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June/
July 2000

Prestige
Sells

While the U.S. cigarette market continues to weather an all-out government assault, the high-end niche maintains its specialty appeal.

by Bob Ashley

Manufacturers and distributors of luxury cigarettes in the United States contend the tobacco industry's legal problems during the last two years haven't affected sales.

In fact, some see a benefit. After a $200 billion-plus legal settlement with cigarette manufacturers that involved all but four of the states, a subsequent $1-per-carton federal excise tax hike, and a rash of state cigarette tax increases, the price difference between domestic and luxury cigarette brands has shrunk, relatively speaking. "Between the settlement and the taxation, the spread between 'normal' cigarettes and luxury cigarettes has been closed," says Mark Cassar, vice president of Kretek International Inc., a distributor of more than 500 brands of luxury and specialty cigarettes. "That makes luxury cigarettes a better value."

The closing of the price gap notwithstanding, the luxury cigarette market at the beginning of the 21st century is a conundrum. Some manufacturers, like Kretek, report that sales are up. And, Holland-based Chancellor Tobacco Co., Ltd. recently introduced what it is marketing as the most expensive cigarette in the world. At the same time, however, Davidoff cigarettes are being removed from the U.S. market by their German manufacturer to avoid the potential of litigation. Jeffrey Wingate, vice president of sales and marketing for Quintin USA, Inc., Steamboat Springs, Colo., a full-service distributor of domestic and imported tobacco products, says sales of luxury cigarettes such as Dunhill, Botschafter, State Express, Dumaurier, Nat Sherman, John Player Special, Players, and English Ovals, have stayed steady. "We certainly haven't seen the decline that some of the major manufacturers have seen in their brands," Wingate says. "I liken what's going on to the excise tax on beer that nearly tripled a few years ago. People didn't stop drinking beer. They bought less beer, and they bought better beer. They upgraded their brand."

Smoking less but smoking better is a phrase often heard from those who distribute and sell luxury cigarettes. The appeal goes substantially beyond price, according to Bill Sherman, vice president of Nat Sherman, Inc. in New York.

"Price only does not constitute luxury," says Sherman. "The quality of the product and the presentation also are involved. It's the whole package. We are not an inexpensive product on any of the three levels." Luxury cigarettes typically are made from the best tobaccos, uniquely packaged, and marketed to appeal to the sophisticated smoker.

Nat Sherman's products, which are marketed as containing all-natural tobacco, include the MCD - a 101 mm all brown cigarette - and the Nat Sherman Classic. Nat Sherman Specialty cigarettes include Black and Gold, a black cigarette with a gold tip blended with premium tobaccos, and Fantasia, an after dinner smoke packaged in five colors with a stylized gold tip.

Nat Sherman manufactures its cigarettes in its own plant in New York City. Typically, Nat Sherman cigarettes retail between $4 and $6.50 a pack.

"People are becoming more discerning in what they smoke," Sherman says. "They want to smoke a high quality product. We are in a very unique niche because of the all-natural tobacco that we use. There are companies that play in the all-natural field and others that play in the specialty field. Nobody is doing directly what we are doing."

And nobody is doing directly what Chancellor Tobacco is doing, either. Chancellor's Treasurer brand, which became available in the United States in March, makes no bones about the market position it is trying to establish: It advertises limited-distribution Treasurer as the most expensive cigarette in the world at $20 a pack in the United States.

Media material provided for Treasurer's launch said the company's goal is for Treasurer to be the "only" premium cigarette, "bridging the gap between cigarettes and cigars and to limit its availability to premier sales outlets, making it only available to those who can afford luxuries beyond the reach of average smokers."

Treasurer, made with blended Virginia tobacco and hand packed, are sold in quantities of 20 in an elegant aluminum case. Treasurer is likely to be available at fewer than 150 locations nationwide in the long term - primarily cigar bars, first-class duty-free lounges, private clubs, and other "board-room" venues, says Scott Salb, president of JS Marketing LLC, Fairfield, Conn., the North American agent for Treasurer, which is manufactured by Swedish Match for Chancellor. "We are looking for smokeshops in affluent areas with walk-in humidors and are asking that Treasurer be displayed in their humidor," he says. "We feel that the market is going high end. We are looking for the exceptional person - the guy who wants to distinguish himself.

"Treasurer is focused on the top end to compete with - or be along side - premium cigars at the affluent end of the market place. People like to go to cigar bars or chum around with their friends at private clubs. Lots of people like to smoke cigarettes but don't like to come out with their regular brands while their friends are smoking a Cohiba or Hoyo de Monterrey. As they say in the Far East, Treasurer will give the person 'face'," says Salb.

Besides the shrinking price difference between domestic and luxury cigarettes, Kretek's Cassar said other factors also are fueling increased sales.

"With all the publicity and controversy about smoking not being good for you, people are watching what they smoke. They are looking for higher quality, even if they are paying a higher price for it," says Cassar. "Another reason is that people often are looking for more individuality and these cigarettes tend to give that to them."

The Dream brands - California Dreams, Midnight Dreams and Sweet Dreams - all are aimed at specific segments of the market. California Dreams are multi-colored cocktail cigarettes, while Midnight Dreams are full-flavored black cigarettes made with Russian tobacco. Sweet Dreams, which are available in cherry and vanilla flavors, are lighter smokes. Each retails for between $3.50 and $5 in 20-cigarette packs, depending on state and local taxes. "The appeal of Dream cigarettes is they are better tobacco and they are packaged distinctively - the difference being the same as that between a shopping bag from Macy's and a shopping bag from Tiffany's," Cassar says. "They are marketed to sophisticated adults who want to make their own choices."

Nonetheless, the cigarette industry as a whole is unsettled at the moment, Cassar acknowledges. Less so, apparently is the luxury cigarette side of the business.

RESOURCES
G.A. Andron (800) 221-1634
JS Marketing LLC (203) 374-7252
Kretek International (800) 358-8100
Nat Sherman (800) 221-1690
Quintin USA, Inc. (800) 359-4107


SMOKESHOP - June 2000