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TOBACCO BUSINESS INTERNATIONAL
MARCH/APRIL 2015
at the opportunity,” relays Kathman, who
later renamed the stores in his franchise
operation Cut Rate Tobacco. He rapidly
opened six stores, but ill-timed tobacco
taxation took his legs out from under him
just as he was settling in. “First the MSA
hit, then Ohio started taxing cartons, and
that had a bad effect because Cincinnati is
right on the border of northern Kentucky.
My customers started driving across the
river for the lower cigarette taxes. We
lost almost 50 percent of our business
overnight.”
In the aftermath, Kathman was forced
to cut his number of stores down to
four. “We had been surviving, not
growing,” he says. Kathman looked for
other ways to spur growth, and thought
he had found the answer in roll-your-
own machines. “I invested heavily in
RYO machines,” he says. “We had one
in every Cut Rate Tobacco store and
one standalone building with multiple
machines dedicated exclusively to RYO.”
Everything was rolling along perfectly, he
tells, until Congress passed legislation
in 2012 that essentially put RYO stores
around the country out of business.
But as luck would have it, Kathman
stumbled upon a number of vaping stores
while on vacation in Florida and found
himself returning to one in particular over
and over again to talk with the owner
about the business. “That owner wanted
me to buy one of his franchises, but I did
a lot of thinking while driving home from
Florida,” he recalls. “I thought to myself,
‘Why invest in someone else’s concept
when I already know how to do this?’”
Since his standalone RYO-only store was
still under lease but was no longer open,
he made a decision: “I put those big pizza
tables into climate-controlled storage,”
he says, referring to the now-defunct
RYO machines. “They were the perfect
height for my staff to eat pizza off of, but
nothing else.” And in place of the “pizza
tables?” Kathman and his wife opened
the first of five Cincy Vapors stores.
Vaping Margins:
the Sky Is the Limit
Today, the Kathmans own and operate
four Cut Rate Tobacco stores and five
Cincy Vapors stores in Cincinnati, and the
stores are much more closely integrated
than anyone would initially think. “After
we opened the first Cincy Vapors store,
we clearly saw that our tobacco sales
weren’t growing and we weren’t gaining
trench marketing