THE NEXT CHAPTER ECONOMIC STIMULUS How Big Tobacco is beating market expectations COMING IN HOT The season’s most anticipated new premium cigar releases How Artista’s Ram Rodriguez is transforming the cigar business AN OFF IC I A L MAGA Z INE OF TOTA L PRODUCT E XPO VOL 2 5 NO5 V SEP TEMBER /OCTOBER 20 22
8 TOBACCO BUSINESS | SEPTEMBER / OCTOBER | 22 F E AT UR E S S E P T EMBER / OC TOBER 2 0 2 2 ON THE COVER: RAM RODRIGUEZ PHOTOGRAPHY BY: JC FONDEUR BRANDING & DESIGN CONSULTING 30 PERSONAL BUSINESS Years ago, Artista’s Ram Rodriguez stepped into his family’s tobacco business unsure of where he fit in. Today, he’s not only leading his company; he’s showing the cigar industry a new way of doing business. 44 DOING THINGS HER WAY In 2021, Cynn Coburn and her husband became the owners of Dissident Cigars, an established brand that she’s not afraid to make her own with some bold new blends and marketing. 64 BETTER AND BEST When Francisco Almonte launched DBL Cigars, many people told him he was making a mistake. Find out how he successfully built up his brand and the area of his business he invested in the most. 54 BLOCKBUSTER RESULTS When Anthony Serino sold his video business, he decided to pursue his passion, premium cigars, which led to him launching his own distribution company and premium cigar brand. 72 ROCKY’S WORLD Rocky Patel is one of the cigar industry’s biggest and most recognized personalities. Now he’s revealing the secrets behind his success and his growing premium cigar and retail empire. 30
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10 TOBACCO BUSINESS | SEPTEMBER / OCTOBER | 22 COL UMNS 14 | FOUR THINGS YOU NEED TO KNOW ABOUT TPE23 Are you looking for something new to add to your store? Wanting more out of your business? Find out howTPE23 will help you achieve your goals in the first few weeks of the new year. 16| NEW CATEGORIES LEADING TO BIG RESULTS As traditional combustible tobacco products continue to decline in sales, Big Tobacco is beating the odds and coming out on top by turning to some new, emerging product categories. 26 | CORRECTIVE STATEMENT UPDATES, FLAVOR BAN PUSHBACK Get the latest on the corrective statement point-of-sale settlement and how cigar trade associations responded to the U.S. Food and Drug Administration’s proposed ban on flavored cigar products. 82 | CARAVAN CIGAR COMPANY: ALWAYS ON THE MOVE How this Bath, Pennsylvania-based tobacconist is thriving and reaching customers near and far with its down-home, family vibe and organic growth tactics. 88 | ON YOUR SHELF With the final quarter of 2022 quickly approaching, Tobacco Business takes a look at some of the season’s most anticipated and talked about releases, including some of the biggest reveals from this year’s Premium Cigar Association trade show. TPE STARTUP ASSOCIATIONS TOBACCONIST 14 88 S E P T EMBER / OC TOBER 2 0 2 2 20| RECESSION-PROOF SALES Don’t let a downturn in the economy and the threat of a recession derail your sales efforts. Aganorsa Leaf’s Terence Reilly offers some practical advice to help you exceed your sales expectations. 24| A BRAND REBOOT What do you do when a product or brand that once brought in sales starts to plateau? You make it feel new again with a new look. We’ll show you how several tobacco companies did just that. 82 Photography courtesy of Tobacco Media Group (TMG), Fred Lunt and La Flor Dominicana
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12 TOBACCO BUSINESS | SEPTEMBER / OCTOBER | 22 When you read a book, are you the type that likes to flip to the final pages to see what happens and where this story is going to go before you actually read the story from start to finish? That may seem like a silly question, but it seems like the society we live in is more interested in the end rather than the beginning of a story. We’re obsessed with end results, and yet we feel like it’s too much of a task to understand what events and steps led up to the ending. This happens all of the time in the tobacco industry too. When a newproduct is ready formarket and a press release has to be deployed, where does that press release begin? It usually begins at the end by describing the wrapper, binder, filler and price point and is concluded with a generic quote from someone hyping the fact that this is the best cigar you’ll ever smoke or the best product you will ever use. OK, but why is that the case? I’ve become obsessed with the question of “why?” after reading “Start withWhy” by Simon Sinek. I won’t bore you with all of the details of the book as to not spoil the ending (see what I did there?), but in summary, Sinek states in so manywords and chapters that in business and in life a lot of us are entirely focused on the wrong questions and things. We’re obsessed with results—how much money we want to make, how much notoriety we want to gain from an action, how we need to do this or that—but we miss the most important question of all, which is “why?” “Why?” is not an easy question to answer. It can reveal the flaw in a plan. It can show how we really haven’t thought something entirely through. It can shine a light on our insecurities and deepest desires. To answer “why?” you can’t start at the end; you have to start at the beginning and work your way through the many layers to reach the goal or end point. I recently read another book, “Disrupting the Game” by Reggie Fils-Aimé, the former president of Nintendo of North America. In this book, Fils-Aimé talks about his career and the many decisions he’s made along the way that have gotten him to where he is now: retired from Nintendo but working with some nonprofit groups, among other activities. The point is, he’s most known for his work with Nintendo and leading the company through innovative periods, such as the Wii and Switch consoles. The book tracks his career from start to finish, taking you through his work with Procter & Gamble, Guinness Imports Co., Panda Management Co. and MTV/VH1. Why? Because how he got to Nintendo and why he experienced the successes he did came fromhis past experiences. It wouldn’t have been a complete or interesting story without his past. This issue of Tobacco Business tackles “why?” from different angles. The cover story tracks the entrepreneurial journey of Ram Rodriguez, who didn’t envision himself working in tobacco when he was young but now leads a vertically integrated tobacco business. Then there is Cynn Coburn, who went from motivational speaking to becoming a brand owner and blender for Dissident Cigars. Another story explores the motivations of Rocky Patel, who’s one of the cigar industry’s most recognizable faces and runs not just a brand but also a successful chain of retail stores called Burn by Rocky Patel. As you’re reading through these stories, look for the “why?” and see what valuable lessons you can gather from that question. Also, I hope this makes you give some thought to where you are today and where you hope to be tomorrow. Understand that the answer to that question probably isn’t going to be answered with a dollar amount—it’s all about where you’ve been, what you’ve experienced, what you’ve learned along the way and how you apply it to your life today. Here’s to the journey and your exploration of why. TB W ED I TOR ’ S LETTER VOL25 NO5 SEPTEMBER/OCTOBER 2022 PRESIDENT Jason Carignan MANAGING DIRECTOR Ben Stimpson SENIOR EDITOR AND DIGITAL DIRECTOR Antoine D. Reid ART DIRECTOR Harrison Brackett COPY EDITOR Stephanie Banfield CONTRIBUTORS Thomas Briant and Fred Lunt TOTAL PRODUCT EXPO TRADE SHOWDIRECTOR Ellie Hansen TMG SALES MANAGER Dawn Conger DIGITAL MARKETING MANAGER Brian Rodak TRADE SHOWOPERATIONS & LOGISTICS MANAGER Scott Gibson SENIOR GRAPHIC DESIGNER Rachel Esteffe TMG SALES ASSOCIATE Carly Gegorek TOBACCOBUSINESS MAGAZINE 5449 Endeavour Ct #1712, Moorpark, CA 93021 A DIVISION OF KRETEK INTERNATIONAL, INC. CHAIRMAN Hugh Cassar PRESIDENT AND CEO Sean Cassar CHIEF FINANCIAL OFFICER Don Gormly Tobacco Business is published bimonthly at 5449 Endeavour Ct #1712, Moorpark, CA 93021. Printed in USA. Copyright 2022 by TBI, LLC. Subscription rate is $45.00/year. Send paid subscriptions to Tobacco Business at same address as mentioned above. For reprint information, contact Ben Stimpson at 919.412.7380. Copying: Permission is granted with users of the Copyright Clearance Center Inc. To photocopy any ar ticle, with the exception of those for which separate copyright ownership is indicated on the first page of the ar ticle, provide a base fee of $1.25/copy. Tobacco Business International is a registered trademark of TBI, LLC. POSTMASTER: Send address changes to Tobacco Business, 5449 Endeavour Ct , Moorpark, CA 93021. WHAT ARE YOU DOING HERE? THE TEAM Antoine D. Reid, Senior Editor, firstname.lastname@example.org TOBACCOBUSINESS.COM TOBACCO BUSINESS
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14 TOBACCO BUSINESS | SEPTEMBER / OCTOBER | 22 With TPE23 just a short time away, here’s why attending next year’s show will offer you and your business more opportunities to be successful. Photography courtesy of Tobacco Media Group (TMG) As the must-attend B2B buying show for independent retailers, the 2023 Total Product Expo (TPE) is timed to start the year with solid profit potential for both its exhibitors and attendees. The team behind TPE23 is busy planning and putting details in place to ensure the 2023 trade show is the best yet and optimized for all attendees and exhibitors. TPE has evolved over the years to best serve retailers that attend the show. Retailers have come to TPE in search of the best: the best tobacco products for today’s consumers, the best alternative and vapor products that non-smoking customers are buying in droves, and the best premium cigars that cigar aficionados are lined up for and ready to light up the moment they hit their local tobacconists’ shelves. Retailers also come to the show with a simple question: What’s new? This question comes as independent retailers are looking for ways to attract new customers or supplement a product category that was once offering huge margins but now has diminishing returns. Other retailers simply want to expand and build upon what they already have but have no idea what “new” product or category can offer big returns. That’s where attending and exhibiting at TPE is critical. TPE offers retailers of all sizes—whether they are a convenience store chain, a regional grocery store, a retailer formerly focused on vapor in need of the next big thing, or a mom-and-pop brick-and-mortar—something new and exciting to enhance their business. The new products and categories that will be represented by the exhibitors on the trade show floor are not there to replace anything. Instead, the expanded focus of TPE is there to complement what the show has featured in previous years and give retailers even more products and reason to attend. Nick Douglas from Kentucky’s The Party Source regularly attends TPE each year due to the value the show provides to him and his business. “Having a show at the beginning of the year is great,” he says. “I’m able to take advantage of the deals early on and maximize my profit margins for an entire year.” In addition to being an early buying and selling opportunity, TPE offers great networking opportunities that have big payoffs long after the show. Many have used TPE as a chance to set up meetings with industry partners or to start discussions about long-term collaborations and business deals. It’s not uncommon to attend TPE in search of a company to help take care of your business’ distribution needs or something as simple as a new point-ofsale system and to leave with several viable options. Additional information on TPE23 will be released in the coming weeks. In the meantime, here are four things you should know about next year’s show, including why you’ll want to register sooner rather than later. 1. MovingtoFebruary. TPE is typicallyheldduring the lastweek inJanuary, but next year it will be moving to February. Make sure you have the new dates in mind as you make your plans to attend. TPE23 will take place at the LasVegas ConventionCenter fromFeb. 22-24, 2023. 2. New name but returning favorites. The show’s name may be slightly different, but you’ll still find exhibitors offering the latest premiumcigar, tobacco, vapor and alternative products that your customers will love. 3. Moreproductselection. TPE23will be bigger in size and focuswith the addition of more product categories and companies exhibiting to fulfill your store’s needs. The show’s newgeneral merchandise exhibitors will help independent retailers stock more in one spot. 4. Discounted registration. Registration for attendees opens in October 2022. Register for your badge early to get an early bird discount. The best way to stay up to datewith the latest announcements and reveals from TPE23 is to join the mailing list at totalproductexpo.com. You can also follow the showon Facebook, Instagram, Twitter andYouTube by searching for “@totalproductexpo.” TB Editor’s Note: Tobacco Media Group (TMG) is the owner and operator of the TPE trade showas well as the publisher of Tobacco Business magazine. A FOUR THINGS YOU NEED TO KNOWABOUT TPE23
THIS IS THE PLACE TO BE TPE23 Registration Opens in October Scan to learn more about THE buying show for independent retailers and early bird discounts. FEBRUARY 22–24, 2023, LAS VEGAS CONVENTION CENTER totalproductexpo.com George James, Vorieo Cigars SCANME
16 TOBACCO BUSINESS | SEPTEMBER / OCTOBER | 22 It’s September, and that means we are nearly three-quarters of the way through the year. The economy has been a hot topic for many as inflation and fears of a recession have loomed over businesses and individuals for most of 2022. This summer, many tobacco companies released financial reports that have revealed mostly positive results. A commonality among these reports is how new categories and emerging markets such as heated tobacco, nicotine pouches and other smokeless products have led to mostly positive results during the first half of 2022. Here’s a look at some of the tobacco industry’s biggest companies and a look into the performance of businesses during the first half of the year. Altria Group, Inc. (MO) Altria’s net revenues fell by 5.7 percent to $6.5 billion during the second quarter, leading the company to report net revenues of $12.4 billion for the first half of 2022, a 4.1 percent decrease. Altria’s financial reporting for the quarter and first half of 2022 came as a result of the company selling its wine business, Ste. Michelle Wine Estates, in 2021, as well as lower-than-expected revenues from its oral tobacco products business. Despite the decrease in net revenues, Altria’s financial plans for the remainder of the year remain on track, the company stated in its latest financial report. “We reaffirm our guidance to deliver 2022 full-year adjusted diluted EPS in a range of $4.79 to $4.93. This range represents an adjusted diluted EPS growth rate of 4 percent to 7 percent from a $4.61 base in 2021,” the company shared in its report. Altria stated that its tobacco businesses “performed well” during the first half of the year despite the challenging economic environment. “The smokeable products segment delivered solid operating companies income growth behind the resilience of Marlboro, and our moist smokeless tobacco brands continued to drive profitability,” said Billy Gifford, Altria’s CEO, in a press release. “We also continued to make progress toward our vision through the investments we laid out in January, which included supporting the expansion of on!. We are encouraged by on!’s retail momentum and significant share growth since achieving unconstrained capacity last summer.” Altria reaffirmed its shared goal with the U.S. Food and Drug Administration (FDA) to help adult smokers transition from cigarettes, which it believes can be achieved through harm reduction. “We believe this is a pivotal point in the U.S. tobacco industry,” said Gifford. “The FDA has the opportunity to create a mature, regulated marketplace of smoke-free products that can successfully realize tobacco harm reduction and improve the lives of millions of adult smokers.” British American Tobacco (BTI) BritishAmericanTobacco (BAT) sawstronggrowthandpositive revenue results stemming from its long-term investments in building out its new category portfolio. These products are adding revenue and customers to BAT’s business as the more traditional combustible tobacco products like cigarettes continue to see an industry-wide decline in sales volumes. “I am very proud that our continued new categories growthmomentum is driving faster transformation, with revenue growth of 45 percent in the first half of 2022 on top of 51 percent growth in FY2021,” said Jack Bowles, chief executive of BAT. “We are delivering both strong operational performance and transforming the business.” BAT’srevenuewasup3.7percentduringthefirsthalf of 2022, ledmostly by new category growth. As a demonstration of how new categories are super-charging BAT’s transformation and growth, non-combustible I STARTUP : MARKETWATCH NEWCATEGORIES LEADING TO BIG RESULTS Photo: Adobe Stock
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18 TOBACCO BUSINESS | SEPTEMBER / OCTOBER | 22 product consumers increased by 2.1 million from December 2021 through June 2022 to a total of 20.4 million. Non-combustibles now represent 14.6 percent of BAT’s group revenue. BAT’s revenue generated by its vapor product, Vuse, was also up during the first half of 2022, by 48 percent. Its heated tobacco product, glo, also saw an increase in revenue, up 44 percent during the first half of the year. Velo, the company’s nicotine pouch product, had revenues up by 37 percent. BAT’s combustibles business was bolstered by what it referred to as robust pricing. Overall, BAT’s combustible revenue was up by 0.6 percent. Philip Morris International (PM) Philip Morris International (PMI) reported a strong performance during the second quarter that exceeded its initial expectations. According to CEO Jacek Olczak, his company’s strong first half of 2022 was due to IQOS momentum, including an increase in IQOS users and heated tobacco unit in-market sales volume. Favorable cigarette category trends were also attributed to the company’s recent positive financial report. During the second quarter of 2022, net revenues from smoke-free products accounted for 29.9 percent of PMI’s total net revenues. Smokefree products made up 30.5 percent of the company’s total net revenues during the first half of 2022. The market share for heated tobacco units in IQOS markets was up by 1.2 percentage points to a total of 7.5 percent. By the end of the second quarter, PMI estimated there were approximately 19 million IQOS users, up by 3.2 million or by 20.5 percent compared to the end of June 2021. “We are raising our outlook for the full year and now expect to deliver pro forma adjusted growth in net revenues of 6 percent to 8 percent, on an organic basis, and diluted EPS of 10 percent to 12 percent, excluding currency, underpinned by pro forma heated tobacco unit shipment volume of 90 [billion] to 92 billion units,” Olczak announced in PMI’s halfyear financial report. PMI expects its purchase of Swedish Match to close during the fourth quarter of 2022. It is not expecting Swedish Match to have any contribution to the company’s operations this year. Swedish Match (SWMA.ST) Swedish Match saw its group sales and operating profit increase during the first half of 2022. This was mostly driven by the continued growth of Swedish Match’s smoke-free and lights segments. Sales for the company’s cigar segment reportedly declined. “Our cigar business has faced operational challenges for some time, and while shipment volumes and the operating profit were well below the prior year second quarter, we are hopeful that we will be able to deliver improvements going forward,” Lars Dahlgren, CEO of Swedish Match, shared in his company’s half-year report. “Our supply chain organization has made good progress in production levels of natural leaf varieties, and though demand in the overall cigar category was notably lower than [the] prior year’s elevated level, we are encouraged by our share gains within the more attractive natural leaf segment, resulting in Swedish Match regaining the No. 2 position in the U.S. mass market cigar category (excluding little cigars), according to [Management Science Associates] data.” Swedish Match’s smoke-free business, driven mostly by ZYN, a nicotine pouch product, saw the greatest gains in the second quarter and overall first half of 2022. The company’s smoke-free category saw double-digit growth in terms of volume in Scandinavia following the introduction of several new nicotine pouch products, including the VOLT brand, developed using patent-pending PEARLS technology. During the secondquarter of 2022, SwedishMatchreportedan increase in operating profit of 2.23 billion Swedish crowns, or $22.47 million. Due to growth experienced in the U.S., Swedish Match’s operating profit was above market expectations during the second quarter of 2022. Vector Group (VGR) Vector Group reported consolidated revenues of $699.2 million during the first half of 2022. This accounts for a 14.9 percent increase, or $90.7 million increase, compared to the prior year. During the first half of 2022, Vector Group saw its tobacco segment revenues increase by 14.3 percent to a total amount of $683.4 million compared to the prior year period. “Vector Group delivered strong tobacco revenue performance in the second quarter as we capitalized on favorable market opportunities to substantially increase value and market share,” commented Howard M. Lorber, president and CEO of Vector Group, in a press release. “Our price-fighting Montego brand is now our largest brand and the thirdlargest discount brand in the United States. This strong performance demonstrates our commitment to optimizing long-term profit through the effective management of volume, pricing and market share growth.” The retail market share of Liggett Group increased to 5.5 percent during the second quarter of 2022, up from the 4.1 percent reported during the second quarter of 2021. For the first half of 2022, Liggett also saw its retail market share increase to 5.3 percent. In 2021, its first half of the year market share was 4.1 percent, according to data provided by Management Science Associates. Vector Group is a holding company for Liggett Vector Brands, Vector Tobacco Inc. and New Valley. It is the fourth-largest cigarette manufacturer in the U.S. The company is the manufacturer of such national cigarette brands as Pyramid, Liggett Select and Eagle 20’s. TB On July 14, 2022, U.S. Tobacco Cooperative, Inc. (USTC) announced that it had successfully emerged from bankruptcy. USTC originally filed for bankruptcy protection in July 2021 in order to meet contractual obligations to its member growers while the company addressed uncertainty presented by the ongoing Lewis class action lawsuit. “Today’s exit from bankruptcy marks the end of more than 17 years of class action lawsuits following the termination of the federal price support program that ran from 1946 to 2005,” said Oscar J. House, CEO of USTC. “Our exit allows us to now focus solely on the services and products our cooperative is known for. I want to thank our customers, employees, suppliers, board of directors and especially our member growers for their continual support throughout the bankruptcy proceedings, which are now officially behind us.” USTC is a grower-owned marketing cooperative based in Raleigh, North Carolina. The cooperative processes U.S. flue-cured tobacco grown by its 500-plus member-growers in North Carolina, Florida, Georgia, South Carolina and Virginia. In addition to processing and selling raw tobacco materials to cigarette manufacturers worldwide, USTC’s subsidiaries include Premier Manufacturing, Wildhorse Distributing, Big South Distribution and King Maker Marketing. USTC also manufactures consumer products for the U.S. market that are sold under the brand names of Wildhorse, 1839, Manitou, Shield 1st Class, Ultra Buy and Traffic. USTC EMERGES FROM BANKRUPTCY
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20 TOBACCO BUSINESS | SEPTEMBER / OCTOBER | 22 It’s no secret that the economy is on virtually everyone’s mind right now. Every day, whether it be online, in print or on television, you’re likely to be faced with the dreaded “R” word: recession. For tobacco businesses, this can be an even more stressful time. During inflation, consumers typically cut back on their discretionary spending, including purchases of cigars and other tobacco products. Do they really need that new cigar? Can they get by with fewer packs of cigarettes a month? With money being tight, is this the time they try to cut back on smoking altogether? These questions and the fears they spark can derail even the best of companies. When the economy is struggling and inflation is running rampant, your company needs a sales strategy. Whether you’re a manufacturer or a brick-and-mortar retailer, preparing for the worstcase sales scenarios can make or break your business. In the interview that follows, Terence Reilly, vice president of marketing and sales at Aganorsa Leaf, discusses how the current economic situation is impacting his company’s sales and provides some practical advice for how other tobacco businesses can implement their own recession-proof sales strategy. Tobacco Business: How has inflation and the economic situation in the U.S. and the world impacted your company’s retail partners? Terence Reilly: Consumers becomemorediscerningonhowtheywill spend theirmoney, and so retailers are looking for the best values that will appeal to their customers and for reliable brands that they knowwill sell consistently. Many tobacco companies experienced a sales bump during the COVID-19 pandemic. Are sales overall still trending as they were during thepandemic or are youseeinga return topre-pandemic levels? We were growing at a pretty healthy pace before COVID, an insane pace during COVID, and nowwe are back to a healthy pace again. We can’t look at a period of time where the government was giving out money with little opportunity to spend it on much other than cigars, alcohol and streaming networks as anything more than an outlier. It was naïve to believe that type of environment would become permanent. Overall, the pandemic brought in new consumers and made more dedicated fans out of existing ones. The industry will benefit from the increased exposure long term. How has your company adjusted its sales and marketing efforts in response to inflation? We haven’t changed anything because we never jumped on the $50 cigar bandwagon. Throughout the pandemic, we kept putting out excellent cigars at a great value. We had a lot of people telling us we needed $30plus cigars. I’m not saying a cigar can’t be worth that much or more, as they certainly can, but to simply charge that kind of price for no other reason than the market would accept it seemed to be a short-term play. We may have lost some extra profit because we kept prices in the same range as we always have, but now that inflation keeps reducing the consumers’ buying power, a lot of cigar smokers are turning to us. What advice are you giving your sales reps for how to handle selling in today’s economy? We try to make sure our team’s primary objective is to bring as much value as possible for the retailer. When you work with us, we will educate your staff on our brands, help you display the product effectively, solve issues as they arise quickly, drive new customers to your store and so on. The sale itself, of course, is crucial to our remaining in business, but if your relationship with retailers is primarily transactional, you will have a hard time competing against players who can give bigger discounts and more swag. I STARTUP : SALES RECESSION-PROOF SALES Photos courtesy of Aganorsa Leaf Does the economy have you worried? Learn how to adjust your sales strategy, empower your sales reps and keep your customers happy during challenging economic times. Terence Reilly, vice president of marketing and sales at Aganorsa Leaf
22 TOBACCO BUSINESS | SEPTEMBER / OCTOBER | 22 In terms of sales, are you more focused on opening new accounts or on servicing your current customers? Existing business always comes first. We try to add new partners as well but not at the expense of existing business. Is the sales cycle taking longer today or are your customers quicker to make purchasing decisions? The major difference between the last few years and now is you actually need a compelling reason for the retailer to bring a new line or a new brand into their store. During COVID, people would buy anything so long as you had it in stock. Today, if you have a good reason for them to pull the trigger, it doesn’t take any longer than usual, but you definitely need that reason. How much of the sales process today is handled in person in comparison to through the use of technology? I don’t have hard numbers, but I’d say an increasing amount of sales come through technology now [more] than they did prior to COVID. During COVID it was a necessity. Now that things have opened up, some have returned to a preference for face-to-face business while others have made the switch to the ease of technology now that they are used to it. Have the buying motivations of your customers changed in the past year? If so, how have you had to adjust your sales pitch? Retailers are becoming more discerning on what they want to bring into their stores. In terms of how we address that, it’s on an individual basis. We try not to approach retailers as a homogenous group. Each has specific concerns. We listen to what is important to them and then try to work with them to provide a selection of our brands that will work for their store and their model of business. How do you typically acknowledge or thank your long-term customers? We try to show our appreciation by keeping our promises. While many companies reduced or removed specials altogether, the benefits of our Aganorsa Leaf Select program remained in place during the pandemic. From a fiscal perspective, it would have made sense to take away specials when we were having trouble supplying the market demand, but we felt ensuring we keep strong relationships with our partners was more important. What’s a skill that you feel more sales people working with tobacco products need to learn today in order to be successful? Empathy. You need to be able to understand the perspective and the experience of the retailer on an intellectual and emotional level if you want longterm success. That requires empathy. TB Does rising inflation and fear of a recession have your customers pulling back on their purchases? Aganorsa Leaf’s Terence Reilly offers these three tips for how to sell during challenging times. 1. Work hard consistently. The last word is the most important. Most people don’t have the discipline to perform at a high level consistently. Every day, go out there and execute. That gives you an advantage over most. 2. Listen and respond. If you hear the same concerns over and over again from a variety of retailers, take that feedback and address it. If a retailer feels you’re implementing programs or making changes based on their suggestions, they are much more likely to buy into your program. 3. Bring value without expectations. Do everything you can to help your retail partners without expecting an order as gratitude. As long as you are acting with the expectation of a sale, the relationship is transactional, but if you provide value with no strings attached, most people respond to it in a far more powerful way. Not only will the orders increase; you will build the type of relationships that are crucial to long-term success and vital when the market becomes more difficult. When times are tough, retailers will support the companies they feel are in their corner. YOUR 3-POINT 2022 SALES PLAN
24 TOBACCO BUSINESS | SEPTEMBER / OCTOBER | 22 For many tobacco brands, quality of material remains an important selling point for their products. Packaging, marketing collateral and press releases typically hype the quality of the tobacco used in the product’s blend or how the packaging will preserve the quality of the product containedwithin. That’s all well and good, but in order for a consumer to know whether or not some of those statements regarding quality are true or not, they must try the product. That also means they must purchase the product in order to validate said statements on quality—and that could be a problem. Aneasierway toencourageaconsumer tomakea purchase is to make the product visually attractive by focusing on its packaging and overall branding. Due to regulations, tobacco manufacturers are not able to make or release “new” products that often. That means they and retailers are forced to sell and promote products that have been on the market for years, which offers them the opportunity to establish the brand and build an audience but makes it difficult to appeal to new customers that may be seeking something “new.” That’s when a redesign of a product’s packaging or brand can attract new customers and boost sales of products that have been on the market for some time. More andmoremanufacturers in the premium tobacco space are revising the look of products in their portfolio to bring new attention to established products. Scandinavian Tobacco Group (STG) has refreshed the look of several of its products this year. One of those brands given a new look was Sancho Panza, a brand the company has described as being “dependable” and “tried.” The company collaborated with Matt Booth to refresh the look and feel of this premium cigar line, making sure the branding respected the history and tradition of the brand while also appealing to today’s cigar smoker. Booth also worked on a new look for STG’s Los Statos Deluxe brand. When speaking on the makeover he created for Los Statos, Booth commented that the new branding was designed to “command the attention of both the traditionalist and pique the interest of the most discerning collectors simultaneously.” Companies from other tobacco categories can also pull in new customers and build brand awareness for heritage products through a branding refresh. In July 2022, the consumer products division of U.S. Tobacco Cooperative (USTC) unveiled a new packaging design for its 1839 cigarette line. The new design updated the look of 1839 to make it more contemporary and cleaner, hoping to make the products stand out on store shelves. The new design made the company’s logo more prominent, used bolder colors and highlighted the brand’s history of being a product of the work of tobacco farmers fromNorth Carolina. The new packaging also solved a problem the product faced in retail: standing out as a viable choice for consumers in retail. “Previous packaging had tobacco leaves on them that were extremely hard to identify unless you had a pack in hand,” says Mark Schueller, director of marketing at USTC. “In fact, the front had two leaf images close to each other, and one was colored to identify the style. Honestly, it sort of looked like ink blots. Also, there was a fair amount of copy on the backside of the pack that occupied too much real estate.” USTC’s rebranding efforts for 1839 helped bring more attention to its product in stores. The refreshed look also helped to visually convey the message that not only was this considered to be a premium product, but it was also a brand with history that would appeal to today’s cigarette smoker seeking a quality product for his or her money. So, how do you implement an effective packaging and rebranding effort? Schueller offers the following three tips to get you started. 1. Look at your brand and determine what sort of image and message you want it to portray. 2. Test designs to see how they look on a fixture. 3. Get feedback from internal teams, such as sales and production, but also from retailers. An effective redesign and rebranding effort won’t happen overnight. It will take time, and while opinions matter, Schueller cautions against letting too many people think they will have the final say. A good rebranding can and should make your product more visible in stores, and although the look may be different from what retailers and consumers know of the brand, it is advised that you keep some historical elements in the new branding to make it somewhat familiar to your customers. TB F STARTUP : MARKET I NG A BRAND REBOOT Photography courtesy of Premier Manufacturing You don’t have to release a new product to boost sales. Learn how refreshing a brand or your packaging can give an established tobacco product new life in retail. Our premiu quality cigarettes, pipe tobacco, cigarette tubes, and roll-your-own tobacco products are all made from the finest U.S. tobacco. ContaCt us to www.gopremier.com/c a customer favorite — now available in enticing NeW PacKaGiNG
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26 TOBACCO BUSINESS | SEPTEMBER / OCTOBER | 22 In 1999, the United States government sued the major cigarette companies asserting claims under various federal laws. In 2006, a federal judge entered judgment in favor of the government on certain claims and, among other things, ordered Altria, R.J. Reynolds Tobacco Company (RJR) and Philip Morris USA (PM USA) to make “corrective statements” on certain topics. ITG Brands LLC became a party to the litigation for purposes of the court-ordered remedies when it purchased four cigarette brands from R.J. Reynolds Tobacco Company in 2015. PMUSA, RJRand ITG (the “manufacturers”) have now reached a settlement agreement with the government and several public health organizations that intervened in the case regarding how these court-ordered “corrective statements” will be displayed in retail stores. As part of the settlement agreement, the manufacturers will be required to amend their cigarette retail program agreements with retailers to require the placement of a corrective statement sign or signs in retail stores. Amendments to Cigarette Retail Program Agreements: The settlement agreement states that the cigarette retail program agreements between retailers and the manufacturers will be amended to include the settlement agreement provisions. The settlement agreement provides that a retail store with a cigarette retail program agreement will need, depending on various circumstances, to display one corrective statement sign, two corrective statement signs or three corrective statement signs for a 21-month period. However, it is important to note that the government had previously proposed that 25 percent of the cigarette display space and 25 percent of all offset advertisements devoted to the manufacturers’ cigarette brands in each retail store be covered with corrective statement signs for a 24-month period. The settlement agreement replaced the government’s 25 percent proposal with the one, two or three corrective statement signs alternative and ensures that no signs will cover any portion of the main cigarette display. CorrectiveStatement Signs: The following corrective statement sign requirements are a part of the settlement agreement and apply to all retail stores that have contracts with the manufacturers: • For stores that are not a kiosk-style store, one 348-square-inch corrective statement sign will be displayed. The sign will be either square (18.655” x 18.655”) or rectangular (32” x 10.875”). • For retail stores that are not a kiosk-style store and have more than 9 feet of horizontal linear display space devoted to the manufacturers’ cigarette brands, a second 348-square-inch corrective statement sign will be displayed. • For retail stores that are not a kiosk-style store and that have cigarette promotional signage displayed elsewhere in the store other than on the main cigarette display (and excluding signage that only identifies the brand, price or has a picture of a pack of cigarettes), an additional 144-square-inch corrective statement sign will be displayed. The sign will be either square (12” x 12”) or rectangular (20” x 7.2”). • For kiosk-style stores, which are those stores that either: (1) do not allow customers to enter and that have a selling window between the customer and store personnel, or (2) are no more than 325 square feet in area, not including restrooms, regardless of whether customers are allowed to enter the store, then one 144-square-inch sign will be displayed. The sign can be either square (12” x 12”) or rectangular (20” x 7.2”). The manufacturers will print corrective statement signs with 17 different court-ordered messages, with one message to be printed on each sign. The signs will be randomly distributed by the manufacturers to stores across the country. Display Period for Corrective Statement Signs: Under the settlement agreement, there is a three-month “posting period” for the manufacturers to actually place the corrective statement signs in stores. Then, after this “posting period,” the corrective statement signs will be displayed in stores for 21 consecutive months. During the 10th, 11th and 12th months of the 21-month period, the manufacturers will rotate the signs in stores by replacing existing signs with signs that have a different court-ordered message. Photos of the signs placed in all stores will be uploaded to a database to confirm compliance with the settlement agreement. Retail Compliance and Noncompliance: If a retailer complies with the terms of the settlement agreement by displaying the required sign or signs, the retailer will not incur any noncompliance penalties. If a retailer does not fully comply with the sign display requirements, then a retailer may incur various consequences depending on the kind of noncompliance. “Minor Noncompliance” includes obstructing a portion of a sign (other than the smoking/health-related statement) or displaying a sign incorrectly (as long as it remains visible to consumers). Minor noncompliance would result in counseling by the manufacturers on the proper sign-display requirements and, if not corrected, could lead to a warning letter and the retailer being required to display an additional 144-square-inch corrective statement sign in the noncompliant store for 120 days. “Major noncompliance” includes not posting a sign, obstructing or displaying a sign so that the message is not visible, damaging or removing a sign, or failing to rotate a sign. The penalties for major noncompliance include counseling by the manufacturers on the proper sign display requirements, displaying an additional 144-square-inch corrective statement sign for the duration of the 21-monthdisplayperiodandpaying toeachmanufacturerwithwhich the retailer has a retail marketing contract a financial penalty equivalent to the retailer’s price-promotion discounts for a period of four weeks or 13 weeks, depending on the number of major noncompliance violations. Repeated major noncompliance would result in the retailer’s suspension from the retail marketing program for a period of up to 17 weeks. Auditor and Working Group: An auditor will be retained by the manufacturers to review photos of signs and visit some stores to take pictures and make determinations of retail compliance or noncompliance. A working group composed of 10 members, including persons appointed to represent the manufacturers, the National Association of Tobacco Outlets (NATO) and the National Association of Convenience Stores, will be formed to address implementation and compliance questions from retailers. Court Hearing to Accept Point-of-Sale Settlement Agreement: A hearing before the federal district court to determine if the judge accepts the settlement agreement was held on July 28, 2022. At this time, the industry is waiting for the judge to issue an order on whether the settlement is accepted by the court. TB I ASSOC I AT I ONS : NAT I ONAL ASSOC I AT I ON OF TOBACCO OUTLETS SUMMARY OF CORRECTIVE STATEMENTS POINT-OF-SALE SETTLEMENT AGREEMENT Thomas A. Briant, Executive Director, National Association of Tobacco Outlets
The Premiere Retail Association Every Retailer Should Join For more than 20 years, NATO has been the leading trade organization working to protect all retailers that sell tobacco products from unfair taxation and overly restrictive legislation and regulations. NATIONAL ASSOCIATION OF TOBACCO OUTLETS email@example.com 952.683.9270 www.natocentral.org Exclusive focus on tobacco-related issues Local, state, and federal bills/FDA regulations Tobacco Focus Industry-leading NATO News Bulletin reports Updates on legislation, litigation, and regulations Communication Updates Close working relationship with the FDA NATO is the retail voice on agency regulations FDA Relationship National Local Advocacy Alliance: nlaausa.org Pending ordinances and “Take Action” page Local Advocacy Website National network of trade associations Assists retailers’ response to local ordinances National Response Network Alerts on local, state and federal legislation Member contact with elected officials simplified Member Engagement Seminars and webinars on tobacco issues Retailers kept abreast of laws and regulations Educational Sessions Staff knowledge of tobacco issues unparalleled Key source for answers to retailer questions Knowledge Base
28 TOBACCO BUSINESS | SEPTEMBER / OCTOBER | 22 In its filed comments, the Cigar Association of America (CAA) stated that the FDA’s own data shows that underage usage of flavored cigars is at historic lows after years of continued decline. This data disproves the FDA’s main reason for the proposed ban. “This clearly shows that [the] FDA is proposing a solution in search of a problem. The underage usage of flavored cigars is minuscule,” stated CAA President David M. Ozgo. “It is a blatant example of targeting an industry that is clearly marketing its products to legal age adults.” When the FDA first tried to exercise its regulatory power of certain tobacco products in 1996, the only survey that studied youth usage of cigars—the National Survey on Drug Use and Health (NSDUH)—reported the last 30-day youth usage at 5 percent in 1997. In 2020, the NSDUH tracked the last 30-day youth usage of cigars as being at 0.8 percent. Most recently, the government’s Population Assessment of Tobacco and Health Survey (PATH) showed that youth’s last 30-day usage of cigars was down to 0.75 percent. Youth usage of flavored cigars was reported to be around just 0.29 percent. The CAA reiterated that one key purpose of the Tobacco Control Act— the law that gave the FDA the authority to regulate tobacco products— was to “continue to permit the sale of tobacco products to adults.” This was in conjunction with measures taken to ensure tobacco products are not sold or accessible to underage purchases. “In short, youth usage of flavored cigars continues to decline to almost unmeasurable levels,” Ozgo stated in the CAA’s filed comment in reference to the government’s own reported data. “[The] FDA asserts that flavored cigars attract youth. If that were true, we would expect flavored cigars to account for a majority of youth cigar use, but the government data clearly shows that youth usage of flavored cigars is tiny and declining further.” In addition to the CAA’s comment attacking the FDA’s proposal to ban flavored cigars on a scientific basis, the trade association explained that there would be devastating economic consequences stemming from the ban that would negatively impact many small businesses. Many of these businesses are minority owned, the CAA states. The ban would also negatively impact many cigar manufacturers, suppliers and cigar producing countries such as the Dominican Republic and Honduras. The Premium Cigar Association (PCA) also filed comments in opposition to the FDA’s proposed flavored cigar ban. In its filed comments, the PCA argued that the evidence the FDA relied on for formulating its proposal fails to demonstrate that the use of flavored cigar products “inherently poses an increased health risk relative to use of cigars without non-tobacco ‘characterizing flavors.’” The PCA also pushed back against the FDA’s claims that banning flavored cigar products would improve health equity, especially among subpopulations. Among the PCA’s concerns over the proposed flavored cigar ban was the rule’s impact on an advertiser’s or retail’s ability to describe the flavor profile of any cigar. The PCA pointed out the FDA’s failure not to offer a clear definition of ‘characterizing flavor’ but to instead focus on nonbinding factors that are vague and subjective and nature but if present, would or could indicate the presence of a characterizing flavor. If passed as is, this vagueness would make it very difficult for the cigar industry to implement and for the FDA to enforce consistently. Similar to the CAA’s comments, the PCA’s comments also pointed out that the FDA did not conduct an economic impact assessment on minority-owned small businesses. In addition, the FDA did not take into consideration what impact a ban on flavored cigars would have on commerce, immigration and economic stability for those in cigarproducing countries. “[The] FDA has a mechanism to prevent youth access to tobacco. Yet, instead of working to fulfill the statutory requirements of T-21, the agency is speeding recklessly toward product bans with questionable legal authority,” Scott Pearce, executive director of the PCA, commented in a press release. Greg Zimmerman, president of the PCA, added, “There is something inherently wrong about targeting communities for additional regulation based on race. Our retailers are part of the social fabric of the communities where they operate. They have a right to support their consumers’ product choices, whether they are premium cigars or flavored cigars.” TB I ASSOC I AT I ONS CIGAR TRADE GROUPS FILE COMMENTS OPPOSING PROPOSED FLAVORED CIGAR BAN Cigar trade groups have filed comments in opposition of the U.S. Food and Drug Administration’s (FDA) proposed flavored cigar ban. Photo: Adobe Stock STAFF REPORT