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February,
2005

Smoker Friendly International:
Gaining Ground

One of the earliest cigarette/tobacco stores (CTS) in the industry has today grown to a 300-store "affiliate chain" that continues to evolve and define its mission.

By Bob Ashley

The seed that became Smoker Friendly, a 300-store affiliate chain of retail cigarette stores with their highly recognizable, rectangular, blue, gold, and red "SF" store logos, was planted during the sale in 1986 of a regional sundries distributor headquartered in Denver.

The larger distributor that purchased Mid-Continent Wholesale from David Bershof, now president of Smoker Friendly International LLC, Colorado Springs, Colo., didn't want Mid-Continent's vending business.

"I'm not sure I blamed them," Bershof says. "There was a lot of work involved. But I stayed on with them for three years and worked the vending machines on my own at the same time. That was part of the bargain. A majority of vending business was in Missouri, and when I left, that's where I first started selling cigarettes to consumers - in Joplin, Mo. - in my vending machines."

Bershof soon got the idea to open a store primarily to sell cigarettes adjacent to the vending warehouse. "We had a lot of space and it was on the main street," Bershof recalls. "At the time, it was a new concept. And one of the reasons I thought of it was that every time I'd walk into a supermarket or convenience store to buy cigarettes, it was a real chore and I walked away feeling like a second-class citizen.

"The clerk would have to get the cigarettes from wherever they were stored, and people standing in line would start to grumble at you. And the clerk wasn't happy either. It was a distasteful chore to buy a legal product. I said to myself, 'I can do better.'

"We opened Smoker Friendly with the idea that if a person wants to buy a pack or carton of cigarettes, we will have a complete choice for him and he will be treated with a little respect."

Bershof reveals that when he started Smoker Friendly, major cigarette manufacturers didn't even recognize cigarette stores as a trade class. "It took us about a year," Bershof recalls. "We had to convince Phillip Morris that we were legitimate and that they should start looking at us as a real good supplier of their product."

Smoker Friendly affiliates are encouraged to attend an annual Smoker Friendly trade show, a source of valuable information from other franchise holders.
The first store was called Smoker Outlet. "The design of the store wasn't that good and neither was the color scheme that we set up, but you live and learn," Bershof says.

After later changing the name to Smoker Friendly, Bershof's first expansion came in a small, family-owned convenience store/gasoline station in Joplin, Mo. "We set up a store-within-a-store and formed separate companies," he says. "Meantime, I had been expanding Smoker Friendly in Missouri and saw that it was going to work.

"And then we basically did in Denver what we did in Missouri."

At one time, Bershof owned eight stores in Missouri, but now retains only partial ownership in a few stores so that he can concentrate on operating Smoker Friendly's licensing program. Established in 1993, the program was founded with a group of retail partners, most of whom still retain ownership rights in the franchising operation as well as operate retail Smoker Friendly outlets. Partners include Cigarette Store Corp., Boulder, with 90 stores, S.R.Flaks Co.; Colorado Springs, with 25 stores; The Cigarette Stores of Montana, Billings, Mont., with six stores; Klafters Inc., Newcastle, Pa., with 12 stores; and Welcome Smokers Inc., Wichita, Kan., 17 stores.

Twenty licensees operate about 150 other Smoker Friendly stores, having paid an initial licensing fee of $10,000, and an additional $1,500 per store.

"We have one licensee in West Virginia who started out with one store and has branched out to 40," Bershof says. "There are very few requirements with the licensing program.

"They need to have the name Smoker Friendly and our storefront colors, and carry our private label products. If they do that, we help them develop their business by helping them get a good location, visiting from time-to-time to help them with their merchandising, and representing them with the cigarette manufacturers."

"We are not unlike Shell Oil or Texaco or BP in that regard."

At least once every quarter, Smoker Friendly licensees participate in a conference call to share information on what is going on in the marketplace, and Smoker Friendly hosts an annual fall trade show for licensees - this year Oct. 3-5 in Colorado Springs - with 50 manufacturers and suppliers manning booths.

Stewart and Mary Beth Ruehl of Hickory, N.C., who became Smoker Friendly licensees in 2000 when they opened with one location, have since opened stores in five other North Carolina communities. "We had previous business experience, and Smoker Friendly had many contacts in the industry that were very valuable when we started the business," says Ruehl, a former golf professional "And they are still helpful today."

Each of Ruehl's Smoker Friendly stores sells cigarettes, premium cigars, pipes, and pipe tobacco, including Smoker Friendly's private brands, and is located in a strip mall anchored by a major grocery store.

Ruehl feels that Smoker Friendly's annual trade show has become particularly valuable to him and his wife because of the knowledge that other franchise holders possess.

"We all do business in our own different ways, but you are able to learn something from just about everybody you meet at the trade shows," Ruehl says. "This business is like every other business. Nothing is easy, and just because you build it doesn't mean that people will come. Smoker Friendly understands that everybody's business will be a little different. They also understand that things change constantly. And that is among the secrets to their success. They change with the times."

Growing the Smoker Friendly Brand

SIGNING UP: James Trenary, Salem, Ore., elected to become a Smoker Friendly affiliate after years in business, and owns nine Smoker Friendly stores.
Along with licensing, Smoker Friendly International markets its own private label cigarettes, little cigars, pipe tobacco, roll-your-own tobacco, and bundled cigars.

Smoker Friendly cigarettes are made by Paramus, New Jersey-based manufacturer King Maker Marketing. The line features 14 different sizes and types of cigarettes. Smoker Friendly-branded premium cigars are made by Altadis USA and DomRey Ltd./Cusano Cigars, in the Dominican Republic and Honduras. Machine-made little cigars are produced by Swisher International. Smoker Friendly outlets sell nearly one million cartons of cigarettes a year, according to Bershof.

Bershof said the company expects to expand into flavored premium cigars in the near future.

Jim Riley, Smoker Friendly International vice president of marketing and licensing, said a program that will allow retailers to sell the expanding array of Smoker Friendly-branded products without becoming full licensees will be initiated the 2005 NATO Expo in Las Vegas.

"It will only be for existing stores in areas that we aren't operating now and where we won't compete with our partners or licensees," said Riley, who retired from R.J. Reynolds after 30 years. "Smoker Friendly is an established brand that we can stand behind and build on.

"We try to cover all the bases with our private label items so that we can create volume," Riley said. "And one thing about all of our product is they are branded private label, but they are all of premium quality. We aren't interested at being at the low end of the spectrum. We want to be at the top with quality."

James D. Trenary of Salem, Ore., also became a Smoker Friendly affiliate in 2000 after operating 13 years unaffiliated. He owns nine Smoker Friendly stores in six Oregon communities. Eight locations also sell gasoline along with tobacco, and some locations sell liquor. One is double-branded as a Shell gasoline station and a Smoker Friendly shop.

Smoker Friendly private label cigarettes are particularly important to his operation. "Smoker Friendly accounts for nearly 80% of my second-tier cigarette sales, and about 13% of my total cigarette sales," Trenary says. Before licensing with Smoker Friendly, Trenary was purchasing Costco's "Bonus Value" cigarettes at discount and reselling them at retail.

"At the time, Smoker Friendly cigarettes were being manufactured by the same company that made 'Bonus Value,' and I could see where I could get an increased margin with the private label."

He induced his customers to switch brands by offering free samples and telling them that same manufacturer made both Bonus Value and Smoker Friendly cigarettes. "That's the No. 1 way to get people to switch to anything," Trenary says. "Offer them samples - not even a whole pack. Just one cigarette will do. And then offer them a lower price."

The availability of the Smoker Friendly private label also has another primary benefit. "When you've got our own private brand, you've captured the customer," Trenary said. "If they want to smoke your cigarette, they can't find it anywhere else around.

"Since I switched to Smoker Friendly, I would say my business has tripled because it changed my strategy of discounting price and increasing the volume. I sell for less margin night, but with a higher volume than I did in the past."

Bershof rejects the notion that Smoker Friendly is simply a cigarette discounter, although he acknowledges that Smoker Friendly is included in that genre by many people. "Our goal is to sell consumers a multitude of cigarette products, some of which he can't get elsewhere, in a friendly atmosphere and at a reasonable price," he says.

"Discounters don't really address the customer, they just move product. We want our customers to come back again and again because we give them service and a friendly atmosphere that they aren't going to find someplace else."

Smoker Friendly goes to the extent of offering training to employees of its affiliates. "We try to teach them how to get to know their customers, and how customers should be waited on - offer them coffee, have small contests and give away prizes. We even had one store that had a drive-through window give away biscuits for people who came through with their dogs in the car.

"We want repeat business because that's how you build business."


SMOKESHOP - February, 2005