Angelo Dundee as well rently licenses more than 760 stores center of the boxing world as the legend- as three-time heavyweight champion Mu- across the nation with the SF Private- ary 5th Street Gym, which was first opened hammad Ali; “The Fight Doctor” Ferdie Label Tobacco family. in 1950 by the late Chris Dundee and his Pacheco; former heavyweight champion brother Angelo Dundee, reopened its Shannon Briggs; Tommy “The Duke” Mor- his diminutive status because smoking ci- doors 17 years after shutting down. Count- rison; International Boxing Hall of Fame gars stunted his growth. A wonderful sto- less world-boxing champions were trained trainer Emanuel Steward; Hall of Fame box- ryteller, Dundee recounted falling in love at the original 5th Street Gym, including ing writer Bert Sugar; former heavyweight with cigars when in Cuba while training Carmen Basilio, Sugar Ray Leonard, Wil- champion Pinklon Thomas; former light boxers in the early ’50s. Bert Sugar was lie Pastrano, and of course “The Greatest,” heavyweight champion Glen Johnson; in- happy to grab a few Toraño Virtuosos in Muhammad Ali. Celebrities such as Frank ternational jazz superstar Nicole Henry; Mi- between chatting and posing for pictures Sinatra, the Beatles, Jackie Gleason, Joe ami Beach Mayor Mattie Bower; and vari- with boxing enthusiasts. Legends in their Louis, and others visited regularly just to ous others. respective professions, Carlos Toraño feel its magic. Toraño Family Cigars was well repre- and Angelo Dundee chatted and posed At 89 years of age, the still spry Angelo sented, as the patriarch of the family, Car- together for photos. Dundee—who is famous for training Mu- los Toraño, was in attendance along with “It was truly an honor for the Toraño fam- hammad Ali and other champions—is Carlos Llaca, director of operations, and ily to be a part of this historic event,” said bringing back the 5th Street Gym along master roller Felipe Sosa. Event guests Llaca, who noted that talking boxing, smok- with a group of young gentlemen lead by were treated to cocktails and some of ing great cigars, and sipping on cocktails in Dundee protégé Matthew “Matt” Baiamon- Toraño Cigars’ finest cigars as they mixed, the presence of legends makes for a great te. To celebrate its return, the gym hosted a mingled, and traded tales of the original evening. “This may be the last time that spectacular private grand-opening event, at 5th Street Gym. Dundee, who at 89 still Muhammad Ali, Angelo Dundee and Dr. which Toraño Family Cigars served as the has a sharp mind and quick wit, joked Ferdie Pacheco will be under the same roof official cigar sponsor. with Carlos Llaca that he never grew past together.” TOB

20 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 TRADE TALK BY THOMAS BRIANT

FDA Retail Training Requirements Questioned

By Thomas A. Briant, Executive Director, National Association of Tobacco Outlets

NATO is questioning several of the elements that the FDA’s BONUSES/TIME OFF Center for Tobacco Products is proposing that retailers The FDA also proposes that retailers should set up at their include in clerk training programs. The FDA tobacco own expense a program to conduct internal compliance regulations that were enacted into law in the summer of checks, or “sting” operations. The proposal recommends that 2009 do not require retailers to train employees on how to retailers reward employees who pass an internal compliance prevent the sale of regulated tobacco products to minors. check with a “cash bonus or time off” and include an However, in the event that an employee sells cigarettes, employee’s pass or fail history from compliance checks in roll-your-own tobacco or smokeless tobacco products to making decisions about annual compensation, job promotion, a minor, then the retailer will be subject to a lower fine if it or job termination. has an approved training program with elements required In the association’s official comments filed with the FDA, by the FDA. NATO has objected to these proposed requirements as well. NATO has officially submitted comments to the FDA While large-chain retailers may have the financial resources responding to the various elements that the Center for to plan and conduct internal compliance checks, smaller Tobacco Products proposes be included in clerk training independent retailers may not have the financial means programs. In addition to submitting the association’s to implement a compliance check program. Moreover, official comments, NATO board members were invited to local units of government may routinely conduct tobacco meet with FDA staff in October to discuss in greater detail sales compliance checks, which should be sufficient to test the association’s concerns about the proposed retailer compliance with the FDA law as well as with state or local training program elements. At press time that meeting laws, all of which are intended to prevent the sale of tobacco was still pending. products to underage youth. Giving cash bonuses or time off and using overall compliance HEALTH AND ECONOMICS check rates to determine annual salary, job retention, or job FDA staff believe that a retailer training program termination should not be included as elements in a retailer should include a requirement that employees be taught training program. These types of actions are outside the about the health effects and economic costs of tobacco scope and jurisdiction of the FDA. For both store personnel use, including the approximate number of deaths due to and management staff, enforcing the law prohibiting the sale tobacco use and the dollar amount of health care costs of tobacco products to minors is simply a part of their daily job and lost productivity attributable to tobacco use. duties and should not require special cash payments or paid As noted in NATO’s comments, the FDA law itself time off, or figure into calculations for annual compensation. does not require such elements in a training program, The October meeting between FDA staff and NATO board nor do these specific claims have any relevance to members will, we hope, result in the agency having a more training store personnel in methods to prevent the sale clear understanding of how a retail store operates and the of tobacco products to minors. One of the main purposes financial burden that retailers will be faced with if they are of the FDA tobacco regulations is to prevent the sale of required to pay bonuses or provide paid time off to employees tobacco to minors, and requiring employees to learn who are simply doing their jobs. TOB about the health and economic impacts of tobacco use will not provide employees tangible methods to Thomas Briant, the executive director of NATO, can be ensure that sales of tobacco products to youth are contacted at 866-869-8888 or by sending e-mail to info@ prevented. natocentral.org.

22 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 Welcome, Affordable Premiums—And More

In a world where legislation and innovation coexist at all-time highs, open- minded manufacturers respond more quickly to changing demand and the latest category trends, such as less-pricey premium cigars.

By Renee Covino

f necessity is the mother of invention, different needs.” change for the better.” then in the cigar and tobacco world, Beyond the choke-hold legislative Another observation is that of a Ilegislation and economic woes are climate and bleak economy, younger “lifestyle trend,” according to Newman. the octomoms. Both “problems” inspire adult cigar smokers are another force Cigar smokers are often “piggybacking” increased innovation and ingenuity. And behind the trends. “We do hundreds of a good stogie with their favorite beverage that just makes the whole industry more events across America, and the trend to relax. “It could be alcoholic or it could responsive to cigar lovers’ changing needs we’re seeing is the age of the adult cigar be a Coke,” he says. “There’s so much at an ever-increasing rate. consumer is coming down,” says Bobby stress today, it’s the worst economy since “This is a historic time in the Newman, executive vice president for the Great Depression, and more people production of tobacco,” says Jonathan J.C. Newman Cigar Co. At a recent cigar want to treat themselves and just relax Drew, Drew Estate founder and event in downtown Orlando, Newman for an hour or so.” production director. “There’s a paradigm surmises that the average age of attendees “Let’s not forget about the romance shift, with products taking on new forms “must have been 25.” He says the fact that of our products,” adds Drew. “So many and shapes. Those of us in the industry younger adults are smoking cigars “bodes cigar smokers are coming into cigar are looking at merging different types of very well for the future of our industry.” stores and looking to a good stogie to get leaf and the way we take raw materials, “When I got into the industry in 1975, out of their miserable world.” material prima, and make them into a only ‘old’ people smoked cigars; now marketable product. It’s a passion, it’s an with the age coming down to 25, 21 and PREMIUM MEETS MASS art, it’s creating products out of survival above, with folks coming out of college PRICING or innovation or some blend thereof, coming into the cigar industry, they’re And so with the economy being what because the tobacco products that are for looking for what’s new and exciting,” it is and with younger adult smokers the market today are for smokers with Newman adds. “They’re inspiring more coming into the industry, it makes a

24 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 lot of sense that one of the standout aspect of our business. We grow our own cigar trends across tobacco shows this tobacco, we make our own cigars, and summer—including the IPCPR show we even make our own cellophane and in New Orleans and Smoker Friendly’s have our own box factory. So, by being annual festival in Boulder, Colo.—is completely vertical, we’re able to offer the offering of premium cigars at more the best prices. There’s no middle man affordable prices. between us and the consumer.” “Due to the economy, we’re getting And that advantage spreads beyond the better cigars at a lower price,” observes new affordable premium line. “We still Jean Emond, ambassador for Graycliff have super-premium cigars, and our most Cigars. “Now with unemployment at expensive right now is Perdomo Patriarch 10, 15, sometimes 17 percent in various Torpedo—but it retails for $9, and really markets across the country, there are a lot it’s a $20 cigar offered at less than half- of premium cigars coming out retailing price,” Kemper explains. “The Perdomo for $6, $8, $10 that are magnificent and Reserve Champagne used to be $8, now can hold a candle to premium cigars at Perdomo’s Arthur Kemper praises his cigar company’s you can buy it for $6.” higher prices.” “vertical” nature, allowing for the lowest prices. That’s because in addition to utilizing And some are even lower. My Father its vertical nature and offering a new Cigars introduced a couple of new price- affordable premium line, Perdomo has conscious cigar lines, such as La Reloba, made all its cigars more affordable by in the $5 to $7 range, according to Jose being “the first company to absorb the tax Ortega, vice president of sales. “Before, cost of SCHIP,” according to Kemper. In cigars like this were in the $9 to $11 range, 2009, Perdomo absorbed the cost on 70 but in order to compete we had to come percent of its brands, and then followed down from that price range,” he says. up this year by absorbing the tax on the Brick House Cigars from J.C. Newman remaining 30 percent. Cigar Co. was the company’s first brand, “We basically reduced our prices by dating back to 1895. It was taken off the absorbing it,” he explains. “It comes down market in 1937, but was brought back last to supporting cigar consumers. People year as the company’s “first SCHIP cigar,” still want quality products, but if they J.C. Newman’s Brick House sampler and retro tin make according to Newman, “a tremendous for affordable gift and holiday items. have $20, instead of buying two cigars, value retailing between $4.75 and $5.95. they may want three or four now. So at It’s geared toward the cigar smoker 21 Perdomo we answered that call, we’re years and up and is doing very well.” doing the right thing.” Perdomo’s Nick’s Sticks was a brand The company has been getting the available only in Miami initially—and word out through a grassroots effort then the company released it nationally of store signs (for events) and affixing this year. It comes in four sizes and stickers on boxes. three wrappers—and what’s “really “It’s not enough to tread water and great,” according to Arthur Kemper, vice stay alive; you want to grow your business president at Perdomo—is that it retails and this industry—that’s why we’re in for $3.75 to $4.50 a cigar. business,” Kemper says. That is possible, thanks to Perdomo’s Also looking at the big picture, Drew “vertical” nature, Kemper relays. “What sees affordable premiums as part of the we’ve done in the past two years is provide industry evolution and continued cigar consumers with super-premium cigars at passion on the production side as well as great affordable prices,” he says. “And the on the consumption side. reason we can do that is we’re a completely Jonathan Drew sees affordable premiums as part of the “We and the industry are getting better vertical manufacturer; we control every cigar industry’s evolution. at innovating what the consumer really

26 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 tin holding 45 Brick House cigars has a suggested retail of $125, putting each cigar at under $3. Retro names are here again. Red Lion from Heavenly Cigar and Brick House from J.C. Newman are just two examples of cigar companies reaching into their repertoire of old brand names for new/refurbished cigars. Cigars are quietly milder and offer more taste diversity. Full-bodied Graycliff’s Jean Edmond, Drew Estate’s Jonathan cigars are certainly not out of style, Drew and a Colorado cigar aficionado enjoy their but mild-to-medium cigars are getting The “barrier bag” is J.C. Newman’s hip and fellowship at Smoker Friendly’s first annual Rocky functional package offering for its Trader Jack’s Mountain Cigar Festival. more play as cigar consumers diversify aromatic cigars. their tastes, according to Ortega.“We’re seeing a trend back to the mild-to- medium cigar,” he says. “The full- bodied smokers are more outspoken, they’re the ones barking, but they are the minority. The mild-to-medium guys are a little quieter, but they’re actually the larger group. So when I’m doing events in stores, I’m seeing an

Nick’s Sticks were released nationally this year by increase in sales more on the mild-to- Perdomo made all its cigars more affordable by Perdomo. medium side, which was surprising at absorbing the tax cost of SCHIP. first, because it was all full-bodied a wants, what he can afford, and still year and a half to two years ago. The brands outside of their core, such as allowing a nice profit,” says Drew. “We’re purchase patterns are interesting—just with Marlboro Snus and Camel Snus, taking different elements from different like with food and drink, consumers respectively, cigar manufacturers also ways to make tobacco and we’re putting need to change it up a bit. I think see the sense in “crossing over” their them into convenient ways for people they’re more comfortable diversifying brands, such as Drew Estate’s Acid line, to smoke them in every price category. their tastes now.” now available in Acid Shisha for hookah Coming out with a cheaper cigar does More hip, functional packaging smokers. Drew Estate is specifically not add up to innovation—that’s just is being offered. J.C. Newman’s new “building more equity into the brands about pricing. This is about putting Trader Jack’s aromatic cigars—dubbed we have and taking less shelf space at tobacco elements together that are both “a taste of the islands”—are being the store level,” according to Drew, who premium and mass to create different presented in a “barrier bag,” according adds that the company hasn’t released products that meet the needs from a to Newman. “It has nylon in the bag a new brand in three years, which, he global perspective.” and keeps the cigars fresh in a non- says, is very unique in the premium- Beyond affordable premiums, other humidified environment; the cigars cigar business. cigar trends have been heard: will stay fresh for two years as long as “Our strategy is we don’t want to Value gift packs are more popular. you don’t break the zip-lock seal.” This dilute down our brands by building The more-affordable-premium trend is another example of young-adult new ones,” he states. “If you do that, is not just for single sticks. Gift items appeal, as these consumers respond customers stop buying the old ones, such as J.C. Newman’s Brick House well to unique and exciting packaging, they want the new ones, and then a Sampler—which holds four different according to Newman. year later, the retailer has to discount sizes, including the newest one, Mighty Manufacturers see the value in the older brand. A premium brand like Mighty, and has a suggested retail price cross-over brands. Similar to how Acid is the type of product that can of $19.95—are expected to be very Philip Morris and R.J. Reynolds transcend classes of tobacco, and that’s popular this holiday season. A retro recognize the advantage of expanding what we’re exploring now.” TOB

28 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 Smoker Friendly Celebrates The International 2010 SFI Tobacco Festival and Conference was a hit with both manufacturers and retailers.

Participants in the legislative panel ore than 400 retailers and vendors gathered in Boulder, Colo., for Smoker Friendly International’s annual Tobacco MFestival and Conference at the Millennium Harvest House from Aug. 30 to Sept. 1. The event kicked off with the first annual Rocky Mountain Cigar Festival, a consumer-based tasting of fine cigars, food, beer, wine and products from local distilleries attended by more than 1,200 people. A series of seminars and sessions covering industry issues and trends that were offered the following two days gave tobacco retailers and manufacturers lots of great ideas and insights about industry developments, as well as the opportunity to make new contacts and learn about products. The pages to follow show some of the Jonathan Cox, Oliva Cigar highlights of the festivities. Commonwealth Brands

CRA’s Glynn Loope shares insights with attendees. Joe Gold and the Bahama Mamas, Lizzy and Lelia

Cigar Authority broadcasts a live interview with Colibri’s Les Mann (center). Participants in the Industry panel

30 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 Benji Menendez, General Cigar

Harry Preston (left) and Bobby Newman of J.C. Newman Cigar Co.

Featured guests included author Theodore J. King (left) and John Caldera of Independence Institute (right).

More than 1,200 people enjoyed music, food and cigars at the The Rocky Mountains served as a backdrop for the festival happenings. consumer-tasting event on the first day of the festival.

Fabien Ziegler of Drew Estate The industry panel offered insights. Republic Tobacco’s Steve Sandman received the award for manufacturer of the year. 31 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 3232 TOBACCOTOBACCO OUTLET OUTLET BUSINESS BUSINESS NOVEMBER/DECEMBERNOVEMBER/DECEMBER 2010 2010 By Renee Covino

A few handfuls s there such a thing as a cigarette earlier in the year by Tobacco Outlet store anymore? Blame it on over- Business told us they’d increased their of cigars, a bowlful the-top taxation, annihilating assortment of premium cigars, loose regulation and next-to-nil profit: It’s tobacco and RYO, primarily. We went of RYO, a pinch been years since tobacco retailers could back and talked to some of them to get survive on a cigarette assortment alone. a better perspective on their current of e-cigarettes, Instead, they keep mixing it up, which “mix” strategy. in today’s crazy mixed-up tobacco The overall theme is simple and and a splash of world makes the most business sense. logical: Go lighter on cigarettes while Forward-thinking cigarette stores increasing the ratio of everything and beverages—the new that started dabbling in other tobacco anything else that is working. products and related items have now “What we want to do is increase and improved recipe morphed into all-inclusive tobacco sales in all the categories besides the stores and so much more. Some of cigarette business,” says Hank Do, for tobacco retailer them—particularly those with lounges owner of Specialty Tobacco Outlet in and humidors and high-end cigars and San Bruno, Calif. “We increased about success is to keep accessories—have taken on more of a 1 to 2 percent in all other products premium focus in the process. [categories]—cigars, lighters—and mixing it up. Others just delve more deeply into the we’re doing higher-end stuff with those various profit centers of late—including now, too.” Ironically, while the cigarette cigars, but also RYO, loose tobacco, mix has not been increased, sales in smokeless and snus, e-cigarettes, and cigarettes have increased along with the other harm reduction products and other tobacco products that have been even non-tobacco categories such as increased, Do relays. “We’ll take it,” he beverages, liquor, candles and anything says. “We’re just trying to get customers else their customers will buy in to spend more money every time they conjunction with tobacco. come into our store, and it’s working— The great thing about this tobacco our average sale increased about 5 mix-up is it continually allows for percent since we mixed up some items.” change and adjustment. It is a never- While Specialty Tobacco Outlet ending process of tobacco give- is on-trend, others had much higher and-take. And because the rules percentage increases in the “other” are continually in flux with tobacco categories. For instance, Two Rivers legislation, there are no rules relative to Smoke Shop, in Darrington, Wash., what makes for a good tobacco mix. used to be about 50/50 cigarettes to A good number of retailers surveyed everything else. More recently, the

33 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 philosophy and variety mix in there to build them up.” In addition to four cigarette stores, Tom’s Super Shop’s Tom Kessler owns a liquor shop. MIXING IT UP WITH HUMIDORS AND CIGARS If done right, adding more premium cigars to the mix can be a worthwhile investment, as many tobacco retailers report. Scott Emerson, owner of Gold Rush Discount Tobacco in Big Spring, Texas, says he specifically attended the Tobacco Plus Expo International (TPE 2010) show in Las Vegas last year to buy a quality humidor and beef up his premium cigar mix. But instead of buying one humidor, he ended up buying three and increased his premium-cigar business from 8 percent to 10 percent of his sales to upward of 22 to 24 percent currently. “The humidor I had was makeshift and losing me $300 to $400 a month on ruined cigars,” Emerson explains. This very ineffective humidor was actually an old glass trophy case that Emerson obtained from the local high school; he sealed it with silicone and put a cigarette mix was reduced to 25 percent, all smoking accessories—cigarette cases, humidifier in it—and admits it “didn’t while RYO, cigars and OTP were lighters, cigarette injector machines, work too well.” But instead of getting increased to about 75 percent altogether, cigar accessories. We carry just about rid of it, he now uses it to showcase according to Sally Howard, manager. every smoking accessory my main packaged cigars—“the ones in tubes “We lost cigarette sales with the two tax wholesaler carries. We mix it up—we that don’t have to be humidified.” hikes, so since then, I’ve incorporated a sell candles, sprays, ashtrays, snuffers, When Emerson decided to get serious lot of RYO and cigars into the mix,” she whatever we can think of. I try to about the category and purchased three says. have more variety than any other shop new humidors—“designed to match the Tom Kessler, owner of four Tom’s around.” décor of my store and that function like Super Shop tobacco stores, based in In fact, the mix-it-up mentality also champs”—and ever since, there’s been Wichita, Kan., says his mix philosophy inspired Kessler to take a chance on the “a remarkable difference in my cigar is “all over the board.” He knows “we can opportunity to purchase three additional business.” no longer just sell cigarettes; we have to tobacco stores last year. “For 16 years I That difference goes beyond the provide other opportunities and avenues was in business with one tobacco store sales percentage—his store now makes in order to survive in this economy. So and one liquor store; then I saw the a statement that it’s solidly in cigars. I diversified into a lot of things that I opportunity to diversify by opening “These are huge, freestanding humidors didn’t sell four or five years ago. We sell a three more tobacco stores in one year,” that are 7-1/2 feet tall and 6 feet wide lot of hookahs because customers asked he says. He bought all three stores from displaying roughly 5,000 cigars each,” for them, so we responded and got them “an individual who had wanted to get Emerson explains. “My customers can’t in. We also sell a lot of e-cigs—that’s out of the business for quite a while miss them when they walk in—they been a huge item right now. We also and let the stores go down to minimum literally have to trail through all the sell lots of beverages, whereas we never inventory,” Kessler explains. “So it was cigar displays to get to the cash register carried them before. Then we expanded an opportunity to go ahead and put my now. It’s definitely a more upscale

34 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 “We’re just trying to get customers to spend more money every time they come into our store and it’s working—our average sale increased about 5 percent since we mixed up some items.”

presentation.” volume in cigars our little store has ever Howard maintains. “It started out slow, Thanks to the much more prominent done. It was like there was a rush on but lately we’re seeing customers come mix, his clientele caught on that he was cigars. We can’t quite figure it out, but in and buy $100 worth of premium a legitimate purveyor in premium cigars. we’re not complaining.” cigars at a time.” “They seem to greatly appreciate the fact Two Rivers Smoke Shop also noticed Ever since Specialty Tobacco Outlet that we bought these new humidors and a big change when it added premium upped its mix in cigars, it has been are taking greater care to make sure cigars into the mix about a year ago. having better success “upselling and our cigars are fresh,” he says. “They “We had Swisher Sweets and Black bundling the sale,” according to Do. know they can buy one or two sticks or & Milds and White Owls before, but “Customers who come in and buy one a bundle or box. We also get between then we added a nice 6-foot-by-3-foot or two cigars are offered a discount of 10 and 15 special orders a month. The cherry wood humidor, and customers between 10 and 15 percent when they Friday before last we did the largest would say, ‘Oh, you have those now,’” buy a box,” he says. “The cigar customers who spend between $7.99 and $9.99 on cigars are the ones we find we can generally upsell with better success. And if someone wants to come in and try a premium cigar, we try to lure them away from the cheap ones and into the medium-price range. It won’t do us any good if they don’t like the first one— then they won’t come back,” Do reasons. MIXING IT UP WITH RYO AND LOOSE TOBACCO At Smoke Zone II in Cleveland, Ohio, cigarette sales dropped from “several hundred cartons a week to 40 to 60 cartons a week,” according to Linda Smith, part-owner. “On the other side of that, we now sell 400 to 600 pounds of loose tobacco.” Currently, this is the store’s “big business,” she says. “About 85 to 90 percent of my customers now make their own cigarettes. It’s an astronomical difference from before, and so we’ve adjusted the mix accordingly.” Smith adds that “even little cigars that were at one time big sellers have now been taken over by RYO.”

36 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 Two Rivers Smoke Shop used to buy “The cigar Kessler admits that the private- about a case of RYO tubes once a month, label business “is probably only about according to Howard, “but now we have 4 percent to 5 percent of my business several brands, and we’re reordering at customers who right now,” but he is a patient man when least once a week.” Howard’s decision it comes to mixing it up. “It takes time to go deeper with RYO proved to be spend between to build these things,” he says. even smarter when “both of our closest competitors quit the RYO category,” $7.99 and $9.99 MIXING IT UP WITH she says. “We’re the only smoke shop LIQUOR ACCESSORIES around that has it.” on cigars are the Thanks to the fact that he also For Kessler and Tom’s Super Shop owns a liquor store right next to his stores, “The base category we expanded ones we find we flagship tobacco store, Kessler found was RYO tobacco,” he says. “The RYO opportunity in adding liquor accessories category has just exploded for us; it had can generally in his tobacco store mix. “Liquor stores been growing for the last six or seven can sell only alcohol in Kansas—they years anyway, but especially for the last upsell with can’t sell ice or bottle openers or wine two it has just blown up.” The proof is in corks or pourers—but in my smoke the mix here, too—whereby “we used to shop, I can sell anything I want, so I sell have only a 4-foot shelf of RYO tobacco better success.” all these liquor accessories and more— products, we expanded that in most of margarita salt and glassware, too,” he my stores to have 20 feet or better,” he explains. It’s all about not being afraid relays. “My main store has 20 feet of (such as supermarkets and club to mix in a variety of opportunities, shelves, floor to ceiling, filled with all stores) have embraced in non-tobacco according to him. kinds of tobaccos. Our customers don’t categories. “In other channels, private- like to shop out of an ‘empty wagon’— label is easily 30 percent or more of their MIXING IT UP WITH MAGAZINES they want to choose what they want.” business—it’s become a huge entity And for Emerson, that meant seizing Kessler says that because his main for them,” he maintains. “The margins an opportunity with adult magazines wholesaler has about 10 different are higher and customers are used to in a segregated section of Gold Rush styles of rolling machines, he carries 10 it being a quality offering—there’s no Discount Tobacco. “In our little town, a different styles, too. “If my wholesaler reason not to do it in tobacco.” popular newsstand went out of business,” has it, I’ve got to have it.” And so his shops are Smoker Friendly he explains. “So naturally, we got their MIXING IT UP authorized dealers now. As of April cigar and cigarette business, but then of last year, Kessler carries almost all WITH PRIVATE-LABEL we realized those customers were also of the SF private-label lines. “I like to looking for a place to buy their adult Kessler also sees value in riding the sell things that other people can’t,” he magazines.” And so, a separate “room” private-label wave that other channels explains. “This is just one more edge.” of about 100 square feet was carved out

38 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 Scott Emerson of Gold Rush Discount Tobacco (left); Tom Kessler of Tom’s Super Shop (right).

for “novelties, DVDs and magazines,” Emerson guesstimates that 2 percent things, we embrace new items. There’s an Emerson says. “This is what it truly of his store’s profit comes from his old saying—you’re new only once—so we means to mix it up—for the sake of beverage business, which is made even like having new things all the time for our the customer.” more solid by his drive-through service, customers. And the industry here lately And because of the store’s which has been in place since day one. has been providing that for us. We love expansion into other areas, Emerson to keep mixing it up—it gives my staff is considering a mix-up with the store MIXING UP THE DISPLAY MIX something else to talk about and sell.” name, too. “We’ve not locked ourselves Beyond the mixing and adding This forever-new philosophy is into being a tobacco store only,” he of products and categories, a mix something Kessler says he borrowed says. “The name implies we’re nothing of another color gives Kessler his from his “Starbucks days.” According but a tobacco shop, but in truth, we’re edge: mixing up the displays. “We’re to him, “If you look at them, they’re a lot more.” constantly rearranging our stores not technically in the coffee business; too, sometimes when we get in new they’re in the experience business. MIXING IT UP WITH BEVERAGES segments,” he explains. “My main You go there not because you want to Indeed, Gold Rush Discount store has been under construction and pay $7 for a coffee—you go for the Tobacco is also a great place for improvement. And my plan to follow atmosphere and for the experience. Well, beverages, such as tea, lemonade, and market trends and regulations are we’re selling experience, too, in tobacco soft drinks. The store’s soda fountain more reason why we have to constantly stores. People like choices; they like to machine was put in place eight years move things around. But it also makes shop in a positive place where they get ago, but, Emerson says, “It still goes for higher customer appeal.” renewed and stimulated. As long as we’re amazingly well and we’re always The way Kessler sees it, mixing it up providing customers with pleasing and happy experiences, they’ll come back to catering the drinks to what customers means tobacco stores “have got to keep TOB want.” churning.” He maintains, “We love new us. And so, we keep on mixing.”

40 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 Lighting Up with CALICO

Variety and quality are king for this California-based lighter manufacturer.

alico Brands Inc., based in Accessories come in a wide range Ontario, Calif., is a leading of price levels and styles. What, in Cmanufacturer of U.S. pocket and your view, differentiates Calico from utility lighters. The company, which other manufacturers? introduced the first utility lighter to Sonia Acosta, Marketing Manager: Calico the U.S. market in 1985, produces both Brands offers the nation’s most extensive branded and private-label lighters. and innovative lighter products at In the interview to follow, three varied retail price points to meet every Calico executives share news about the account’s needs. Calico Brands Inc., a company’s products, promotions and family of private-label and recognizable plans for 2011. brand names, provides a one-stop lighter

42 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 solution for all brand name and private- How much of a risk does lighter safety label utility lighter and pocket disposable pose to retailers? lighter needs. SA: This is a hot button. Retailers must make sure to partner with a What new lines of pocket lighters quality lighter manufacturer with a have you introduced recently? What good reputation for product testing prompted that product introduction? that meets CPSC [Consumer Product SA: Our most recent addition is the Safety Commission] regulations. At new electronic Scripto Mega Lighter. Calico, we make our own components It features a wide tank, adjustable flame, to exact tolerances. Our lighters are clean electronic ignition, and visible fuel manufactured on premise in our supply, and is available in an assortment factory by use of robotic and automated of colors: white, burgundy, black and processes. These steps assure consistent white. We noticed there was a segment quality and product outcome. From of the market that wasn’t being met. component manufacturing through The Scripto Mega Lighter makes a nice packaging, Calico performs intense disposable cigar lighter with a reliable regulatory inspections. Calico and brand name and great quality. Scripto lighters exceed CPSC requirements and meet ASTM Do customers’ preferences vary by voluntary safety standards. In addition, region or by demographics? Calico upholds ISO certification. SA: We haven’t really seen that Immediately prior to packaging, every distinction. We find that consumers want Calico and Scripto lighter is subjected to a variety of choices in types of lighters, a final quality and safety inspection. We sizes, colors, designs and price points. can guarantee a great quality product. This is where Calico Brands excels. You’ll You don’t find that in every lighter find in our product line the entry-level company. Many lighter importers have Calico branded lighters used widely in been known to distribute lighters not private-label programs, as well as our in compliance with CPSC regulations. premium Scripto national brand product And this is simply not acceptable. line used primarily for the trusted name, Ultimately, the liability will fall on the and up-to-date fashionable colors. Both lighter manufacturer. But consumers lines have spark wheels, electronics, full rely on their retailers to partner with size, wide tank, mini-lighters, themes, safe and reliable manufacturers and and a wide array of price points. suppliers.

44 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 What do tobacco outlet retailers need private-label. Novelty lighters with team How do you work with retailers to to maximize the potential of pocket logos and wraps, for example, are trends. promote your products? What sorts of lighters? How wide of a variety do Displays are key, because the advertising display materials and promotions are they need to cover? How important must be done in the store. The display available to retailers? is display and bringing in new styles? must convey what the lighter “is” and George Lewis, Regional Vice President: Ross Knapp, Senior Vice President of why to buy it over another. Most are reduced retail prices. For National Accounts: Just as the variety of Retailers should find a trading partner example, single lighters priced at $0.99 cigarettes is much more varied in tobacco who can offer all of the above categories are on sale for $0.79, or two for $1.00. outlets, so should the variety of lighters to their customers. Calico Brands is one Other promotions can be volume drivers be. Yet many retailers are still missing of the few companies that can offer all of such as giveaways or sweepstakes, such opportunities for extra sales and profits by these features for today’s tobacco retailer as those for trips, cars, etc. Point-of-sale carrying only one or two lighter models. in one shipment. We offer value pricing promotional materials include pump There seems to be a different brand coupled with high quality in our Scripto toppers, banners, and on-display cards offering for every cigarette consumer in Views and Calico value-priced lighters. [shelf talkers]. We use our eco-friendly the store, yet that marketing in many We cover the consumer interested in four-tier and three-tier racks to display cases is not translated to the offerings in the very latest technology with our No. up to 200 lighters. These have updated lighters. Today’s lighter consumer wants 1-ranked Scripto electronic lighters. Our eye-catching graphics and will take up value, advanced technology, varied design wrapped lighter line is appealing to the less counter space by stacking the lighters offerings, and confidence in a familiar fashion-conscious consumer. Imprinted rather than placing them side by side. brand that they can trust for quality. logo lighters are something we do here The variety of lighters should include a in the United States on state-of-the- What kind of opportunity do private- regular size, mini, electronic, and a lower- art printing equipment for high-quality label lighters offer to tobacco outlet priced control brand lighter such as results and a fast turnaround. stores? Is developing a private-label

46 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 TPE_2011_Ad_TOB_Spring_10_FINAL 3/19/10 1:23 PM Page 1

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Las Vegas Convention Center March 2nd & 3rd 2011 line about profit or customer loyalty? Scripto and Calico brand names give upholding our commitment to quality, Can you tell us about the kind of consumers and retailers confidence that value and safety. volume necessary to consider a private- they are getting a product that is safe label program? and reliable. Is there anything else about the RK: Private-label is the best company that you would like retailers to opportunity for retailers. If the private- What are your goals for Calico in 2011? understand that we haven’t touched on? label lighter is a quality lighter and the SA: We’re always looking to stay in SA: Recently revamped, our Web site, lowest retailed lighter in the account, touch with our consumers’ needs www.CalicoBrands.com, features our it is usually the top seller. One thing and what they like. For 2011, we are Calico and Scripto branded lighters. Calico Brands does very well is imprint looking at revamping the entire Calico Visiting the Web site is the easiest and lighters for private-label and store- Brands product line with new colors quickest way for retailers and consumers brand programs. We are the leader in and packaging, following in the steps to view our product line. We have also this industry because we offer a very of what we did for the Scripto branded recently created a Facebook page and a safe high-quality lighter that is printed product line. The changes to colors and Twitter account, so we can stay in touch in the United States in small quantities packaging we did earlier this year on with our consumers and learn what they to meet almost any retailer requirement. Scripto products were very well accepted. are looking for or what they think of the Calico uses a pad printing method that We plan on continuing to educate product. However, this is a great place provides a durable imprint that dries the consumer as well as the retailers on to stay in touch with tobacco retailers on impact, creates a precise and well- the importance of buying good-quality, as well, as we introduce new products, defined imprint, and can imprint up to safe lighters that have proved to be in new packaging, promotions, related six colors. Retailers want to make sure compliance with CPSC regulations. news, etc. And we like to feature our their logo will stay on for the life of the Earlier this year we introduced eco- partner retailers when we’re running a lighter and not easily be scratched off or friendly display racks for both Calico and program together. We invite tobacco torn off, as is the case with lighters that Scripto branded pocket lighters. These retailers to e-mail us pictures of their have a clear wrap. Calico will imprint as racks are made of recycled materials Calico and Scripto product displays so few as three cases of lighters and drop- and are recyclable. We have plans to we can feature them on our Facebook ship them anywhere in the U.S. The expand our eco-conscious efforts while and Twitter pages. TOB

48 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 How two friends survived an Alaska fishing trip gone horribly wrong.

By Dave Tewksbury

Dave Tewksbury covering up from the bugs.

When Colorado cigar retailer National Park some 60 miles Dave Tewksbury set out for south of Seward, Alaska. the fishing trip of a lifetime, he The flight to Bug Lake in our had no idea it would turn into 1950s-era DeHavilland Otter a life-threatening journey. Here’s floatplane was uneventful. As his account of surviving a storm that with most of the previous trips, there left two friends and their fishing guide were a few areas of low clouds and light stranded in the Alaska wilderness for rain, but nothing out of the ordinary three days—and the role a Colibri lighter to send us both on a five-day, fishing- for that time of year. Traveling with played in helping the trio stave off packed adventure for our respective 51st our fishing guide, Mitch, we arrived at hypothermia. birthdays. about 9:30 on a Wednesday morning to We spent three idyllic days taking find a tranquil lake broken only by the t was a gift to end all gifts when guided fly-in trips to some of the most occasional eruption of salmon and trout my wife surprised me with a fishing isolated lakes and streams on the Kenai waiting to be fooled by our flies. Itrip of a lifetime to Alaska. It was Peninsula. On the fourth morning, we It was not to be a long stay for us, even better that she conspired with the set off for the lodge’s top-secret lake as the schedule called for our plane to wife of my best fishing buddy, Galen, hidden far away in the Kenai Fjords return for us at 2:30 that afternoon so

52 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 Galen and Mitch before the big rain began. Prepping to cook char by campfire the night of the storm.

Dave and Galen before the storm.

we could try our luck on the Kenai River THE NOT-SO-PERFECT STORM guide, Mitch, decided to fire up the before dinner. The skies were cloudy By now we were remembering that satellite phone and contact the lodge for and the fishing was nothing short of our pilot had told us on the way to the further instructions. To our amazement, excellent. While we fished we kept an lake that morning that there was a large the phone was blocked—requiring a code eye out for the resident black bears, low-pressure area in the Gulf of Alaska, that had never been given to him. We wolverines, badgers and wolves—and, but it hadn’t appeared to bother him as it spent the next 45 minutes delving into of course, the bugs. The air was thick related to our current day’s trip. By 4:30, the 90-plus-page instruction book for with them, including the nasty White the clouds were nearly down to the lake help, to no avail. Mitch eventually found Socks and the gargantuan Alaskan and a fine mist had begun to fall. Our a section in the book that explained how mosquitoes. We had immediate use for spirits sank. We suspected that we might we could make an emergency call even our mosquito face nets, which we wore be spending the night here after all. if the phone was blocked, so he called most of the time while we fished the We set our fishing rods aside and the number, only to hear the message; river’s headwaters coming out of the began building a lean-to out of some “We’re sorry, but we do not have lake. PVC pipe we found. We hung our tent emergency services for North America.” We decided to take a quick lunch and rain cover over it to protect us from We were flummoxed. A satellite phone break about 1:00 so we would be the falling temperature and increasing provided for emergency use that doesn’t ready for our takeout at 2:30. It was rain. The lake was located at the bottom have emergency service connections? at this point that we took note of the of a glacier and at the far end of a long Unbelievable, but true. thickening cloud cover and wondered if fjord, so there were no trees, only bushes We also discovered that the survival our pilot would have trouble picking us near us. We gathered any dead branches gear we had been given lacked many up at our scheduled time. That concern we could find and dragged them to the essential tools that would help us in an didn’t stop us from returning to fish for fire pit we had constructed at the lake’s overnight stay. There was no food of another hour. At about 2:15 we heard edge. We were able to get a good fire any kind, no flashlight, no dry clothing, the plane approaching and hurried to started immediately, and once again no lighter or heating unit, and no toilet get our things together and readied for went back to gathering enough branches paper. Fortunately, it did have three our pickup. Then we heard our plane to keep the fire going through the night. slumber-party-style sleeping bags, a fly overhead and continue without Galen and I got back out with the fly basic first aid kit (minus painkillers), stopping. With the low clouds, it was rods and landed two nice char, which and a tent. As dusk approached about 11 now impossible to pick us up until later. would constitute our night’s meal. We p.m., we knew we should try to get under We knew that the flight from our lodge prepared the trout on a rock near the fire our makeshift cover and get some rest on the Kenai River to Bug Lake was and ate what would turn out to be our until morning. an hour, which meant that we would meal for the next two days. As the Alaskan night finally darkened probably not be picked up until at least Fortunately, we each had a quart the skies near midnight, the wind and rain 4:30. of fresh drinking water with us, so our began to increase. Galen did his best to

54 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 The lake before it rose 10 feet because of the storm surge.

rebuild the fire, but the rain was now our the hole. Having little to work with, our first attempt at bailing water, we took relentless enemy. By 3 a.m., the light of Galen repaired the zipper by using more out six quarts. Later in the evening, we day was once again making a somewhat than 100 fishhooks, one “wooly bugger took out another eight quarts and many diluted appearance and the rain and streamer,” and two vest retractors. After single fills of the bottle. We were careful wind were on us with a vengeance. We this experience, we decided that if we had not to open the windows or doors to the quickly took apart the pieces of the tent to urinate, it would have to be into the tent, as the rain would pour in, but we and did what we could to put it up. We empty water bottle. also noticed that one of the reasons we loaded in our now wet sleeping bags and By now we expected that the only were filling with water was that the lake the three of us, now soaked to the bone, way they would get us out that day, had now risen nearly seven feet. It now climbed in. As unhappy as we were at Thursday, would be via a Coast Guard covered our old campfire site and was that moment, we had no idea that this rescue. What we did not know was that actually touching the base of the tent. would be the beginning of 35 long hours the waves in the ocean some five miles We had no other choice but to muster in that tent. below us were averaging 25 feet high up enough energy to get out and move and the winds were blowing at a steady the tent. WATER, WATER, EVERYWHERE 60-plus miles per hour. By this time, we On the evening of our second day, Through that morning we tried to were receiving more than two inches of Mitch began to shiver with early signs of keep warm in our drenched clothing rain per hour. This was now a full-blown hypothermia. Galen and I did our best to and sleeping bags by passing along the Alaskan gale and our survival was now huddle with him and each other to gain Colibri Extreme lighter I had in my in question. more body heat. Once again, we used fishing vest. As with most tents, our own With the combination of the storm my Colibri lighter to generate a small body heat began to play against us as outside, the wet clothing, saturated amount of heat to stave off hypothermia. condensation built up. That condensation sleeping bags, and our lack of food, our During the long hours of boredom in turned into a drenching rainstorm inside bodies were beginning to weaken. As the the tent we went from talking to sleeping the tent each time a gust of wind hit its day progressed, we noticed that a large to deep introspection. A general feeling exterior. The zipper to the front door of amount of water was gathering inside the of despair began to overwhelm the the tent was ripped away by the howling tent. To get rid of it, we took one of our positive attitudes we’d had earlier in our wind and torrential rain began pouring bottles of fresh water and filled it with trip. I was so cold that I could not help in. We had to think fast to try to close the cap until the tent water was gone. On but feel that going to sleep might well be

56 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 the last sleep of my life. and he said they would not leave until was the best in-flight meal I had ever Just after midnight on our third day they had us safely aboard. I couldn’t hold had. We later found out that the Coast the rain actually let up slightly, and we back the tears of joy as Jason, our Coast Guard had 17 other calls the day of the were encouraged. But we quickly realized Guard rescuer, and I raised our hands for storm, so because we had at least ‘some’ that it was like the eye of a hurricane, a celebratory high-five. survival gear, we were put lower on the just a brief respite from the storm. Other Almost immediately, Jason was list. Only because our wives pressured periods of lighter rainfall came, but there besieged by bugs. With only his flight the lodge and the lodge’s management was still no chance of a plane landing at helmet on, he was breathing them in was the word finally given to an Alaskan the lake on that day. through his nose and spitting them out senator, who personally called the Coast The lake continued to rise, edging ever of his mouth while getting bitten all over Guard base in Juneau for help. This closer to our tent again. Once again, we his face. I ran to get an extra mosquito helped to get them on the stick and forced ourselves to get out and move net, which he fit over his helmet. He stress the urgency of our rescue. the tent back another four to five feet to advised us to gather in a small clearing We were taken back to a helicopter escape the rising lake water. All together, just behind our tent. We were given base at Seward. The feeling of touching the lake rose some 10 feet while we were 15 minutes to gather our belongings the dry ground was never so exhilarating. trapped. The sounds of the rushing water We were given hot coffee and phones in the waterfalls around us were now to call our wives in Denver. Put mildly, thunderous, blocking out many of the it was an emotional phone call. After gentle sounds we had heard earlier. “We were making the call to my wife, I noticed The hours in the tent took a toll. We that the helicopter base had sweaters, grew quiet and had less and less energy. given 15 shirts, coats and vests for sale. I grabbed Even sitting upright became impossible. the first one that looked like it would Our thoughts turned to making peace fit and bought it. I will never forget the with God and remembering our families minutes feeling of pulling that warm, dry vest and friends and thinking about what life onto my still-freezing body. would be like for them when we were to gather our We are all grateful to the people gone. I never personally believed I would who worked hard behind the scenes in ever find myself thinking such dreadful belongings order to bring us back to safety. There thoughts, but they were creeping in. I were 16 attempts to rescue us overall, now know what is meant by the phrase, but all except the last one met weather “The silence was deafening.” and begin our that made it impossible to proceed. I Each time we moved the tent we was especially touched to find out that encountered more immovable rocks. exit up to the other three guides at our lodge had When we tried to lie down, we felt their prepared backpacks with survival gear edges in our backs, legs, heads and the the waiting and planned to use a high-speed boat sides of our bodies. The closest thing I to reach the edge of the ocean below us. had to a pillow was my saturated raincoat. They were planning to hike up to our Galen used my wide wader as his helicopter lake through the thick Alaskan bush, pillow, while Mitch had only his hands. braving the horrible weather and the via the rescue threat of bears to reach us with food and dry clothing. We will always be grateful. THE RESCUE basket.” There are many more memories of By 1:30 Friday afternoon the clouds this experience that will never be written began to lift and the storm let up. As down but will always be in our memories. we had done during most of the hours Most of all, Galen and I are so grateful we had been trapped, we continued to to our wives, Holly and Kim, who kept listen for any sounds of an airplane or and begin our exit up to the waiting the pressure on the lodge owners to helicopter. At about 2 p.m., we heard helicopter via the rescue basket. make sure we were their first priority. the distant sounds of an engine. Our I do not think I’ve ever felt better than We cannot thank enough those many guide said he could hear a plane, but when I saw Galen go up in the basket other people who prayed for our rescue Galen and I knew it was no plane, but and be taken in by the crewmen on and those in the Coast Guard who a Coast Guard rescue helicopter. We board. Next, we put in all of our gear and coordinated and carried out our rescue. ran out of the tent and onto the edge it was hoisted up. Then I climbed in, to If we carried anything out with us, it is of the lake and began waving at our be followed by Mitch. There are those the depth of our faith that God would rescuers. The helicopter hovered over who might say such a ride would be like see us through this crisis and make us the lake for some time while evaluating the ultimate amusement ride, but for me even stronger in our faith. TOB the situation. It was clear to both the there was only the thrill—and relief—of rescue crew and to us that there was no being rescued. Dave Tewksbury is the owner of Tewksbury place for the chopper to land, so one of When all of us were safely aboard, we & Co., a Denver, Colorado-based lifestyle the team was lowered to the edge of the were surprised to find they had lunch store that specializes in cigars, wine, tobacco, lake by a cable. I ran over to greet him, waiting for us. As I told the captain, it and accessories.

58 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 OLIVER TWIST: A New Product with a Past

At a time many view as a new era for smokeless tobacco, a brand with a long and venerable history is reinventing itself.

By Jennifer Gelfand

liver Twist may be new to a lot “That’s how it all started.” toward blue-collar workers,” explains of U.S. smokers, but both the While smoking bans were virtually Nielsen. “Ours is a handmade product Obrand name and the product it unheard of in the ’70s, many people and one that can be used very discreetly. represents boast a long history. Ironically, who smoked were looking for ways to It is used primarily by white-collar that history also encompasses many cut back, and there were also debates people in situations where they are twists and turns, says Michael Drest brewing over whether smoking should not allowed to enjoy a smoke—at the Nielsen, vice president of Oliver Twist. be restricted in some way. To Nielsen, office, on an airplane, or in a theater, for Nielsen would know. His family has Oliver Twist represented a novel concept example.” owned Oliver Twist since 1974, when his whose time might well have come. The First introduced to the U.S. market father bought the brand from a British methodology behind producing the in the late ’70s through Tinder Box manufacturer. But the product itself has product is straightforward: Tobacco specialty stores, Oliver Twist moved been around even longer, since a tobacco leaves are twisted into long spools of through a series of importers over the manufacturer first advertised his tobacco tobacco twine and then cut and rolled years due to strategic decisions, mergers twisting factory in 1805. Over the years into pellets. These are placed between and various other market developments. the brand won some loyal customers, but the lip and gum so that the natural Most recently, the company has formed by 1974, its following was insignificant nicotine inside absorbs through the a U.S. importing partnership with enough that the company producing the mouth, satisfying the urge to smoke Villiger Stokkebye, says Nielsen, who product decided to shut it down. Enter without the need to actually smoke or to notes that his family and the Stokkebyes Børge Drest Nielsen. “My father, who spit tobacco juice. have been friendly for decades. “We felt was working at the company at the time, “My father recognized a long time ago we needed to get back to our roots, to thought there might be an opportunity that this product could be [marketed] the group of retailers who first helped there, so he approached them and to white-collar smokers, whereas the establish this brand in the U.S. market,” expressed an interest,” recounts Nielsen. existing smokeless products were geared says Nielsen, who says the brand has

62 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 What It Is

Oliver Twist’s products are small rolls of tobacco known as tobacco pellets or mini-rolls made of whole tobacco leaves that are twisted into a strand and cut in small pieces. A box of Oliver Twist contains 7 grams, or about 30 tobacco pellets. Each one measures approximately 0.39 inch by 0.20 inch and has a natural content of nicotine. All varieties are vacuum-packed, ensuring a one- year shelf life.

historically done best in tobacco outlets and tobacco specialty stores. “We got in touch with Villiger Stokkebye because they focus on these channels and because we’ve had a good relationship with them over the years.” To Nielsen, tobacco-oriented retail stores are best positioned to offer the educational support that a product as unique as Oliver Twist requires. “We recognize that building a customer base requires some education of retailers and their store personnel, who can then educate the customers visiting their stores,” he says. “So we’re working on ways to reach smoke shops and other tobacco retail channels where employees take pride in explaining the products they sell and answering questions. You don’t get that kind of service in the mass market.” Erik Stokkebye, president of Villiger

64 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 How to Use Oliver Twist

Place a mini-roll between your cheek and gums. Do not chew it as you would a piece of chewing gum, and do not swallow it. As you hold it in your mouth, you may gently squeeze it between your teeth for a stronger taste. It will slowly release its taste and nicotine. While smokers absorb nicotine through their lungs, the nicotine in a mini-roll is absorbed through the mucous membranes in your mouth. One tobacco pellet can easily last for an hour. When finished with the pellet, discard it as you would a piece of chewing gum.

Stokkebye, is optimistic about Oliver in the future simply because it’s more will be to get visibility in stores and to Twist’s future in the U.S., but he is difficult these days to smoke,” he says. educate smokers about the product. “We also pragmatic about the time frame “But I think it will take 5 to 10 years need to explain how it’s made, how it’s for that future. “The smokeless sector is to see a major shift among cigarette used, and the economics,” says Stokkebye. developing and will continue to grow smokers.” “People look at this little box that retails At the same time, Oliver Twist’s brand for $6 or $7 and think it seems like a lot presence in the U.S. should help kick- of money for such a small package. But start its market share, he notes. “The in fact, you get the same or more brand has been on the market here for enjoyment for your money as compared more than 30 years, so there’s a familiarity with other tobacco products.” with the product,” says Stokkebye, who Ultimately, however, the selling has been familiar with Oliver Twist since point will be convenience. “When childhood. “It’s not new—to me or to smokers come in looking for a product the market. I see our main task as getting to use when they’re unable to light a bigger, broader distribution in smoke cigarette, this is a great alternative,” shops.” says Stokkebye. “That’s the bottom But another challenge, he acknowledges, line.” TOB

66 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 TRENCH MARKETING BY MATT MULLEN

Sitting Pretty

In the midst of a scenic resort town, the St. Augustine Tobacco Co. steadily builds business by targeting tourists.

The St. Augustine Tobacco Co. owes at least a portion of its owners, who keep those tourists coming back time after time prosperity to its picturesque location in St. Augustine, Fla. A by making sure customers get the personal attention needed to coastal town in northeastern Florida about 40 miles south of make each visit one to remember. It’s a philosophy that’s led to Jacksonville, St. Augustine was founded in 1565 by Spanish steady growth from repeat business in a customer segment that explorers; it’s the oldest continuously occupied European- doesn’t easily lend itself to the loyalty approach. established city and port in the continental United States. With its early colonial Spanish architecture, miles of nearby beaches A TOURIST MARKET and dozens of area golf courses, the town attracts millions of David Lange owns and manages the business with his wife, visitors each year. Mary, and runs the day-to-day operations with her help and the But the store’s success is due more to the dedication of its assistance of two employees. His official title is vice president

Owner David Lange describes himself as “really picky” about keeping the store’s 400-square-foot walk-in humidor neat and organized. 70 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 and general manager of the small company, while his wife doesn’t occur for months, or even years. “It’s never really serves as president. He’s mostly responsible for ordering and been about the dollars,” David says of the store’s marketing maintaining the store’s wide selection of premium cigars, while approach. “Whether it’s a $1 cigar or a $26 cigar, we want to Mary handles most of the accessories business. help customers find the right cigar for them. We’re happy if Their store is located amongst the cobblestone streets of they are happy, and if they are happy, they are going to return the town’s historic district, an ideal fit with the restaurants, and tell other people about the store.” bars, bed-and-breakfast inns and specialty shops that cater to One of the owners, either Mary or David, is in the store every visitors. It’s in a building that houses multiple retail spaces off day. “Fridays, Saturdays and Sundays tend to be our busiest St. George Street, the town’s main shopping district on a road days, and so we are both in the store on those days,” David closed off to vehicle traffic to benefit the throngs of tourists out says. “If we have a motto, it’s ‘Do one thing really well and to see the town’s sights on foot. keep it simple.’ With one of us here seven days a week, we David estimates that about 80 percent of St. Augustine can be very hands-on. We’ve always prided ourselves on our Tobacco Co.’s customers are tourists but the store has a loyal customer service.” local customer base as well. “Our regular local customers As part of that emphasis, the couple puts a premium on may not be as much of our business as the tourists, but are educating and informing customers. “We really want people of great importance to us and the success of our business.” to call us and come in and talk about the products,” David The store drives much of its business through efforts to says. “We really like the personal touch and involvement serve the customers well, help them find the right product, with people. When it comes to cigars, people appreciate the and encourage them to come back—even if that return visit personal interaction.”

71 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 REACHING OUT their day, and a number of customers find the store through St. Augustine Tobacco Co. does about four events each year, the advertising the store does in sightseeing maps distributed a number that David and Mary are looking to expand in the throughout the town or through ads in the phone directories. future. Smoking in the building is not allowed, so they set up Still, encouraging repeat visits is key, David says. “Our tents outside in a nearby parking lot and provide food, drinks advertising has always been pretty limited. So much of our and, of course, cigars. business is repeat customers.” Other business owners in the community are good about letting the tobacco shop promote its events with fliers in their THE RIGHT MIX stores, and the tobacco shop sends out an e-mail to its list of To serve every customer’s taste, the store’s wide selection customers across the East Coast. The events attract from 200 occupies about 600 square feet of selling space, with a to 300 customers, many of whom are new customers who hear 400-square-foot walk-in humidor taking up most of that area. about the events that day. “Over the years, we’ve made great The humidor is one of the biggest in northern Florida. With that friends with many of our customers,” David says. “At the events, percentage of the sales floor dedicated to a walk-in, obviously we get to meet new people and introduce regulars to some new cigars are the biggest star, but the store also does a solid cigars. It’s a great way to start a long-term relationship.” business in cigar accessories, as well as imported cigarettes, As for traditional advertising, the store concentrates on premium U.S. brand cigarettes, hookahs, and hookah tobacco. three vehicles that may not be the first that come to mind for “We get a lot of ‘wows’ when people walk into the store and the typical tobacco store owner: rack cards, tourist maps, and see the humidor for the first time,” David says. “I’m also really local phone directories. Many first-time visitors to the town stop picky about keeping things neat, clean and organized. I try to at the visitor’s center and peruse the rack cards as they plan keep all of the cigar bands in the humidor facing up at all times,

72 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 From left: Store employee Brian Woodland with Mary and David Lange.

for example. I think a lot of people appreciate that—they don’t a short amount of time while they stroll the streets with their want to see a jumbled-up mess.” wives, although he notes that the store carries plenty of larger With the store’s customers typically visiting during a vacation, cigars for customers looking for a smoke for the golf course. David says price may not be the most important factor in their What brands are hot in his area? “There have been times in purchase decision. “They are out to enjoy themselves, and the past where we just seemed to be selling a lot of one type or they may spend a little bit more on a cigar than they normally another,” he says. “But right now, it’s pretty even in terms of the would,” he says. “Price is important of course— everybody has popularity of certain brands; no particular brand is outshining a budget that they want to stay within—but they may be willing another. We did sell a tremendous amount of Ernesto Perez- to splurge on something new.” Carrillo’s inaugural cigar [the E.P. Carrillo Edición Inaugural David hits many of the industry shows each year to stay on top 2009].” of product trends and keep a varied stock that’s sure to please David runs cigar specials throughout the year and any smoker’s palate. “I learned a long time ago that it doesn’t assembles his own variety gift packs of cigars in different sizes matter what I like to smoke, it’s what the customer likes,” he says. and strengths, which have proved a big hit. “Many customers With the store mostly catering to vacationers, he stocks a larger may not be smokers but want a gift to take to a cigar smoker selection of smaller-format cigars such as coronas or robustos— back home,” he explains. “But they don’t know exactly what cigars that David says are easy for male customers to smoke in type of cigar the smoker likes, so the variety packs make

74 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 “Our regular local customers may not be as much of our business as the tourists, but are of great importance to us and the success of our business.”

a great gift. We do a tremendous amount of business in probably require a little more TLC than at the average store.” these.” While he sees some challenges across the industry with increasing smoking restrictions and the work required to SUCCESSFUL FORMULA keep up with FDA legislation and regulations, David sees a The store just began its 10th year in business, and it has bright future for his business, with a possible second location enjoyed steady growth each year since it was established. It’s in the years to come. He says they plan to stick to their proven been located in the same building the entire time. “Our first game plan and continue paying close attention to education space was literally a broom closet,” David says. “We had a and customer service. “I think that today people are more 25-square-foot showroom—if you can even call it that—and a and more interested in information—they don’t want to just 25-square-foot humidor.” come in and buy a cigar, they want to know something about Over the years, the couple moved the store into bigger them,” he says. “At the same time, we try to keep learning and bigger retail spaces within the building as they became as much as we can so we can continue to educate available. “We kept on growing, and we’ve been fortunate to be customers. That’s the No. 1 thing that we’ve done to make us able to stay in the same place,” David says. “Many people have successful.” TOB gotten to know us, and they know where to find us every year.” David says their educational, personal approach has differed “Trench Marketing” looks for marketing tactics that work— from a store that caters to a more local customer base. “Many or those that haven’t worked—for tobacco outlet businesses. of our customers may be once- or twice-a-year smokers, and We’re eager to hear your tips and suggestions. Call us at 877- they don’t really know what they are looking for. Our customers 702-4427 or send e-mails to [email protected].

76 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 CONSTRUCTION COMPLETE

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PRODUCT PROFILE NOVEMBER/DECEMBER 2010

Excellence in E-Cigs

Kretek International, a leading importer and marketer of specialty tobacco products, has rolled out its e-cigarette product line—the CIG2O—nationwide. Developed in the United States for Kretek by Spark Industries, the CIG2O rechargeable water vapor cigarette was successfully launched in smoke shops early in 2010. The strength of adult consumer response led to the current nationwide rollout to multiple channels. The product line includes regular tobacco and menthol flavors, with nicotine levels set at 18mg and 24mg to approximate the nicotine content of a pack of cigarettes. The rechargeable unit, which retails for approximately $25, includes one e-cigarette and two atomizer refills, plus a USB charger that can be connected to a laptop Advancements at AVO computer or iPhone. Refills—CIG2O cartomizers containing flavoring Avo Uvezian and Davidoff of Geneva and nicotine in a solution of distilled filtered water recently introduced the new AVO and propylene glycol (the same inert ingredient Heritage series, which builds on the used in asthma inhalers)—will be available in success of the AVO Limited Edition three packs, along with power adapters, refills, cigar lines—2009’s Compañero and battery units. Three cartomizer refills contain and this year’s LE10. AVO Heritage an amount of nicotine equal to that in about three features a filler consisting of three packs of cigarettes. Suggested retail will be $8.99, different Dominican ligero tobaccos, a which is less expensive than most cigarettes once Dominican seco, and a Peruvian seco. federal and state tobacco taxes are figured in. The binder is Dominican San Vicente “The keys to success in this emerging category and the wrapper is a specially fermented are smoker recognition of the convenience and leaf from Cuban seed grown in Ecuador freedom of the CIG2O alternative, rechargeable that was also used on the famed 2009 product design, consistent taste, and an Limited Edition Compañero. This affordable price,” notes Kretek president Mark combination of tobaccos reflects back Cassar. “We’ve made the best product we can, to an earlier generation of cigars— and we’ve been careful to ensure that the content labeling of the CIG2O product is medium to full in body and strength, accurate and complete.” The nicotine content of the CIG2O atomizer and refill units with deep, spicy undertones, a rich are clearly labeled, with a prominent warning against underage sale, adds Cassar. complexity, and balanced palate “We aren’t interested in anyone who is not already an adult smoker beginning to stimulation from beginning to end. use this product.” The AVO Heritage is available The CIG2O e-cigarette is a two-part unit, consisting of a lithium-ion battery and in four shapes—Toro, Churchill, airflow pack, which looks similar to a cigarette, and the atomizer, which vaporizes Robusto and a 4x56 Short Robusto— the flavor solution and resembles the filter portion of a cigarette. The consumer packaged 20 cigars to a box. Each easily attaches the two sections. Simply puffing on the stick starts the flow of water package will feature the AVO Heritage vapor, which resembles cigarette smoke but has no odor and quickly evaporates. logo with a horizontal, center-split lid The CIG2O immediately turns off when not in use. well suited to presenting the cigars at The product is available in standard open-stock units of six cards per carton. The retail. Cigar lovers can follow Avo at CIG2O will be launched with a high-visibility upright display holding 18 basic units Twitter.com/AvoCigars. Avo Uvezian, (12 tobacco, six menthol), 12 three-packs of refill units, and three wall adapters. www.avo.com. Kretek International, 800-358-8100, www.cig2o.com.

80 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 PRODUCT PROFILE NOVEMBER/DECEMBER 2010

New Name, New Look

GIZEH of North America recently announced name and packaging changes for two of its products. GIZEH’s Silver Tip Airstream Tubes are now called Silver Tip Air-Plus, a name that more closely describes what this product actually is and complies with FDA regulations regarding light cigarettes. The company also changed the design of its GIZEH Slim Filter bags and displays to display 20 bags each rather than 40. GIZEH, 888-989-4662, [email protected].

Premium Premiere

Zander-Greg recently introduced its first premium cigar in the popular Nat Cicco line at the IPCPR show. Nat Cicco Cuban Legends are all- tobacco, all handmade cigars, in four large ring-gauge shapes: Churchill Gambling on Menthol (7.5x52), Torpedo (6x54), Toro (6x56), and Robusto (5x54). Made Gambler, a leading MYO brand, has added new King Size Menthol Cigarette Filter in Nicaragua exclusively for Zander- Tubes to the Gambler TubeCut brand family mix. The addition of menthol flavor Greg, the cigars feature a Nicaraguan satisfies the preference of 25 percent of adult smokers and complements the tobacco filler blend and are available existing line, which includes Full Flavor and Gold, King Size and 100mm styles. in natural and maduro wrappers. Gambler TubeCut filter tubes, which fit all cigarette tobacco injectors, are packed Zander-Greg Inc., 626-791-2794, in five-box sleeves, 10 sleeves per case, for a case pack of 50 boxes. Gambler, www.zandergreg.com. 800-288-8888.

81 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 PRODUCT PROFILE NOVEMBER/DECEMBER 2010

Sampling Shisha

Value-priced premium-cigar supplier JM Tobacco entered the hookah world at last year’s IPCPR show, with its first shisha (SHEE-shah), which is flavored hookah tobacco. The company originally blended 33 new and exotic flavors and packaged them in 100- and 250-gram tins. That original lineup has since swelled to 58 flavors, and the company Sensational Simpaticos is presenting all shisha flavors in sample-sized 50-gram packages, Klafter’s new Simpatico is a medium-bodied cigar with a complex flavor derived making it easy and economical from a fine blend of tobaccos from Nicaragua, the Dominican Republic and Costa to try different flavors and flavor Rica. Made in Estelí, Nicaragua, Simpatico cigars are finished with a Nicaraguan combinations. JM Tobacco 888-377- oscuro wrapper that accents the flavor with a robust rich taste. The cigars are 2667, www.jmtobacco.com. available in two sizes, Robusto and Toro. Klafter’s, www.klafters.com.

Rich Regional

The Toraño Family Cigar Co. has introduced the first release in its Single Region Series: Serie Jalapa. The concept of the line is to highlight the distinct characteristics of tobaccos grown on individual farms in various regions in the world’s best tobacco-producing countries. Each Serie cigar will feature a blend created entirely from tobaccos grown on a carefully selected finca in one particular region. The blend’s flavor and aroma will reflect the influence of the region’s soil, weather and topography. The Toraños then apply their well-known blending artistry to create an in-depth smoking experience that reveals the character of each historic region’s tobacco. The first release, Serie Jalapa, features a blend of tobaccos from the El Estero Farm in Jalapa, Nicaragua. This small farm, located in the country’s northernmost growing province, is irrigated by a centuries-old natural stream on the property. Its mineral-rich water, together with the sandy, red clay soil, enables this farm to grow some of the finest and most aromatic tobacco in the world. Serie Jalapa comes in three sizes—5x52 Robusto, 6x54 Toro Grande, and 7x50 Churchill—with a suggested retail of $6.50 to $6.95. Toraño Family Cigar Co., 800-7-CIGARS, www.torano.com.

82 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 PRODUCT PROFILE NOVEMBER/DECEMBER 2010

Foiled for Freshness Villiger: Give Swisher International has introduced Sealed-Fresh Us Libertad! foil wrapping on all of the company’s Swisher Sweets Cigarillos. First introduced on Swisher Villiger Stokkebye International has launched La Libertad from Sweets Wine Cigarillos, Sealed-Fresh packaging the Dominican Republic in the United States. A very successful is now incorporated as the standard packaging cigar line in Europe since the mid-’90s, La Libertad is a long-filler, for the entire lineup of Swisher Sweets Cigarillos medium-bodied cigar line blended from Nicaraguan and Dominican flavors—Wine, Sweet, Peach, Grape and Strawberry. ligero tobaccos with a Nicaraguan viso binder and a beautiful dark The Sealed-Fresh wrapping has proved popular Peruvian wrapper of Havana seed. It offers a complex smoke with among both customers and retailers because it well-balanced flavors. seals in the freshness and flavor of the company’s La Libertad is available in boxes of 20 cigars in three shapes: cigarillos. Swisher International, www.swisher.com, Churchill (6x50), Robusto (5x52) and Short Perfecto (5x54), at retail 800-874-9720. prices from $5.25 to $5.90. Villiger Stokkebye, 877-605-1577.

83 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 PRODUCT PROFILE NOVEMBER/DECEMBER 2010

Going for the Gold

Rouseco, Inc., recently introduced Golden Harvest Filter Tubes. Available in red, blue and green, the tubes come in both King Size and 100mm. Rouseco, Inc., www. rousecoinc.com, 888-372-8622.

Embracing Rejects

Pasadena, California-based Zander-Greg Inc. has acquired the distribution rights for the entire Nat Cicco lineup of value- priced cigars from John Parker, grandson of the founder of venerable distribution giant Phillips & King International Inc. “When Churchill and Robusto Rejects appeared in 1965, they were the original cigars to create the idea of bargain-priced hand-rolled cigars on the ‘factory rejects’ theme,” says Arthur Berberian, president of Zander-Greg. “They are hardly rejects, being filled with extra-select-grade, medium-length picadura (tobacco remnants)—including Cameroon, Connecticut, Honduran and Dominican—from some of America’s most prestigious and sought-after premium cigars. Around 2002, however, distribution problems stifled sales for Nat Cicco cigars. This left a vacuum, which was filled over time by competitors’ machine-bunched budget cigars.” Now, Zander-Greg has moved to recapture those customers, with a newly launched marketing campaign and new in-store promotional materials, as well as plans for new packaging and promotional materials. While focusing on the Rejects, Zander- Greg is also offering other Nat Cicco cigars, which range in price between 90 cents and $1.40 and feature homogenized binders and hand-rolled, extra-select-quality natural tobacco wrappers. In addition to the Churchill and Robusto Rejects, the line includes Jamaican Rounds, Plaza, Aromatic and Governor—the name for the “It’s a Boy/It’s a Girl” cigars. Zander-Greg, 626-791-2794, www.zandergreg.com.

84 TOBACCO OUTLET BUSINESS NOVEMBER/DECEMBER 2010 DON’T MISS YOUR OPPORTUNITY... 2011 INDUSTRY DIRECTORY to reach more decision- makers throughout the tobacco business throughout the year in the industry’s first read and best read industry directory.

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