Tobacco Business

[ 34 ] TOBACCO BUSINESS [ SEPTEMBER / OCTOBER | 21 ] For many of the financing prospects, tobacco was a big no-no, with many of the firms even having prohibitions on tobacco in their governance documents. As he continued to explore different options in the market, Gallagher did receive what he considered to be great feedback on what reasonable valuations were. Gallagher says that is one reason some tobacco store owners have unrealistic expectations— they see the convenience store segment getting high multiples, not always realizing that is actually a bad comparison. “It’s not realistic to think of yourself as a convenience marketer because typically you don’t have real estate and you don’t have a couple of million dollars in hard assets per location,” he says. “Typically, cigarette and tobacco stores are more highly regulated and probably have short-term leases. There are a lot of negatives that go against them, so looking at convenience stores is not the same.” In December 2020, Gallagher and his family signed the deal with Main Street Capital, which is based in Houston, Texas. Gallagher continues, “It allowed us to sell a small piece of the company and take some money off the table for the family members. We always had reinvested, year after year, so it allowed us to unlock some equity and gain a financial partner who is very supportive of growth.” At the end of July 2021, Smoker Friendly added another 21 stores to its organization, making it a total of 181 corporate-owned stores and about 750 licensees’ stores. Despite having to temporarily close several of the stores during the pandemic, Gallagher sees numbers starting to rebound but also notices lingering supply chain issues. “We saw supply disruptions from different companies, and the majority were products out of the Dominican Republic, Honduras and Nicaragua, in both the mass market and in premium cigars,” he says. “Mostly, it was due to factories being shut down. Now it’s an issue of boxes, packaging and, in some cases, inventory. We’ve felt some of that through the last half year or so, definitely on the mass market side.” All in all, Gallagher says, the numbers for this year are looking good. With the additional capital, the Gallagher family can continue to focus on growth by bringing other retailers into the Smoker Friendly brand. “We are the largest tobacco operator in the U.S., and I think there is a roll-up opportunity in the tobacco store channel because so many of these operators are family businesses. They have been single generation operations for 20-30 years and [they] have a nice business but [have] no exit strategy. There aren’t a lot of people out there who are interested in buying them.” Rank Store Name Store Count Footprint 1 The Cigarette Store Corp. 181 CO, FL, LA, MO, MT, NC, NE, WY 2 Wild Bill’s 106 MI 3 Low Bob’s 93 IN, IL 4 Tobacco Superstores 87 AR, KY, MO, MS 5 Wild Wild West 60 MI 6 Smoker’s Choice 59 NY, PA 7 Tobacco Connection 56 ID, OR, WA, UT 8 Discount Smoke Shops 47 IA, MO, SD 9 NBS, Inc. 43 OH, VA, WV 10 Kwik Trip/Tobacco Outlet Plus 42 WI 11 Tobacco Barn 42 TX 12 Cheap Tobacco 40 OH 13 Discount Tobacco Outlets 30 TN 14 Collett Enterprises 30 IN, KY 15 Tobacco Plus Discount Outlet 24 LA 16 Dot Discount/ Cigarette City 24 DE THE TOP 50 TOBACCO OUTLET CHAINS OF THE YEAR Tobacco outlets are typically defined as establishments that sell tobacco and tobacco products, such as cigarettes. In addition to being standalone stores, tobacco outlets can also be part of convenience stores, liquor stores, supermarkets and gas stations. The following is a ranking of the top 50 tobacco outlet chains of 2021 based on store count (as of July 22, 2021). Typically, cigarette and tobacco stores are more highly regulated and probably have short-term leases. There are a lot of negatives that go against them, so looking at convenience stores is not the same. — Terry Gallagher Jr.