The Colorado-based Smoker Friendly chain has become a full-fledged tobacconist with the addition of a premium cigar offering at 90 of its 100 corporate stores, a move that has been 10 years in the making. As prices rose after the 1998 Master Settlement Agreement between the 48 State Attorney’s General and the major cigarette companies, Terry Gallagher, president, and his brother Dan Gallagher, VP of operations, saw an opportunity.

“Some consumers started looking for less expensive alternatives,” explained Terry. “That provided us with an opportunity to move into the niche cigar market and merge a new demographic in our stores.”

To a certain extent, however, Smoker Friendly’s growth across the country hinges on local and state regulations that shift continuously. In some towns, for example, the company’s monthly cigar nights need to be scheduled for the summer when they can be held outside. Most smoking bans create a niche for tobacconists like Smoker Friendly, but they can restrict where and how the company grows.

In part, that is how the company developed its popular licensee program, which targets single-store or chain operators. “Because of our scale and relationships with manufacturers,     we can provide them with their own private label,” Terry said.  “Instead of charging a regular licensing fee, we require they use at least three pieces of signage in their store and carry the Smoker Friendly brand products, which we offer at a competitive price, to give them a higher margin than on anything else they typically carry.”

This program replaced an older licensee program in early 2006, growing the brand from 140 licensed stores to 526 in 37 states. Having successfully added cigar offerings to its brand, Terry said the company is looking at incorporating liquor as well, though slowly.

Despite these new developments, both Gallagher’s emphasized their dedication to their consumers. “Cigarette sales are our base and still the most important part of our business. As we grow, we will develop our brand and product offerings but won’t lose touch with the people coming into our stores and what they want,” said Terry.

A new opportunity

Originally, the Gallagher family was a retail gas and C-store operator. When supermarkets and drug stores began locking tobacco products in glass cases behind the counter and generally ignoring the product, the Gallagher’s saw an opportunity.

“Smokers felt like second-class consumers,” said Terry. “The cigarette companies made it easy to step into the business, and we saw an opportunity to provide smokers with a place that wanted their business, a company that would treat them with respect because they, as adults, had decided to consume tobacco products.”

Initially, he said, Smoke Friendly dabbled in the C-store model, offering snacks and beverages alongside cigarettes. Dan said they made the decision to not sell candy or anything attractive to minors early on, accepting the fact they had entered an adult environment. Smoker Friendly stores carry lighters, cutters, carrying cases and, as the company expanded, cigars and humidors.

“We found that the more stores were focused on tobacco products, the more successful they were. We’re a tobacconist and don’t want to confuse our consumer and claim to be anything else,” said Dan.

A new look

That dedication fostered reputation for expertise, which made expansion into cigars easier. The challenge was making both cigarette and cigar smokers feel welcome.

“There is a little bit of a crossover, but, generally, cigarette smokers are more loyal to their brands,” Dan explained. “It’s not all about the product for cigar smokers; although that is important, smoking a cigar is an event for them.”

That mentality precipitated the addition of smoking areas to 25 of the corporate-owned stores, six of which also feature smoking lounges including flat-screen TVs, wireless Internet access, and fluffy leather chairs. The company also decided to upgrade its look, going from bland gray carpet with white walls to rich wood finishes and navy blues highlighted with splash of red and yellow.

“We’ll never be as fancy as some of those downtown, urban tobacconists, and there will be some people who don’t shop with us for that reason,” Dan said. “But I think we’ve found a balance.”

The growth of these lounges was slow going as the management team introduced cigar offerings to gauge the interest of individual markets. Usually, Terry said, the addition of lounges and walk-in humidors was driven by direct conversation between consumers and staff.

Serving smokers

Twenty-two locations now have walk-in humidors, and 15 of those host monthly cigar nights sponsored by cigar manufacturers. Anywhere from 25 to 100 people attend the cigar nights hosted at these select Smoker Friendly locations, which Terry described as similar to a wine tasting. Guests sample featured cigars, often receive free products, and get to meet with the manufacturer of their favorite brand.

These events were largely responsible for Smoker Friendly’s latest development: its e-mail marketing tool Invite. Consumers sign up when they make a purchase at any location and indicate which products they want to receive information about. 

The corporate office can manage the list of consumers by region, store, or product and communicates with them weekly. Launched about four months ago, the program operates in 30 corporate-owned stores and has close to 10,000 names. The next step, Terry said, is to create a customer loyalty program, but he added that they are taking it slow as they play around with all the technology can offer.

Staying in tune with what its consumers ask for will make that effort and every evolution of the Smoker Friendly brand successful in the long run.

“We decided to go into cigars because they apply to the demographic we already serve but also allow us to grow,” said Dan. “As new opportunities arise, we move forward one step at a time and keep our consumer clearly in mind; that’s what works for us.”

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