Luxury Cigarettes
Targeting Cigarettes'
Big Spenders

If mass-market brands are the commodities of the cigarette industy, then luxury brands are the quiet niche that appeals to smoking's connoisseurs. For most folks, these aren't the standard pack-a-day smokes. And when it comes to in-store sales, manufacturers suggest retailers borrow some of the mystique surrounding premium cigars - know what differentiates the products, and what makes them special.

by Dale Scott

Overall verall consumption of cigarettes has declined for the past several years, but sales of luxury cigarettes are rising, nonetheless. Joel Sherman, president of New York City's legendary Nat Sherman Tobacconist, says "Growth in luxury cigarettes is escalating with the needs of the smoking public ... they're the right product for the time. The small brands, moreover, benefit from leading the larger companies in new product ideas like specialty paper and tipping, varied blends, flavorings, and packaging."

Sherman's company manufactures the broadest selection of U.S.-made luxury cigarettes (22), and virtually all major distributors carry them. The variety suits any discriminating hedonist, and suggested retail pricing averages around $6,00 per box.

Mark E. Cassar, chief operating officer of Kretek, International of Moorpark, Calif., also sees growth in the category. Sales of the company's Dreams luxury cigarettes "are off the charts," he says. The line, which comes in a variety of different styles, range from traditional blends to highly flavored, according to Cassar. "California Dreams is a multicolored cocktail cigarette, with unflavored Virginia tobacco. Midnight Dreams is a black cigarette with Russian Latakia. It's stronger, but with a smooth character. Sweet Dreams is flavored with vanilla, cherry, chocolate. Herbal Dreams blends pharmaceutical-grade herbs to approximate the taste of tobacco, but without tobacco. All Kretek's Dreams retail (pre-tax) at $4.00 a box."

When asked to define "luxury" cigarettes, respondents agreed with Sherman that, "Luxury, imported, and novelty cigarettes are different. Novelty cigarettes are usually carnival-colored paper, wrapped around mediocre tobacco, and sold as a party item. Many imported cigarettes are expensive, but don't necessarily meet the standards of luxury cigarettes. Like a cigar lover is attracted by the entire experience, luxury cigarettes hold appeal to all senses. The opulence of the packaging and cigarettes themselves, their tipping, and their superior flavor and aroma, all are elements of luxury."

"Luxury" status hangs on the backbone of "Quality ingredients, caring manufacturing," as Sherman explains. He says Nat Sherman's traditional slogan, "We run our machines slower" is not just talk. "We don't use freeze-dried or chemically altered tobacco, which fluffs up in volume. These give an 'airy' smoke, tasteless and fast-burning. Running our American-blend tobacco at typical machine speeds damages it." Flavoring ingredients, likewise, are exceptional; Nat Sherman Hint of Mints, for example, aren't menthol-cased. Instead, the delicate taste comes from tiny crystals impregnated with natural mint essence, and distributed down the filter.

Luxury cigarettes are more expensive, but do they cost the smoker more? Likely not. Their smokers tend to "smoke less, smoke better" - Sherman's mantra. Those without burn accelerants burn considerably longer. The resulting, greater satisfaction means less need for a follow-up cigarette.

Phillips and King International, Inc., City of Industry, Calif., distributes primarily imported fine tobacco products. A few domestic brands, all high-quality, round out their 204-page catalog. Traditional tobacconists account for 90% of their business. "Uphill and Cartier, at $4.50 to $6 a pack (pre-tax) are our luxury lines," says John Parker, senior vice president of sales at P&K. Dunhill uses the familiar "International Pack," a flat, hinged, heavy paperboard box. Cartier's flip-top box has beveled edges and high-quality paper. Both products exude the prestige befitting their namesakes.

If luxury is defined by price, Treasurer Cigarettes takes top honors. Their flagship line of 100% natural cigarettes sports a burnished aluminum hinged box that doubles effectively as a cigarette case. The cartons are similarly styled in either self-closing aluminum or silver foil paperboard. An inner, metal-like liner enfolds 20 cigarettes, in watermarked paper ... at a pre-tax suggested retail price of $23. In heavily-taxed states, Treasurer cigarettes go for $28 a box.

J. Scott Salb, president of Treasurer's U.S. authorized agent, JS Marketing, LLC, of Fairfield, Connecticut, emphasizes the expertise of the company behind Treasurer Cigarettes, Chancellor Tobacco Co., Ltd., of London. "[Chancellor] is a group of European tobacco-industry leaders, whose chairman is the ex-chairman of Gallaher [producer of Benson & Hedges]. The master blender is a foremost tobacco buyer, and the manufacturers are the preeminent private brand producers in Europe."

The original Treasurer 100mm luxury cigarettes were launched in 1999, and are made with "the finest, most expensive" 100% Virginia leaf tobaccos, culled of all seeds and stems, and blended to a strict, all-natural formula. The tipping paper is watermarked with the corporate logo; the silver-foil filter tip reduces lip-sticking. The majority of the packing is done by hand. The cost of all this is almost four times that of commodity cigarettes, claims Salb. He credits Deer Park, N.Y.-based G.A. Andron - his U.S. distributor - for Treasurer's strong market growth. This major importer/distributor also carries other lines of luxury and imported cigarettes. The original full-flavor Treasurer and newer Treasurer Mild, which was launched in 2000 and is now sold in 43 countries and 32 states, are the world's most expensive internationally distributed cigarettes.

Joanne Diggett, vice president of G.A. Andron, distributes several other brands that she considers part of the luxury category, such as British-made Dunhill, offered in international packs, and Cartier, made in Holland.

Luxury cigarettes' higher pricing generally means limited, high-end retailing primarily traditional tobacconists. Because of their exclusivity, discounting is not a hazard. Finally, packaging and presentation are where luxury cigarettes make their statement. Most come in the International flat, 10-across boxes, classically exemplified by Nat Sherman's offerings. Kretek's Herbal Dreams has taken presentation to another dimension, with their new true holographic labeling. The holographic sheet material has laser-induced labeling designs that, in outside or overhead light, provide a scintillating light show. Lay one of those on the table after the banquet, and watch the excitement. Colored papers and tipping, watermarked papers, and foil box liners all enhance the impression of luxury.

According to Sherman, putting the Nat Sherman name on their product demonstrates responsibility, if not quality per se. Laughing, he adds, "If a customer is dissatisfied, he knows where we are ... we've been here for three generations and seventy years."

Finally, Dan Miller, of Santa Fe Natural Tobacco Company, Santa Fe, New Mexico, sums it up: "The market defines luxury products through consumer satisfaction and acceptance." In other words, the smoker is the ultimate expert, and votes with his pocketbook.

Santa Fe, a brilliant company on the fast track to success, has recently been acquired by R.J. Reynolds Tobacco Company, of Winston-Salem, N.C. Some of the other industry contacts interviewed for this story felt Santa Fe's product line - Natural American Spirit cigarettes - does not fit the definition of luxury cigarettes on several counts, primarily packaging and product presentation, higher pricing, and limited distribution. Certainly, none argued with Santa Fe's claim that Natural American Spirit Cigarettes are the fastest-growing brand in America. All agreed their products fit the most important criteria: quality. Their all-natural, and now their 100% organic cigarettes, are first-rate. They do lack the cocktail glamour that luxury cigarettes flaunt.

Miller describes what typifies their cigarettes, saying, "Natural American Spirit Cigarettes contain only additive-free, whole leaf, natural tobacco that is of a much higher quality than the tobacco found in most commercial cigarettes. Our cigarettes are manufactured in small lot sizes to ensure consistency and quality." Miller is emphatic that Santa Fe uses no reconstituted sheet tobacco, processed stems, or burn accelerators (an attribute shared by most others in this survey). "Certainly, consumers view Natural American Spirit Cigarettes as luxury cigarettes," Miller states. "They enjoy an extremely loyal customer base and our customers' willingness to pay a premium price."

The demographic-target consumer for most of the companies included two groups, neither of which were heavy smokers. First is the young, or young-in-mind: Generally more affluent, adventuresome, better informed, sociable, with a higher level of awareness and sophisticated tastes. They are also not unabashedly self-indulgent. They choose not to become heavy smokers, but want to enjoy the smoking experience. They are the type of consumers who buy fresh produce, whole bean coffees, and microbrews, rather than mass-market products.

Veteran smokers, who are cutting back, form the other group. Again, they're smoking luxury cigarettes as a choice, not a habit, to reward themselves for their self-discipline.

Smokers are becoming concerned about the health ramifications of inhaling the combined combustion products of dozens of chemicals. Right or wrong, many believe chemical-free, pure-tobacco cigarettes satisfy that concern, and are moving to "cleaner" cigarettes.

Cassar and Ellen Matthews, Public Relations Manager at RJR, both felt their product line had mass appeal, with no demographic limits. RJR recently introduced their new Camel Exotics line at the Tampa RTDA, after successful test market results. Says Matthews, "We are not trying to start people smoking. Instead, we are taking aim at adult smokers of competitive cigarettes. Instead of smoking two packs of mainstream cigarettes daily, we want them to only smoke a few of our cigarettes, but enjoy them more."

Matthews describes the new product line as, "Made of the finest tobacco available to the company. It is based on the traditional Camel blend of Turkish and oriental tobaccos. Nine flavors are available: Mandarin Mints (citrus flavor with menthol), Samsun (delicate flavor made with Samsun tobacco from Asia), Basma (spicy, woodsy flavor), Twists (non-menthol citrus), Izmir Stinger (to accompany after-dinner libations), Crema (hint of vanilla, creamy), and Dark Mint (hints of chocolate and mint). Lastly, Rare and Rare Menthol are only offered once a year, "because we use the top 1% of tobacco available to RJR," says Matthews.

Camel Exotics are tipped, filtered, and presented in an attractive hinged tin box. Pre-tax suggested retail pricing is $7.00 per pack for the Rare and Rare Menthol, $5.00 for the others.

Identifying trends in luxury cigarettes were varied among those contacted by Smokeshop, yet largely similar. Said Matthews, "The foundation of any smoking trend is good flavor. Smokers will try them once, but if not satisfied, won't come back. RJR is going for the best flavor, to build customer loyalty." Sherman stated it well: "The first pack is up to the retailer to sell. After that, the cigarettes have to sell themselves ... ours do." Cassar noted the shifting boundaries of price points in the cigarette market in general, stating, "The price difference between luxury and commodity cigarettes is narrowing, which boosts sales of luxury lines, even with a reduction in overall cigarette consumption." He foresees more brands and more stores catering to luxury cigarette smokers, because more people want something better, "and different, something lacking between commodity cigarette brands," he says. He also predicts more future mainstream advertising for luxury cigarettes ... like Snapple, which gained broad appeal because it was unique.

Luxury Brands at Work in the Shop
The respondents had several thoughts to spur retailers' success with luxury cigarettes. First, though, many expressed reasons why luxury cigarettes offer retailers substantial benefits over commodity cigarettes.

They are profitable. The manufacturers of commodity cigarettes, dealing in astronomical volume, are willing to shave the price and profitsincluding retailers'to sell more. Thus, they are locked in a death-spiral of price- and profit-cutting. Sure, people ask for the popular brands, but, how much do retailers make on them? Though it is hard to pin down the actual dealer cost vs. suggested retail pricemuddied by the Master Settlement Agreementretailers who promote luxury cigarettes enjoy per-pack profits several times that of mainstream cigarettes.

There's also the question of customer loyalty. Customers, on the whole, are loyal to one thing: value for the price. Once they discover the pleasure of connoisseur cigarettes, they're liable to stick. And, unlike popular brands, they won't find them at gas stations and car washes. They'll come back to your store for them.

Luxury cigarettes offer retailers some interesting marketing and sales exercises. Marketing means identifying individual customers who fit the two demographic groupsopen-minded, young-in-spirit, and veteran smokers who want greater ratification.

Then comes the selling - being proactive, not just ringing the register. Simply talk to that customer who looks like a free-thinker. Or, as Matthews suggests, "Where the law permits sampling, tell a likely customer, 'Here ... try one.'" Retailers can benefit from the point-of-purchase and other support materials; display them and the cigarettes prominently. The retailer might try some of the cigarettes himself, so he could adequately discuss them.

Lastly, instead of selling luxury cigarettes because of their high profitability, retailers should sell luxury cigarettes to smokers because they know they'll like them. "That makes the difference between single and multiple sales," says Sherman. Parker agrees. "Retailers' sales efforts at the beginning," he notes, "will repay them with repeat sales and several times the profitability."

Miller feels that diversity will ensure there will be something to appeal to everyone, but stresses that staff expertise must back it up. "Retailers should carry a broad line of luxury cigarettes to meet the diverse tastes of customers," he recommends. "They should also educate their employees about their store's products, so they can guide and assist their patrons. Customers need to be made aware they can enjoy a significantly elevated smoking experience."

Concludes Matthews, "Display them and talk to customers about them. If customers don't know you have them, they won't buy them."

SMOKESHOP - February/March, 2002