Despite Bans, Tobacco Stores Thrive

By Toepp, Robin

Business is good these days, for tobacco retail outlets, a type of business that is as much shunned for its product as it is in demand.

Since 1963, the peak year for American cigarette consumption, about 640 billion cigarettes were consumed, according to the American Lung Association. But that number has declined and leveled to about 400 billion as of 2003.

Yet, despite the decrease in overall cigarette consumption, Internet competition, public pressure, public smoking bans and an increase in taxation on cigarettes in most states -in some states as much as $20 per carton the last ten years have seen the rapid development of retail tobacco outlets across the country, to the amount of about 11,000 stores.

One local store owner is Ken Spurlock who has been in the tobacco retail business since 1968, and had one of the first tobacco outlet stores in Indiana, along the Illinois border when that state increased its tax on a carton of cigarettes to 50 cents.

In this area, he co-owns four tobacco outlet stores including Michiana Mini Mart on the Indiana side of State Line Road and Indiana 933.

“This used to be a real small store that was (in a spot that was) a former trailer park,” said Spurlock, himself a life-long non- smoker.

“(But) the other stores were kickin’ us so we decided to do something different in order to compete,” Spurlock said.

So they demolished the small building, replacing it with a goodsized “convenience store” that in addition to selling cigarettes and other tobacco-related products, sells party supplies, beer; snack food, soft drinks, and lottery tickets.

“We have a lot more room, a lot more parking, it’s much better,” Spurlock said. “We think it’s been good for the area (because) we got rid of an eyesore and where we thought we would employ five people, we actually employ 15.”

But even though the store is larger with increased product variety, it’s that front ten percent of the store, the items accessed behind the counter, rows of cigarettes stacked floor to ceiling, that is profitable, Spurlock said.

“Everything else is priced to get customers in the door,” said Spurlock.

There are seven tobacco outlet retail stores in the northern- most block of Indiana 933 just before the Michigan state line, all competing for customers.

One customer, Dean Cooper of Michigan, stopped in the Michiana Mini Mart one recent day to buy four packs of cigarettes for his wife, although he too is a tobacco consumer, his preference is for chewing tobacco.

“I’ve been smoking on and off since I was 16 and (when) I was in the Navy,” Cooper said. “I smoked some, but I mostly dip because you can’t smoke anywhere anymore.”

Cooper’s total. came to $9.76 but he says it “would have been over $15 in Michigan.”

Meanwhile, directly in front of Michiana Mini Mart, another, another, smaller tobacco retail outlet is being erected, also with a convenient drive through.

And, across the street (Indiana 933) U.S. 31 Tobacco is opening a retail store … directly next door to its existing store, a marketing strategy of owner Adam Musleh, who also owns several other tobacco outlet stores in the area that are also placed in strategic locations.

Manager Amie Thornsberry says business at all locations is going well.

“Cigarette outlets are more of a specialty store,” Thornsberry said. “People know they are going to be able to get the brand they are looking for.”

Additionally, Thornsberry said, like other tobacco outlets or any successful business, part of doing well is keeping up with consumer trends like stocking a good selection of cigars that are displayed in a humidor, and maintaining an assortment of roll-your-own cigarette supplies – both are also taxed but at much lower rates than regular cigarettes.

“I’ve noticed a lot of people have gone from branded cigarettes to rollyour own for the last two or three years, or even to sub- generic cigarettes,” Thornsberry said of another growing trend. “They are not major companies that make these, they make. one. or two brands and sell for a good price.”

Some sub-generic names include Wave and Bronco and sell for about $21.95 a carton, as opposed to a name brand like Marlboro red’s that retail for about $30.04 a cartoon.

Tom Briant, president of NATO, the National Association of Tobacco retailers, a non-profit trade association based in Minneapolis, MN, said that even though there were a few tobacco outlets during the last 30 years, it’s really been during the last ten years that the concept was recognized.

“They developed out of a niche market to supply a wide variety of tobacco products to consumers ” Briant said. “In 1998, the master settlement agreement from tobacco lawsuits resulted in significant price increases for cigarettes and that helped fuel the market for volume sellers.”

That, Briant said, helped fuel the need for tobacco retail outlets, a need he said he expects to he a trend as tobacco retail outlet expansion continues.

“I drink at some point in the future, and this may he 15 years down the road, tobacco products may only be sold in designated stores because of the on-going restrictions being placed on tobacco products by state legislatures, much like the liquor industry,” Briant said. “The same may be true of tobacco where the only place, you will be able to buy products is in a tobacco store.”

Currently, tobacco outlets report that 25 million consumers shop at their stores each week with an average of 840 cartons of cigarettes sold at each outlet per week. That compares to about 140 cartons sold at convenience stores each week due to limited shelf space.

Those figures come from a survey conducted by NATO’s parent organization, Tobacco Outlet Business Online, which currently has 12,000 subscribers across the U.S.

In the mean time, NATO’s Tom Briant said, the focus for many of the outlets is on diversification of product.

“The stores have to be creative in marketing their products and constantly looking at new products to make existing customers want to purchase and generate new traffic flow,” Briant said. “It is a challenge but the retailers are creative and always looking for the newest trend in tobacco products that they can offer their customers.”

For example, Briant said one of the newer trends is flavored cigars like vanilla, cherry, strawberry and peach.

Another competitive edge for the outlets, Briant said, is how much a consumer can buy at a given time.

“There are 135,000 convenience stores in the country but they generally sell cigarettes on a pack basis, whereas tobacco stores generally sell cigarettes on a carton basis and there’s ten packs to a carton” Briant said.

Another trend in the outlet business is that the smaller stores are being purchased by corporations.

William Hoodlebrink, who now lives in Nappanee, owned four franchises of the Richmond, Ind.-based Low Bob’s Discount Tobacco Corporation which, he said, was later bought by Master’s Distributors.

Hoodlebrink owned stores in Elkhart and Goshen but sold the stores back to the company when he decided to retire.

“We would have owned the businesses for about eleven years,” Hoodlebrink said. “I did over eight million in tobacco (sales) and out of that 6.5 (million) was taxes … what the consumer paid whether through direct taxes to the states or to the feds, it was a big cash cow for the (state’s) governments.”

Hoodlebrink said that although it was a good business for awhile, he is glad to be out of it.

“It’s changed quite a bit, it’s a lot tougher than it was” Hoodlebrink said. “(There are) just so many regulations, some are for the good, still, you’re really scrutinized now whereas before, it was more like a normal business, whereas now it’s just tough.”

Copyright South Bend Tribune Corporation Nov 21, 2005