Tobacco Stores and Stands

SIC 5993

Industry report:

This entry includes establishments primarily engaged in the retail sale of cigarettes, cigars, tobacco, and smokers' supplies.

In the late 2000s, nearly 7,000 establishments were engaged in the $1.6 billion retail sale of cigarettes, cigars, tobacco, and smokers' supplies. Industry-wide employment was about 21,000 people, an average of three workers per establishment. States with the highest concentration, in descending order, were California, Texas, Florida, New York, and Pennsylvania. Collectively, these states held nearly 37 percent of industry share.

Tobacco stores and stands operated about 5,300 establishments, a market share of 76.3 percent with $1.18 billion in sales. Cigar stores followed with 600 establishments, 9.1 percent of the market share and $144.9 million in sales. Six hundred cigarette stores held 8.2 percent in market share and sales of $190.3 million.

Tobacco specialty stores, often called "smokeshops," were traditionally located in malls or downtown business districts. The mall shops were often part of a chain, while the downtown shops tended to be independent stores that also sold other items such as magazines and newspapers. Historically, tobacco manufacturers subsidized some of these endeavors in an effort to ensure a constant retail outlet for their products. The largest domestic concentration of smokeshops was in the South. Although the total number of establishments declined by 23 percent in the late 1990s, Montana, South Dakota, Wisconsin, Oklahoma, and the District of Columbia reported an increase in the number of shops. Across the United States, the number of shops declined at a rate of eight to one. The most significant decline was in the West with a 35 percent reduction in stores. Total sales dropped by 14 percent, although employment in smokeshops increased from an average of five employees per store in 1997 to 7.4 employees in 1998, with 43 percent of smokeshops offering employee fringe benefits. In the mid-2000s, however, staff sizes were significantly reduced.

The number of tobacco stands also decreased steadily in the United States during the latter half of the twentieth century. Declines were attributed to a change in lifestyle for many Americans as businesses moved out of downtown areas where support for smokeshops was high. With less pedestrian traffic, the smokeshops lost clientele. Many of the smokeshops that were located in malls in the 1970s slowly disappeared in the 1980s as rents climbed too high for small businesses to endure. Additionally, the steady decrease in consumption of most tobacco products, due in part to the dissemination of information about the dangers of tobacco use, was a factor in the decline. Meanwhile, an increasingly wide array of stores added smoking supplies to their inventories. Distributors reported that many of the specialty tobacco shops lost sales to other less specialized retail outlets, including drug stores, grocery stores, and convenience stores. Discount department stores and supermarkets became popular second-tier distributors, even for pipe tobacco. The overall convenience and the lower prices offered at these outlets increased their attraction for consumers as an alternative to smokeshops.

At the end of the 1990s, pharmacies discontinued sales of tobacco products in response to negative public sentiment toward the tobacco industry, but convenience stores began to pose serious competition to tobacco specialty shops. In 1997, a particularly large number of non-specialty retail outlets joined the trend and backed away from the tobacco business in response to efforts by the U.S. government to regulate the tobacco industry. The Food and Drug Administration (FDA), backed by President Bill Clinton, passed several regulations, among them a mandate that retailers verify the age of cigarette buyers or face steep fines for violation of the law. Remarkably, the anti-tobacco onslaught contributed in part to a limited revival of smokeshop businesses. In anticipation of stricter regulations, new cigarette outlet stores--small smokeshops selling low-priced products at high volume--opened for business nationwide. The number of cigarette outlet stores in the United States actually grew by 36 percent, to about 3,600, between March 1995 and April 1996. In 1998, 67 percent of tobacco shops listed themselves as tobacco-only retailers.

By the late 1990s, the largest form of retail tobacco consumption came from increased sales of premium cigars that sell for $2 or more, which accounted for 39.7 percent of tobacco sales at smokeshops. The escalating popularity of premium cigars prompted many department stores, such as Saks Fifth Avenue and Macy's, to add cigar accessory shops to profit from the fashion trend. So popular were the cigars that President Clinton refused to abandon his own habit of enjoying an occasional smoke even as he signed bills hindering cigarette advertisements during the 1990s. Restaurants and liquor stores across the country added fine cigars to their retail mix, further reducing the clientele at traditional smokeshops. Statistics from the Cigar Association of America revealed that 16 percent of cigar sales were made at cigar stores in 1998. During that time, smokeshops in rural sites remained stable, while urban sites declined by 10 percent. Of establishments surveyed in 2005, 67 percent were located in urban settings. Suburban sites made up 26 percent of the surveyed stores, and rural sites made up seven percent.

By the mid-2000s, ever-increasing tobacco taxes were having an impact on retailers. In addition, many premium cigarette brands were not selling well, with price points of around $4 per pack, but fourth-tier cigarettes were holding at less than half that price and were consequently seeing stronger sales. Strip malls were home to 64 percent of shops. According to the "Industry Report 2005" from Smokeshop Magazine, 94 percent of smokeshop revenues in 2004 came from in-store sales, with 5.8 percent coming from the Internet and the remainder from mail-order sales. That year, sales of pipes and pipe tobaccos dipped slightly. Lighters and humidors were the only tobacco accessories to show gains.

As for boxed cigar sales, cigars at the top end and bottom end took market share from mid-priced boxes. Cigars priced more than $100 per box accounted for 40 percent of sales in 2004 compared to 36 percent in 2003, while boxes priced at $40 or less grabbed 21 percent in 2004 after getting 16 percent the previous year. Cigars between $40 and $75 per box dropped to 18 percent in 2004 after claiming 24 percent of boxed cigar sales in 2003 and 29 percent in 2002. Arturo Fuente was the top premium cigar brand for 69 percent of the survey respondents. Saint Luis Rey was the strongest-selling new premium brand.

As states continued to increase excise taxes on cigarettes--in June 2008, New York increased its excise tax on cigarettes to $2.75 per pack, for example-- more smokers were looking for a cheaper alternative. According to convenience store data, "roll-your-own (RYO)" and "make-your-own (MYO)" cigarettes grew 19.2 percent in 2007. Convenience stores also put extra money in their pockets when it came to other tobacco products (OTP) by 2009. On average, each convenience store sold $50.7 billion in OTP products, up 9.4 percent over 2008. Smokeless tobacco rose slightly to $28.7 billion, maintaining its 57 percent lead of the OTP segment sales. After the Federal Excise Tax (FET) hike on cigarettes and tobacco products in 2009, sales of cigars climbed 24.6 percent to $18.5 billion.

The tobacco industry lost its fight when the Family Smoking Prevention and Tobacco Control Act or (H.R. 1256) was signed into law in June 2009, giving the power of federal oversight of the tobacco industry to the U.S. Food and Drug Administration, which soon created the Center for Tobacco Products. Under the act, so-called flavored cigarettes, rolling papers, filters, and tobacco were taken off the market, cutting into tobacco retailer's profits.

Smoker Friendly International, which opened its first store in 1988, boasted more than 500 stores to make it the largest retailer in the United States. Cigarettes Cheaper, with about half of its more than 300 stores in the late 2000s in California, operated in more than 20 states. One of the top cigar distributors in the mid- to late 2000s was 800-JR Cigar.

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News and information about Tobacco Stores and Stands

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