Sizing Up Spirits

Alcohol and tobacco are a natural pairing, as these three retailers who sell both can attest.

Sizing Up Spirits

Selling spirits alongside cigars is a good way to diversify, resulting in add-on sales and margins, no matter which category is the dominant one. And if done right, it can beat candy as a complementary impulse purchase. Here are three varying retail perspectives on the killer liquor/tobacco sales combination:

Cox’s Smokers Outlet: Leveraging Liquor
About 30 percent of the business across Cox’s Smokers Outlet & Spirit Shoppes based in Louisville, Kentucky is now in liquor sales, according to Bill Grantz, owner and partner. The eureka moment for Grantz came in 1997, when a liquor store next to one of his tobacco stores went up for sale. He obtained a liquor license, knocked down a wall and started his first tobacco/liquor shop.

Today, Grantz considers his 14 of 18 stores with liquor to be “more like convenience/liquor/tobacco neighborhood-type locations.” He explains, “we have big-box competitors in liquor, but a lot of our stores have drive-throughs, and we’re able to compete as more of an ‘in-and-out’ type retailer.”

Grantz had to learn one lesson in alcohol sales the hard way, he says. “We started to run our rewards program, which we offer on cigars, with alcohol as well; we didn’t know you couldn’t do that here. We got cited and they gave us a warning, so we dropped alcohol out of the program.”

Nevertheless, Cox’s sells a lot of cigars and alcohol together, according to Grantz. “We see that a lot of bourbon lovers are also cigar lovers; we see a lot of basket-type sales where you get multiple purchases like this.”

For that reason, the chain will hold some cigar events where it will have bourbon tastings, too, but those can’t be in-store. In the store, it will hold “liquor and wine tastings all the time without cigars involved; we can taste indoors, but can’t smoke indoors, even in a tobacco store,” says Grantz. “We usually invite one of the liquor distributors in here for this. We generally have the tasting events twice a month and it’s a lot more regular during holidays and Kentucky Derby time.”

Liquor Shop Doubles as Cigar Wholesaler
From the reverse-dominant perspective, Cedar Mill Liquor is a single liquor store in Portland, Oregon that sells cigars from its 32 feet of back-to-back wall cabinet humidors, but also doubles as a cigar wholesaler to other retailers in the area that want to incorporate cigars into their mix.

While the majority of its sales are in liquor (over 90 percent), premium cigars are here to stay and are growing for Cedar Mill. In fact, selling premium cigars in a liquor setting is a growing trend, observes Randy Guerra, owner of the business, which sends about 60 percent of its cigar sales out the “back door to other retailers.” The majority is to area liquor stores with humidors, he maintains.

Cedar Mill Liquor has offered premium cigars for sale since Guerra took over the store in 2002, but he has steadily expanded the stogie inventory and his wall of cabinet humidors to meet growing demand. The wholesale cigar business was born about five years ago, when Guerra realized the complementary business opportunity on a larger scale.

In cigars, “it’s not like it’s the ’90s again, but our sales continue to increase, and actually, with liquor [sales], too. Both have been pretty robust in the double digits.” That’s another reason they both go so well together lately, according to Guerra.

Cigars also offer much higher and more flexible margins—in the 30-40 percent range, sometimes even 50 percent range, Guerra reports. Distilled spirits, on the other hand, are “on consignment in the state of Oregon—they set the margin and every store is identical. With wine, we have some flexibility, with gross margins in the 20-40 percent range.”

The store does something similar with beer, whereby IPAs are labeled as a particular color, Stouts are labeled as another, etc. The wine is simply categorized according to varietals.

Party Store Highlights Humidor/Spirit Tastings
The Party Source is a standalone superstore in Bellevue, Kentucky that sells all the major components needed to throw a party, including, of course, the dynamic duo: alcohol and cigars.

Liquor sales, which constitute 50 percent of the store’s business, “give us the ability to do our cigar sales volume, thanks to liquor’s pricing and volume. They feed off of each other,” explains Josh Heaps, purchasing supervisor and humidor manager. “We have lower prices on cigars than the average cigar shop, thanks to the liquor. Economies of scale come into play here; we can run on lower price points and get higher volume on cigars.”

Liquor sales definitely run on lower price points and high volume, too, but it’s being squeezed by distributors doing fewer deals than they used to, according to Heaps. “Liquor gross margins are somewhere around 25 percent here,” he reports. And that’s partly because the store lies right up against the border of Ohio, which has gotten more competitive lately and gotten more aggressive on liquor pricing. Margins have also been squeezed by Kroger, another force in the Cincinnati backyard putting a lot of pricing pressure on local wine and liquor stores.

But The Party Source has a unique merchandising spin, with the operative word being “party,” which is further enhanced by combination liquor/cigar displays. “There’s uncaptured business out there, which we intend to attract somewhat with cross-merchandising,” says Heaps. As examples, the store humidor now features a facing of rotating liquors; there’s also a tasting bar right outside the humidor.

The Party Source also does weekly cigar tastings, teaming up with a local bar called The Beer Sellar. “Those tastings account for about 10 percent of our cigar sales for the year, and it’s only three hours of our day, once a week,” reports Heaps. The store puts together cigar-tasting bags ahead of time, consisting of three cigars for $15.

Cross-merchandising cigar events like this are a lot easier to manage off-site, Heaps explains. “We basically just show up with cigars. We get to focus on selling cigars and not the logistics of running the event. We don’t have to set up chairs and tables; we don’t have to clean up. So it’s a good deal for us and a great deal for our partners and customers.” TB

Story by Renée M. Covino

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.