Online vs. Brick & Mortar Cigar Shops

April 26, 2011 · Posted in Cigar Industry, Deep Thoughts 

A couple weeks back I had a conversation with one of the proprietors of StogieBoys.com, which is an online cigar retailer. He mentioned that he would like to write a piece about online versus brick & mortar cigar shops and I liked the idea. It’s a very thoughtful piece of writing and presents both sides of the debate well. In the end, there is a place for both. (By the way, if you place an order on StogieBoys.com during the rest of this month you need to put in the code “perfectdraw” to get 10% off of your order.)

Over the past several years a great deal of anxiety has developed over the retail channels used to sell premium cigars.  The angst has largely centered around online cigar retailers and brick and mortar shops.

For many decades, cigars, like nearly every other consumer product, have been sold throughout the U.S. via brick and mortar stores – mainly local cigar shops.  Over the past 15 years or so a new sales channel has begun to make considerable progress in the retail cigar market – online or internet retailers.  This success that has been enjoyed by internet cigar retailers mirrors the increasing success online retailers have had in nearly every retail category throughout the U.S.

As online sales of premium cigars have grown, brick and mortar supporters have increasingly expressed their dislike for the internet cigar channel.  The argument is generally that there is not a level playing field between traditional brick & mortar shops and online retailers, and that the online retailers put downward pressure on pricing, which makes it difficult for brick and mortar shops to compete.

The competitive pressures between internet cigar retailers and brick & mortar shops are very similar to the competitive pressures between retailers in nearly every other retail category.  Each channel and type of retailer is pressed to find a way to stay relevant and deliver value to its target constituents in order to grow and thrive.

It is no secret that retail sales via the internet in general have grown much faster than any other retail channel in recent years and this trend is expected to continue for the foreseeable future.  Consumers are becoming more comfortable buying online and from catalogs, and increasing capital is being invested in online advertising and technology to facilitate these transactions.  Forrester Research projects online retail sales to increase 10% each year for the next 5 years, exceeding $280 billion by 2015.

Below is a brief examination of the future of premium cigar retail sales and, more specifically, the divide that is perceived between internet retailers and traditional brick and mortar shops.  Internet cigar retailers are clearly here to stay, but brick and mortar shops are as well, at least the shops that adapt and compete effectively.

What are cigar smokers looking for in a cigar retailer?

Cigar enthusiasts are consumers like any other.  When they purchase premium cigars, like when they purchase any other consumer item, they look for convenience, value, quality and service.  They desire a simple, hassle free shopping experience and they want access to products that meet their needs and desires, at a good price.

With premium cigars, as with many other consumer items, there are a myriad of brands, sizes and products, and finding what you want or what meets your objectives is often a daunting task.  Cigar smokers are generally becoming more discriminating and more information hungry as they attempt to choose their brands and cigars from the long list of choices available.  As a result, many cigar smokers appreciate quality product information and assistance to make their selections easier and more meaningful.

What do premium cigar retailers need to do to compete?

Cigar retailers, like any other retailer, need to understand what drives cigar smokers to make their premium cigar purchases and they need to effectively meet those drivers to win the customer’s business.  They simply need to adapt and aggressively meet the needs of the cigar smoking consumer, and they need to do it in a cost effective manner.

Some of the drivers mentioned above are more significant than others in the eyes of cigar smokers, but retailers can use any or all of them to differentiate themselves and compete effectively.

What advantages do cigar shops have over internet retailers?

Local cigar shops have served and met the needs of lovers of the leaf for many decades.  They have built strong, loyal relationships with their customers and delivered excellent service and value. Below is a list of several significant advantages that these local shops have over internet retailers:

  • Ability to deliver highly personalized customer service to individual customers
  • Ability to build and maintain strong personal relationships with customers
  • Access to premium brands not available to internet retailers
  • Ability to deliver product to the customer immediately & no shipping/delivery costs to get the product to the customer
  • Ability to discuss, make recommendations and pass along relevant product information personally
  • Ability to provide a place for cigar enthusiasts to smoke and enjoy the camaraderie of other cigar smokers
  • Opportunity to display physical products to customers rather than photos and descriptions

What advantages do internet retailers have over local cigar shops?

  • Convenience of 24/7 shopping without customers having to travel to a store
  • Lower overhead and infrastructure costs for merchandising and selling, which may result in:
    • Ability to price products lower
    • Lower barriers to entry in terms of opening stores (minimal infrastructure investment)
  • Ability to carry a larger selection of brands and products
  • Opportunity to reach and sell to a larger, more geographically dispersed target audience
  • Ability for consumers to easily compare products and prices, and get relevant feedback from other consumers on specific products

Is there room for both online retailers and local shops in the premium cigar retail market?

There is plenty of room for both types of retailers now and in the future.  Both must be creative in meeting the needs of cigar smokers and differentiating themselves.

Each of these retail channels has meaningful advantages over the other and the strengths of one generally represent the weaknesses of the other.  The ability of each retailer to capitalize on their strengths and differentiate themselves from the other will determine the kind of success they enjoy.

What can local shops do to effectively compete with online retailers?

As noted above, brick & mortar shops have several advantages over online retailers.  Strong local shops that adapt to the changing market and the new type of competition that is being brought by online retailers will continue to be very relevant and will continue to thrive.

Some of the things that local brick and mortar shops can focus on to compete effectively include:

  • Deliver highly personalized service that is not available from online retailers – cigar lockers onsite, ability to try a cigar before buying, large selection of products that can be touched and seen before buying
  • Give customers good reasons to frequently come into the store and create more of a social destination
    • Possibly club type atmosphere
    • Provide a comfortable place for customers to smoke
    • smoking events, entertainment, manufacturer visits, etc.
  • Add other products that are complimentary to cigars, such as hookah, beverages, etc.

Cigar lounges are becoming increasingly popular among cigar enthusiasts.  They represent an excellent venue for cigar smokers to enjoy their favorite cigars in a comfortable atmosphere, along with other people who share their affection for good cigars.

Lounges represent an excellent opportunity for brick & mortar cigar retailers to develop a stronger bond with their customers and create frequent opportunities to get them back to their establishment.  They are also serving to get more people interested and involved in cigar smoking, which will increase the ranks of cigar customers in the future.  These lounges are also being well supported by cigar manufacturers, which has helped to mitigate the capital required to develop them.

In addition, increasing anti-smoking legislation is actually having a positive effect on cigar lounges across the country.  As the laws become more aggressive in limiting the places where cigars can be smoked (legally), cigar lounges provide one of the only public venues for cigar smokers to enjoy their smokes.

Cigar lounges should and will play a large role in the local cigar retailer’s future and will make them tremendously competitive.

Conclusion

Online cigar retailers are here to stay and they play a meaningful role in the premium cigar retail market.  Many cigar smokers are becoming increasingly comfortable with purchasing items online and they are naturally extending this to premium cigars.  They enjoy the convenience and some of the other benefits of purchasing their cigars online, including competitive pricing.

Local brick & mortar shops are here to stay as well.  They will take full advantage of some of the leverage they have to maintain strong relationships with customers and they will deliver facilities and events that will keep their customers entertained and coming back to smoke and enjoy the company of cigar smoking comrades.

I, for one, will look forward to enjoying both of them for many years to come.

Comments

One Response to “Online vs. Brick & Mortar Cigar Shops”

  1. TriMarkC on April 27th, 2011 4:16 pm

    Excellent article! Some thoughts for general consideration.

    1) I agree that the B&M channel is at a disadvantage price-wise, since they generally must charge their customers taxes that online stores do not (at least, for most customers). That may be “resolved” with Congress floating the Internet tax idea again (and that certainly might afford a more balanced answer to this tax problem).

    2) I also find it interesting that manufacturers provide their newest brands to both B&Ms and to the online stores. Manufactures could drive more business overall to the market by selling their newest blends exclusively to the B&Ms, and then after X time, also make them available to the online stores.

    3) B&Ms could increase sales opportunities, as well, by doing what the online stores do regarding cigar returns. Buy a box and if you don’t like the first 2-3 cigars, return the rest for a refund / replacement. Buy a 5- or 10-pack, and if you don’t like the 1st one then return the rest for a refund/replacement. I think cigar smokers at B&Ms are like wine drinkers at a restaurant – the wine steward makes a recommendation, but once the buyer says yes they feel obliged. And yet, most restaurants will tell you that if you absolutely hate a bottle of wine, let them know (and within reason) they’ll swap it out for another one for the same price. If cigar shop owners made it clear that trying new cigars is part of the experience, and therefore they understand that occasionally, as the buyer and the shop build their relationship of what cigars the buyer likes, some cigars just won’t be a good fit. So they will replace the occasional cigar that’s not a good fit (again, within reason) … as PART OF the relationship building effort.

    4) B&Ms could also do like online stores, and offer samplers and 3- and 5-packs, at a discounted price. Further, to save $$$, the shop owner could simply post signs (instead of actually creating the physical packaging). They could offer a weekly special with different samplers or multi-packs at X% off, or, they could let the customers pick out their own samplers (say, from a list of pre-determined cigars within the same brand, or across brands, too) for X% off.

    5) Heck, B&Ms could provide an online purchasing service … “If we don’t have it, we’ll get it for you!” I mean, talk about SERVICE! And that could MAKE buyers want to do more business with the B&M (they might even pay a small amount for the extra service, knowing that someone they trust is taking care of them … which drives them into the store to pick it up, which might prompt more purchases and certainly prompts a stronger relationship. (Reminds me of “Miracle on 34th Street”, when Macy’s sends people to Gimbels and the customers promise to come back).

    6) Buyers need to let their B&Ms know what cigars they WOULD buy from their favorite B&M, if they were available (and perhaps just as important – how often and in what quantities). That gives the B&M information they can use to place future orders.

    Just some ideas.

Leave a Reply