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Despite public health campaigns and legislation against tobacco products, the demand for cigars remains strong. In fact, the limits placed on where people can smoke may actually be helping cigar shops. Where allowed, cigar shops sometimes double as smoking lounges and are one of the few places at which people can still enjoy a smoking product.
According to IBISWorld, cigar lounges in the United States have grown at 2.7 percent annually in recent years and have an annual revenue of $903 million. With just 930 businesses in the industry, there’s lots of opportunity for newcomers to open cigar shops.
Who is this business right for?
Anyone who enjoys cigars may like running a cigar shop business. Having a passion for the product helps business owners connect with and give advice to customers.
What happens during a typical day at a cigar shop?
A typical day at a cigar shop involves a variety of activities. Businesses owners:
- check inventory and humidor settings
- welcome customers and recommend cigars
- cut and light cigars (at shops that double as lounges)
- order more inventory as necessary
- sell other products (see “make your business more profitable”)
Similar to a bar setting, business owners might also spend time talking with customers. Some customers will want to have lengthy discussions on almost any topic, while others will simply want to buy a cigar or visit with their friends.
What is the target market?
The cigar-smoking population is traditionally thought of as older men. This remains generally true, but trends among cigar smokers are changing. The target market for a cigar shop business is:
- 98 percent male, but growing among women
- mostly between 40 and 60 years old, but growing among young adults
- Well-educated about cigars, regardless of gender or age
How does a cigar shop make money?
A cigar shop business makes money by selling cigars. Cigars are normally sold by the stick or the box.
What is the growth potential for a cigar shop?
A cigar store may be a small operation with just one location, or it can grow to be a multi-site business. Cheap Smokes & Cigars is an example of a franchised business in Alberta, Canada. Ithaca Cigars and Sheik’s are two examples of local cigar shops in Upstate New York.
What are some skills and experiences that will help you build a successful cigar shop?
In order to successfully run a cigar shop, business owners must be familiar with both cigars and running a retail business.
Business owners can learn about cigars through:
- Smoke and Cigar Aficionado
- The Cigar: An Illustrated History of Fine Smoking
- Cigar Association of America, Inc.
For business owners who don’t already have retail experience, and preferably retail experience within the tobacco industry, there are several resources that might help. Working in an existing cigar shop business will provide firsthand experience, and business owners in other areas may be willing to serve as mentors. Online courses in general retail can also be helpful. Coursera and EdX both offer such courses.
What are the costs involved in opening a cigar shop?
The startup costs involved in opening a cigar shop business are significant. Lionel Melendi, who owns a cigar shop in Brooklyn, recommends that business owners have at least $500,000 in funding. Savvy business owners, however, might be able to open a shop for a little less up front.
Some of the biggest expenses incurred when opening a cigar shop include:
- securing a location for the business
- building out the location
- purchasing inventory to sell
- acquiring a humidor for storing cigars
- buying cutters and lighters (if also serving as a lounge)
In addition to these, there are legal and insurance costs.
Business owners who have limited funds can save by selecting a smaller location that’s still in a high-traffic area. If only selling cigars (and not serving as a lounge), something as small as a mall kiosk could work. Alternatively, a little storefront at a significant intersection could be excellent. Cigars don’t require a large place to display or store, which is why total space isn’t all that important.
To reduce overall inventory costs, business owners can order a variety of cigars but not too many of any one cigar. Cigars are small and light, so they can be shipped in one or two days if necessary. While regularly overnighting orders isn’t a wise long-term plan, it does let business owners get started without tying too much capital up in inventory -- which can take months to sell.
The one expense business owners shouldn’t skimp on is the humidor. A good humidor can cost $20,000 but is absolutely necessary. It’s the humidor that keeps the cigars in stable conditions so they don’t spoil. Without a high-quality humidor, a shop’s entire stock could be ruined.
What are the steps to start a cigar shop?
Once you're ready to start your cigar shop, follow these steps to ensure that your business is legally compliant and avoid wasting time and money as your business grows:
- Plan your business. A clear plan is essential for success as an entrepreneur. A few important topics to consider are your initial costs, your target market, and how long it will take you to break even.
- Form a legal entity. Establishing a legal business entity prevents you from being personally liable if your cigar shop is sued.
- Register for taxes. You will need to register for a variety of state and federal taxes before you can open for business.
- Open a business bank account. A dedicated checking account for your cigar shop keeps your finances organized and makes your business appear more professional to your customers.
- Set up business accounting. Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
- Obtain necessary permits and licenses. Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
- Get business insurance. Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
- Define your brand. Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
- Establish a web presence. A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers. Save 15% when you create a business website with Weebly.
Select your state below for an in-depth guide on completing each of these steps in your home state.
Where can I find a business mentor?
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
What are some insider tips for jump starting a cigar shop?
A cigar shop business must have a knowledgeable staff and captivating atmosphere. Business owners should never stop reading about cigars, including everything from the science of storing them to interesting anecdotes about their history. Moreover, a cigar shop should have a relaxed vibe that encourages customers to linger and enjoy their time at the shop.
Ultimately, it’s these two factors -- knowledge and atmosphere -- that will convince customers to purchase cigars in person rather than online.
How to promote & market a cigar shop
A cigar shop business’ marketing should be focused on attracting cigar smokers in the area. Storefront signage, along with local advertisements are effective tools to use. Ads may be placed in newspapers, on the radio, and in nearby bars.
In addition to marketing to individual customers, cigar shops might also have success marketing to businesses or putting machines up in area bars or clubs. These are less-certain, as businesses may shy away from tobacco products and cigar-selling machines aren’t legal everywhere. If possible, though, either of these can provide a significant sales boost.
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How to keep customers coming back
Because only a certain segment of the population smokes cigars, cigar shop businesses must keep regulars returning. Treating regular customers well, constantly getting new cigars in stock, and holding special events all encourage repeat visits.
How and when to build a team
As a retail business, a cigar shop must have a small team of employees from the outset. Multiple employees are needed to maintain the retail hours customers expect.
Federal Business Licensing Requirements
The sale of tobacco products is regulated by the federal government's Food and Drug Administration. Review this FDA page regarding tobacco retail laws.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a cigar shop business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
For information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Maintain Personal Asset Protection
Don’t think that just forming an LLC, or any other type of business, will save your personal assets in case of a lawsuit or other matter by itself.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your LLC is sued. In business law, this is referred to as piercing your corporate veil.
Two of the simplest steps that will protect your business, and yourself, are to:
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
Certificate of Occupancy
A cigar shop business is generally run out of a storefront or stand-alone building. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a cigar shop business.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
- If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your cigar shop business will be in compliance and able to obtain a CO.
How much can you charge customers?
Holt’s Clubhouse notes that cigars typically start between $5 and $8, and can go up to between $40 and $50. In a few cases, sought-after cigars may be priced even higher.
What are the ongoing expenses for a cigar shop?
The ongoing expenses for a cigar shop are manageable. They include employees’ wages, lease and utility payments, and inventory expenses.
How much profit can a cigar shop make?
A successful cigar shop business can bring in a significant revenue. Mike’s Cigars in Miami currently sells 1.5 million cigars each year. Just from cigar sales, Mike’s Cigars has an annual revenue in the tens of millions.
How can you make your business more profitable?
Cigar shop businesses have several ways to increase profits. Shops may sell lottery tickets, beverages and food items, along with other smoking items. Some shops sell smoking accessories, tobacco, hookah, and vapes. Alternatively, shops can create their own white label cigar brands to sell.