Budget-Minded Smokers Seek New Tobacco Options

The tough economy is causing cigarette smokers to rethink their budgets. For some, that means switching to less expensive “little cigars.” But is the shift massive enough to make small stogies the next hot niche in tobacco?

Retailers report that manufacturers of such little cigar brands as Sante Fe, Captain Black and Swisher Sweets have become more aggressive in promoting their price advantage. That includes cost discounts to retailers and buy-one-get-one free deals for smokers. Swisher International field reps have installed shelf tags and hangars that highlight 20-count packs priced between $2 to $4, compared with full priced cigarette brands that retail between $5-10 a pack (depending on excise taxes in that market).

One store operator noted that a Swisher rep visiting her tobacco outlets store offered to buy cigarette customers a pack of little cigars for trial.

“For consumers with less discretionary income, higher gas prices may be contributing to the degree where little cigars are becoming an appealing substitute,” said David Bishop, managing partner at merchandising consultancy Balvor, Barrington, Ill. “It may even be seen as more of a premium product than a bargain cigarette.” According to Bishop, even if the market corrects itself, some cigarette consumers who entered the category may have adjusted their habits. “A substantial share of people who switched may stay there.” But he did stress that anecdotes regarding aggressive in-store marketing pushes might be isolated examples.

Norman Sharp, president at industry trade group Cigar Assn. of America, Washington, agreed with the latter assessment.

“We know that there are increased cigarette costs from higher taxes, but if that was a motivating force for trade down, I think we would see a much bigger figure for little cigars,” said Sharp.

Though hardly a giant killer compared to the 357.2 billion cigarettes shipped in 2007, sales of little cigars grew to 5.1 billion units last year from 4 billion units in 2005, per The Maxwell Report, Richmond, Va. Overall, cigarette sales declined by 97.8 billion sticks between 2003 and 2007.