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Feb./March
2002

TRENDS AND TRENDSETTERS IN SPECIALTY TOBACCO RETAILING
Washington State Hikes Tobacco Taxes to Lead Nation; OTP Surges
Olympia- A tax increase that Washington voters passed in November of last year went into effect on January 1st, more than doubling the tax on other tobacco products, hiking it from 74.9 percent to 167.9 percent. The measure also hiked the cigarette excise tax by and additional 60 cents a pack, making it the highest in the nation at $1.425 per pack.

Two out of three Washington voters supported the measure, which is forecast to generate more than $120 million a year, most of it earmarked to improve health care for low-income people.

But tobacco shops warn the massive taxes on cigars will drive business out of state, resulting in store closings and a loss of income to the state - repeating flawed legislation that has passed in recent years in states such as New Jersey. Retailers are worried about losing tobacco sales to Oregon and Idaho, where the tax is lower, and to tax-free tribal smoke shops. Tribal shops are only supposed to sell to tribal members, but a lack of enforcement presents considerable competition to legal retailers.

Public records show that backers of the initiative outspent opponents nearly 9-to-1. Totaling up direct campaign contributions and independent expenditures, backers spent about $1.8 million, and the opponents, primarily tobacco interests, about $216,000.

Washington retailers saw an end-of-year surge in tobacco sales as consumers stocked up prior to the tax leap, a holiday bonus that was of little consolation given the tough retail climate they now face.


Cigars, Cigarettes Made On-Site at Intimate New Vegas Resort

Las Vegas - The Palms Casino Resort, a new Las Vegas boutique hotel, is betting on a return to the original draw of "old Las Vegas," focusing on style, exclusivity, great service, and entertainment.

Unique to the Palms is the Roller Lounge, specifically designed for high rollers and guests who appreciate the diversity of fine cigars and cigarettes. Patrons will have the opportunity to have their cigars hand-rolled by aficionados, most notably by master cigar roller Lorenzo Lambert. A 53-year old cigar maker who has been rolling cigars since the age of 13, Lambert will hand-cut and roll cigars with aged tobacco leaves for each guest upon request. Rollers will also bring cigar and cigarette rolling machines to tables within the casino's gaming area and roll them for gamers on the spot. Gamers can choose from traditional choices, or try popular flavor-cured tobacco leaves including cherry, vanilla, watermelon, chocolate, mango, and mint.

Located on Flamingo Road, a half-mile west of the Strip and across the street from the Rio, the destination resort is designed to offer the gaming public an intimate environment with hip, happening venues that is long on service and value, favoring a grown-up atmosphere over family-oriented, city-themed venues popularized in the 1990s.


Duty Free Cigar Sales Rose in 2000
The international cigar industry is experiencing growth, with duty free sales for the year 2000 up by 8 percent over the 1997 figure, according to Duty-Free News International. The trend is expected to continue and estimates suggest that sales of duty-free cigars will reach $425 million in 2010, an increase of 64 percent when compared to $260 million in 2000.

About 82 percent of product sales come from small cigars which represent 52 percent of the market. This is despite significant differences in price between premium cigars and the miniatures and cigarillos.

The industry, "once known for its conservatism," wrote Duty-Free News International, "is now becoming increasingly creative, with new product ranges incorporating mild, filtered, and flavored products. Manufacturers also offer a wide variety of cigarillos responding to the increase in demand."

The recent economic slowdown may be one reason why cigarillos have gained popularity, the publications speculates, as customers now seek a cheaper option to the hand made variety they previously smoked.


Retailer Serves up Knockout Punch Event

St. Petersburg, FL - Last year, General Cigar took its Punch digital photo studio on the road, holding 60 retail events around the country. Store customers could pose for their own custom-made version of Villazon's ubiquitous Punch ad campaign. The award-winning campaign replaces the shadow of each featured celebrity with that of Punch - the famous puppet of the Punch and Judy duo.

Bruce Turner, owner of 4th Street Cigars in St. Petersburg, Fla., was the winner of the photo event competition. His Punch event, held on November 14, drew 405 people during its four-hour duration, earning him an appearance as the newest face in the company's Punch ad campaign. Villizon is publishing the ad in industry magazines as well as Turner's local newspaper.

Retailers are encouraged to go "all out" with their promotional efforts for the Punch events, says Shawna Tobin, General Cigar Co.'s marketing coordinator for Villazon products. General Cigar produces the photos free of charge and offers attendees a free Punch cigar, while retailers - in addition to promoting the event through local advertising and mailing lists - often arrange for food, drinks, and other festivities, such as live radio broadcasts or live music.

A final schedule for this year's tour was nearly complete at press time, but Tobin says the company is likely to continue the promotion next year, too.


Santa Fe Names 2001 Retailer of the Year Contest Winners
Santa Fe, NM - Santa Fe natural Tobacco Company, maker of Natural American Spirit cigarettes and tobaccos, announced the winners of its fourth annual Retailer of the Year contest. The contest was started in 1998, inviting retailers to send photos and a written description of their NAS display or promotion, which must be showcased during the month-long contest period.

Three grand prize winners for 2001 were announced, each had the choice of a hot tub or $5,000 in cash. Mari Griffith and her employees at Smoker Friendly #308, Missoula, Mont., constructed what they called "the world's largest carton of Natural American Spirit, fully stocked with products. Employees at Creation Station, Lawrence, Kan., constructed a NAS outdoor banner that covered their store, and decorated their front window in NAS products. And store manager Sandra Hodges at Discount Smoke Shop, Peoria, Ill., designed an indoor, hand-cut collage and a large NAS window display.

First prize winner Jason Riddle of Stash Box Pipe and Tobacco, Dallas, Texas, won $3000 for his Indian-artifacts-and-point-of-sale display, as well as a "Two-packs plus a lighter" promotion that doubled the sale of NAS products. Another first prize winner, David Mills of The Hot Springy Dingy, Hot Springs National Park, Ark., is keeping his sale-boosting store display up permanently.

"It was extremely dificult to choose the winners," said Dan Miller, marketing promotions manager for Santa Fe Natural Tobacco Co. "Retailers created everything from massive store-wide promotions to custom-designed neon signs." All entrants received a $50 watch just for entering.

Additional winners were: (first prize $3,000 each) Wayland Square Wine & Spirits, Providence, R.I.; (second prize, $2,000 each); Red Bird Liquor Store, Block Island, R.I.; Sir Charles Liquor, Costa Mesa, Calif.; Smoker Friendly #3, Colorado Springs, Colo.; (third prize, $500 each) Brewer Cedar Crest Shell, Cedar Crest, N.M.; The Corner, Kalamazoo, Mich.; Instant Karma, Asheville, N.C.; Smoker Friendly #15, Pueblo, Colo.; TNT Urban Tobacco-N-Tackle, Tuscon, Ariz.; Tobacco Mart & More, Neosho, Mo.; Tobacco Outlet #3, Dalton, Ga.; Tobacco Zone, Indianapolis, Ind.; (honorable mention, $200) El Fumador Cigars, Sewickly, Pa.; Marco's Smokeshop, Albuquerque, N.M.; Mr. Bill's Pipe and Tobacco, Las Vegas, Nev.; Pur International, Passaic, N.J.; and Smoker Friendly #115, Denver, Colo.


States Look to Tobacco Taxes to Fix Budgets
More than a dozen states currently facing significant budget deficits are again turning to tax hikes on cigarettes and other tobacco products to help bridge the gap. Despite an occasional high-profile exception (Washington state passed the highest tax in the nation last year at $1.425 per pack), tobacco tax hikes have largely been relegated to the back burner as state legislatures benefited from a historically long growth economy. The national recession has quickly reversed that course, and tobacco taxes are again seen as the most favored for hiking: They have the least voter resistance, make underage smoking less accessable, and discourage smoking overall, say proponents. Even Republican Governors are supporting tobacco hikes, fearing little voter backlash.

SMOKESHOP - February/March, 2002