Despite being a relatively new format, cigarillos already account for over 65% of all cigars sold by volume in independent stores – so does your offer reflect this trend?
Just a few short years ago, cigarillos were little more than a niche, novelty item on any gantry where you could find them – but the sub-category has flourished in the last few years, driven by a whole range of factors including plain packs and the menthol ban, but the latest market data suggests they are rapidly becoming mainstream and represent an opportunity that no local retailer can afford to ignore.
Alastair Williams, Country Director at Scandinavian Tobacco Group UK (STG UK), says: “If we look at the total UK picture, we can see that the cigar category has grown hugely over the last year or two, now standing at just over £273m in annual sales. This is predominantly due to the rapid growth of the cigarillo segment, which is already worth just over £75m and accounts for just over 39% of all cigars sold in volume terms [IRI, Aug 2021].”
The growth is also partly down to the continual rise in the medium / large segment, albeit from a smaller base. Miniatures are still the largest segment within cigars, currently worth just under £105m in annual sales, while the small cigar segment appears to be continuing a slow but consistent decline.
If you dig a little deeper, however, things start to get interesting, as Williams explains: “Now looking at the data for independents and symbols specifically in Scotland, we see that cigarillos account for just over 65% of all cigar volumes sold, with miniatures the next biggest segment at 23.4% [IRI, Aug 2021].”
Possibly equally interesting is the fact that Medium / Large cigar sales in Scotland do not currently mirror the wider UK picture and are not yet enjoying the same success. Is that an opportunity we see before us?
“With Christmas on the horizon, this might be a good opportunity for Scottish retailers to talk to their customers and see if they can trade them up to a larger cigar as part of their festive celebrations,” advises Williams.
So, with cigarillos already accounting for 65% of sales in independents, it makes sense for local retailers to ensure that their cigar offering in-store is in line with this huge shift.
“The menthol ban has seen adult smokers try a variety of different options over the last 18 months or so, of which filter cigarillos like our Signature Action brand are clearly a very credible one,” comments Williams. “In terms of the impact from the ongoing coronavirus pandemic, the tobacco category, and cigars within it, have proven to be pretty robust thus far, but it has perhaps highlighted and even sped up the existing trend towards adult smokers looking for value products, due to the current challenging economic conditions.”
Cigarillos meet this demand for value by offering relatively low out-of-pocket spend products that are fairly familiar in terms of smoking experience to cigarette smokers, or former cigarette smokers.
Ross Hennessy, Sales Vice President at JTI UK, agrees that the festive period offers a great opportunity to grow cigar sales: “Every year, cigar sales follow a very similar pattern with a volume uplift trend in the run up to December [IRI, three years to Jun 2021]. Therefore, now is a good time to stock up on cigars such as Sterling Dual Capsule Leaf Wrapped to take full advantage of this seasonal profit opportunity.
“Products like Sterling Dual Capsule Leaf Wrapped have been a crucial footfall driver for retailers in recent months and will continue to be. Retailers should monitor this category trend to ensure they’re able to capitalise on any developments and potential profit opportunities.”
Sterling Dual Capsule Leaf Wrapped is the UK’s best-selling cigarillo brand with a 93.9% share of the UK cigarillo market [IRI, Jun 2021]. The product includes a mentholated Virginia blend tobacco and capsule filter that when crushed releases a peppermint flavour.
“Sterling Dual Capsule Leaf Wrapped offers a good value and high-quality product,” says Hennessy. “We’d recommend retailers stock up on both the 10s and 20s formats to offer more choice to customers and make the most of this successful brand.”
Despite the major restrictions on the wider tobacco category, cigar manufacturers continue to benefit from being excluded from many of the EUTPD2 regulations and continue innovate with new products and formats. Back in the summer STG UK introduced a new pack format for its Signature Red Filter brand, which is the UK’s best-selling aromatic filter cigar.
The new pocket friendly sized pack comes with the low out of pocket price of just £5.79, and perfectly matches the current trend towards a more convenient smoking experience.
“Signature Red Filter is currently the ninth best-selling cigar brand in the UK with an annual sales value of just under £8m,” says Williams. “It’s smooth taste and vanilla flavour prove consistently popular with those adult smokers who enjoy an aromatic cigar, and it plays an important role in the market leading Signature brand family, perfectly complementing Signature Blue, Signature Original and the more recent addition Signature Action.”
But Williams also reminds retailers that, while cigarillos are driving the growth, miniatures remain vital to the category. He says: “Sub-segments like cigarillos and medium / large cigars will probably continue to grow in importance, so retailers need to ensure they are stocking the right brands to meet consumer demand. But let’s not forget it is miniatures which are still very much the engine room of the category so ignore the top brands like Signature and Moments at your peril!
“In terms of merchandising and ranging, it’s more important to stock the right range rather than a broad range as the top 10 cigar brands account for nearly 90% of sales. And as cigars are exempt from the plain packaging legislation, we recommend retailers stock them on the middle shelf of the gantry where they are visible, and more likely to be purchased by adult smokers who can see them.”
Williams concludes on a cautionary note about the vital importance of ensuring that store stuff truly understand the category. He comments: “In general, talking to your customers is key, but particularly with your tobacco customers, who may well be the most loyal you have, so it makes sense to treat them accordingly. We all know that their associated basket spend can often be significant too, so always keep their brands in stock and don’t give them a reason to shop elsewhere.
“Also, with summer gone and Christmas approaching, some of your adult smoker customers may start to think about larger format cigars to enjoy as part of their festive celebrations so ensure your staff are equipped with the knowledge to have those kinds of conversations. Retailers can use our new trade website (stgtrade.co.uk) as a good reference point to increase their knowledge and that of their staff. They are also very welcome to request a visit from an STG sales rep, by simply sending an email to email@example.com and someone will come and visit them to talk about the cigar category and ensure they are well placed to maximise sales.”