Remember the in-store RYO machine? All the rage about six years ago, the concept—retail shops where customers could roll their own cigarettes using high-speed rolling machines—was going to revolutionize tobacco retail. Customers would save significantly on the cost of their cigarettes, while the store owners would benefit from the higher margins that RYO machine stores could command.
At 2011’s Tobacco Plus Expo, in-store RYO machine manufacturers were out in force, extolling the virtues of the idea itself, as well as the features (speed, quality, small footprint, financing plans) of specific models. Entrepreneurs raced to get into the game, with many investing tens of thousands of dollars to set up RYO stores.
John Temple was one of them. As an experienced retailer who already operated three liquor stores, he invested in two machines and charged one of his experienced employees, Arlene Harkraeer, to manage his new RYO venture.
Then came regulation. As Tobacco Business reported in 2012, a provision tacked onto the federal highway bill that year designated retailers operating RYO machines as manufacturers, subjecting them to regulation and taxation that effectively wiped out both the customer savings and the retailer profit potential of the new channel. Some shops fought the law (and the law won), and some tried to work around it by redefining themselves as private clubs (with mixed success), but most folded their tents, taking a loss on the cost of those pricey machines.
Not Tobacco Road, says Harkraeer, general manager of the Maryland-based store. “The store had been built around having the in-store RYO machines and teaching people how to roll their own, and then within a month of us opening, the law changed,” she says matter-of-factly. “Now those machines are beautiful shelves in our stores.”
That kind of hit could easily derail a fledgling business, but Harkraeer and Temple were not to be deterred. Tobacco Road’s employees are experts at spelling out the math of off-the-shelf versus RYO cigarettes. “Let’s say a machine is $100 and your initial purchase of a bag of tobacco and tubes is $15,” says Harkraeer. “Depending on the brand, a carton of cigarettes can cost upward of $70, so you’re going to recoup the cost of that machine in a few weeks. From then on, a carton will only cost you $15 to make.”
A Service Solution
In addition to expert advice on the ins and outs of rolling your own cigarettes, Tobacco Road prides itself on top-notch customer service. Employees greet regulars by name and take the time to help new customers learn how to operate a cigarette machine or find the right cigar. “Customer service is a No. 1 priority for us,” says Harkraeer. “We are fortunate that we don’t have a big rollover rate with employees, and we have managed to attract people who want to learn more [about the category] themselves and who are open to educating other people.”
Since most customers are motivated primarily by price, Tobacco Road has found tailoring its assortment to its client base is a sensible approach. “We used to have a larger selection, but the longer product sits around the more it dries out,” explains Harkraeer. “So now we listen to the feedback our customers offer us about brands and adjust accordingly. If someone tells us about a brand they like, we’ll bring it in, or if they complain about a brand we’ve carried, we may stop selling it. It’s all about having what your customers want and answering the questions they have.”
Tobacco Road carries between 75 and 100 cigars ranging from $2 to $15 per stick, with a wider assortment during the busier summer months when cigar smoking ramps up due to better weather. Its cigar clientele ranges from regular cigar smokers to those who visit only on special occasions or in search of a gift. “When you have that kind of range, your employees need to know the basics about cigars,” relays Harkraeer, who says that the company does well with the Ashton, Cohibas and Acid brands. “We are not experts, but we’ve learned a lot from our sales reps and our customers.”
The store also attracts cigar smokers with regular specials, including discounts on purchases of 20 or more cigars and promotions. “Our customers are very price-motivated; they will shop around and look for the best price,” notes Harkraeer, who says that the shop broadcasts price promotions on all product categories in a monthly email it distributes to more than 3,000 subscribers who have signed up at any of the owner’s four retail establishments. “The emails tell customers about what’s going on in all [of] the stores—wine tastings at the liquor store, events at the bar, and promotions at the tobacco shop.”
While regulations imposed by the FDA have impacted the company’s business, Harkraeer is confident that Tobacco Road will be able to adapt and thrive going forward. “We will adjust, just as we have from the very beginning,” she says. “For example, we stopped selling product on the Internet because age verification when you’re shipping products got too complicated. Things happen and we switch it up, see what’s needed, and get through. You have to be open to change. That’s what tobacco retail is all about.”
– Story by Jennifer Gelfand
This story first appeared in the May/June 2017 issue of Tobacco Business magazine. Members of the tobacco industry are eligible for a complimentary subscription to our magazine. Click here for details.