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TOBACCO OUTLET BUSINESS
NOVEMBER/DECEMBER 2012
TRENCH MARkETING
the tobacco business have dictatorial demands,” he explains,
“
and I decided it wasn’t worth it to me anymore.”
The mainstream manufacturers have marketing programs
that work against the retailer, he explains. “Their marketing
programs force retailers to butt heads in order to keep prices
down. It works against the retail trade and it became a
nightmare to deal with,so I threw them out.”NowUnderwood
says he sells tobacco products to stores that have their licenses,
and conducts business in a fair and legitimate way. “That’s how
I want to keep it,” he says. “I don’t want to expand to have
more stores, because in this legislative environment it’s already
hard enough, and the merchandising programs imposed by
mainstreammanufacturers make it too hard for you to succeed
on your own terms.
“
Over the last couple of years, all the big companies have
been out to kill each other with their merchandising programs,”
he says, “and they project that onto tobacconists, telling them
what to sell and how to sell it.” Underwood’s reaction to the
perceived pressure was to steer his product assortment away from
mainstream brands and toward private label products. “In my
opinion,private label companies have come out with comparable,
if not higher quality products than many mainstream companies,
so I’ve changed my marketing approach on store shelves.” His
new approach? No advertising on shelves.
“
All I have on the shelf is the product, and a sign with the
price,” he says, “and I sell a full line of products at reasonable
prices.No signs, no emails, no events, no rewards—just quality,
less mainstream products at a fair price. For instance, I sell
cartons of Lark, Saratoga, True Blue…I sell about 600-700
cartons per week of ‘third-tier’ products. You have to find the
highest quality cigarettes at a value—something like a box of
Wildhorse is the same quality as its mainstream competitor
at half the price, and if you sell the right product at the right
price, your customer will eat it up and come back for more.
“
I offer my customers a quality product like Golden Deer,
which was designed for the Chinese market, at half the price a
customer would be willing to pay for mainstream brands like
Marlboro or Camel,” says Underwood. “In my opinion, the
Golden Deer is equally as good as these other products, and
that’s great for my clients because people don’t have any money
due to the economic situation this country finds itself in. I also
carry Saratogas, and that’s something these folks can’t get in
the typical gas station situation.”
kEEP THE DEMOGRAPHIC AND
THE DISTRIBUTOR HAPPY
Underwood’s primary demographic isn’t based on science; it’s
more anecdotal. “They’re working class people, all working class
heroes,” he says. “I no longer try to be some upper class discount
business; that’s history. I provide a full range of products at
reasonable prices, as well as some accessories—a few humidors,
all the things that go along with tobacco—and if people say they
can get them cheaper elsewhere, I tell them to go do it. I keep a
few mainstream brands and some weird brands people can’t buy
elsewhere, and I can offer them at good prices because I have
good relationships with my distributor.
“
That relationship with my distributor is important,” he
says. “I keep it good by writing checks that don’t bounce.” By
maintaining his status as an ideal account, says Underwood, he
gets the best pricing, and that frees him up to compete on any
level. “Competition from other retailers isn’t my problem—I
will not be put out of business by competition,”he says.“If I go
under, it will be because I’ve been legislated out of business.”
Underwood says his store appeals to a range of smokers that
are typically more mature. “All the Costco-type stores have
discontinued selling cigarettes, same with all the Walgreens,
and others like them will do the same due to political pressure.
Basically,people don’t have any place to buy cigarettes anymore,
so I’m the last man standing. My prices are very low, you can
do hundreds of thousands of dollars worth of sales per month,
but there’s not a lot of money left over if you want to keep
margins low and take care of people.
“
My customers appreciate this place for what it is, and what
it lets them do, but they know times are tough, both for them
and for this business,” says Underwood. “We may exist out
here on the fringes, but I have lots of astute characters who
come in here—investment bankers, CEOs, entrepreneurs,
businessmen—and we get into interesting discussions. You
ask any of them and they’ll tell you: government is the
biggest problem in business, and especially this business.
They don’t scratch their heads about it. The government is
in everyone’s face, they are doing their very best to squeeze
the independent businessman every way they can, and that’s
because they’re the easiest target. But we’re still standing, and
it’s like that ancient Chinese proverb says: ‘May you live in
interesting times.’”
ToB