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August,
2009

Sponsored Cigar Lounges
By Tom Johansmeyer

Cigar lounges sponsored by manufacturers continue to gain in popularity throughout the country. The promotional benefits for the featured brands are obvious, but there’s plenty of advantages for cigar retailers, too.

When I walked into Corona Cigar Co. in Orlando, I was overwhelmed by the inventory. I’m not a novice, having enjoyed cigars for close to 15 years, but even a seasoned pro doesn’t find a selection like this often. So, I started to think about how a new cigar smoker would fare in this environment - or a visitor passing through town. How would he navigate the intimidating array of choice?

Of course, this is a retailer’s dream: the chance to demonstrate value to a new (or even repeat) customer. In this situation, the tobacconist has the opportunity to solve a clear and immediate problem for a customer. For our industry or any other, this is a chance to shine. Do it right, and a one-time guest becomes a regular, even an advocate. At first thought, the solution seems to be a friendly and informed staff. And doubtless, there is no substitute for a competent team. There are other measures a retailer can take, as well, none of them mysterious: signage, brochures, and on-shelf displays are just the beginning. Nothing, however, is as powerful as a sponsored lounge.

Sponsored smoking lounges are becoming increasingly popular among tobacconists, and manufacturers are eager to get involved. Camacho, Oliva, Rocky Patel, Avo Uvezian, and others are already in the game. Striking the right partnership can be mutually beneficial in a market where cigar enthusiasts are being squeezed by tax-driven price increases and economic malaise. With the proper planning, a sponsored lounge helps everyone - especially the customer.

A Tour of the Lounge (Concept)
Let’s go back to Corona for a moment. From any location in the store - whether deep in the aisles to the front of the line at the point of sale - pick your head up, and you’ll see two words: Diamond Crown. “That’s exactly what we want,” says Shanda Lee, Diamond Crown’s director of marketing. At Corona, and Diamond Crown’s 50 other sponsored cigar lounges, she wants customers to be enveloped by the Diamond Crown experience.

Pass from the store to the lounge at Corona, and you’ll see boxes of oversized matches on every table, each emblazoned with the sponsor’s logo. Signage is abundant. Even the menus and the chairs push the brand. There’s literally no escape!

In an environment designed to make customers spend, it’s hard to beat the exposure that comes with engaging a manufacturer to sponsor your lounge. And as much as a store is engineered to sell, the purpose of a lounge is to make people stay. What results is a self-reinforcing cycle of sitting and spending, comfortably feeding the store’s sales. A customer buys a cigar, sits down, gets cozy, and lights up. The experience is hard to resist, leading to the sale of an additional cigar (or two or more) and maybe a few for the road.

Now, think about wrapping a brand around that ritual. When the guest in the Diamond Crown lounge at Corona is ready for another cigar, what’s the first stick that comes to mind? Exactly.

The sponsored lounge is particularly powerful when you think about a customer who can’t make up his mind. In-store promotions are intended to give customers ideas and help them make decisions, and a sponsored lounge is the most effective tool in your in-store marketing arsenal. An indecisive customer, looking for something to buy, has an ever-present reminder. This class of customer - who is either too new to have a favorite yet or simply prefers variety - may be rare but offers a profound revenue opportunity.

Winning this “unclaimed customer” isn’t the only upside to sponsoring a lounge. The devout regular who is committed to a brand will want to stray from time to time. After days or weeks - well, let’s be realistic, years - of smoking in a sponsored lounge, his foray into the unknown is likely to involve the name on the wall … and the chair and the matchbox and the ashtray. If the cigar makes a good impression, it could slowly creep into his routine, creating what may become a substantial near-term revenue opportunity.

So far, it looks as though the benefits skew mainly to the sponsor. The manufacturer gets plenty of exposure, with the retailer picking up repeat in-store sales and customer loyalty. Both are important, but there are other ways to drive these results. Helping the unclaimed customer make a choice lays the foundation for a broader relationship, and a lounge sponsorship makes this process easier. The branding reinforces the recommendation. These intangibles, however, represent only a small portion of what the retailer stands to gain from the relationship.

A Powerful Partnership
An effective lounge sponsorship is a partnership between the retailer and the manufacturer. Both have to commit for it to work, which means that both should stand to benefit. For the retailer, this begins with the manufacturer’s investment in retrofitting the retailers lounge to the latter’s specifications. Lee would not reveal the investment required for the Diamond Crown brand, citing confidentiality, but a trip through any sponsored lounge suggests that the manufacturer’s cost is not trivial. For the retailer, this represents a savings for a lounge upgrade.

For this investment, the manufacturer will want a return … which ultimately helps the retailer, too. Store employees can expect product training and insights to help them represent the sponsor’s cigars more effectively. For Diamond Crown’s lounge partners, this covers the intricacies of the brand’s history, production and taste, turning the shop’s staff into Diamond Crown experts. So, when they recommend these cigars, the customer will hear an informed opinion rather than an empty shill.

The training is accompanied by the sponsor’s full line of products. According to Lee, “We definitely want a consumer to know that, when he enters a Diamond Crown lounge, there’s a full line of Diamond Crown products.” While this is an obvious play for the supplier, it also lends credibility to the lounge. A sponsorship that isn’t backed up by product is vacuous at best.

Presenting a sponsor’s full line of products - and bearing its name all over the lounge - can lead to additional opportunities. New products tend to find their way to lounge partners first, creating buzz and giving customers a new reason to visit the shop (and open their wallets). At the same time, it differentiates a retail partner from its competitors, further expanding the revenue potential of the deal.

Beyond the in-store dynamic, the deeper relationship with the supplier afforded by a sponsored lounge can facilitate idea-sharing. Lee says that a shop’s successes are shared with other lounge partners (with permission, of course), effectively pooling the knowledge of 51 cigar shops from across the United States. These retailers also sit on the Diamond Crown Advisory Council, providing actionable feedback to the manufacturer and serving as something of a focus group for the brand.

Focused on Sales
The ultimate barometer of success, of course, is cash in the till. If a lounge sponsorship doesn’t increase sales for the retailer and the sponsor, it’s a waste of time and money. The prevalence of lounges - backed by a wide range of sponsors - speaks to the viability of the marketing approach, while the cash register provide the final word: Diamond Crown sales have increased at stores with its lounges, even in a market that is tough on discretionary spending.

“Every retailer is different,” Lee qualifies, “it’s been different for everybody.” But, the results have been largely positive. “Diamond Crown partners have seen increases in certain segments of their businesses.”

Ostensibly, a gain in diamond crown sales benefits both partners, and the draw of a well-constructed lounge should contribute to the general success of the store, as well. A comfortable, high-end environment keeps customers in chairs and couches. When it’s hard to leave, they tend to stay and buy and smoke. In addition to cigars and accessories, beverages - if offered - are likely to sell more aggressively, too. The retailer, consequently, has many ways to win. But, the sponsor will want its share.

Retailers looking for sponsorship partners will need to demonstrate their value to the people writing the checks. Diamond Crown, for example, has specific criteria. To forge a partnership with this upscale manufacturer, a retailer needs to have a proven track record selling Diamond Crown products, Lee says, in addition to a “proactive marketing approach.” The retailer must be skilled at attracting business in general: passive shops need not apply. Not only does this demonstrate a commitment to success, it feeds the effectiveness of the sponsorship deal, ultimately magnifying it.

Merely bringing customers in the door isn’t enough for some partners. The right people matter. A brand like Diamond Crown has demographic requirements to be met. After all, a devotee of $5 cigars does little for an up-market lounge sponsor. When all these factors come together, matching sponsors and retailers with complementary goals, the outcome speaks for itself.

Not for Everyone
Despite the rush toward sponsored lounges, it’s not the best strategy for every retailer. Several have passed on these opportunities, citing a preference for brand neutrality. They believe that recommendations may be more believable if only the store’s name is on the wall. And, they don’t need to worry about alienating other suppliers - particularly any losing bidders if there are several manufacturers interested in a particular store.

The sensitivity of this issue shouldn’t be downplayed, but exaggerating it would also be a mistake. When I was in Corona, I felt no pressure to buy a Diamond Crown cigar, though I was certainly aware of the brand’s presence. It wasn’t at all awkward to smoke my Avo Campanero in the midst of all the Diamond Crown accoutrements. In fact, I did consider picking up one of the sponsor’s sticks. If that were my regular shop, I’m sure I’d eventually give in.

Speaking of Avos, one of Corona Cigar Co.’s other locations - the three-year-old 3,500 sq. foot superstore at the Colonial TownPark Center in Heathrow, Fla. - is host to the first Avo Cigar Lounge in the U.S. and sole domestic retailer for the Avo Lounge Cigar, blended by Uvezian specifically for that lounge which he frequents often. A second Avo Lounge opened at at Burns Tobacconist in downtown Chattanooga, Tenn. in 2007.

Instead of making a decision hastily, retailers should weigh the various aspects of their businesses against the commitments that a lounge sponsorship entails. A good fit with the concept of a sponsored lounge and a specific backer can lead to serious revenue growth potential. But, a shop that isn’t compatible with the notion should seek other ways to develop its customer relationships.

A successful sponsorship starts with thinking, requires planning and involves an ongoing commitment. Not ready to have a partner? Stay out on your own for a while. Sponsorships only work if both parties take to the lifestyle fully. But, if you are ready to collaborate, a sponsored lounge can open the door to new customers and keep them in the store longer. With the right pieces in place, this concept is the antidote to a dismal economy.


SMOKESHOP - August, 2009