New Business Venture: Pit Stop Smoke Shop

OK guys, just a shameless plug. I spent the morning talking to real estate agents with a guy who I am going to partner up with in a new small business venture. We are going to open up a few small stores (public area will be about 500 square feet in size) and will be selling cigarettes, smoking supplies, premium cigars, etc. Its not politically correct. I'm not even a smoker, have never been, and don't let people smoke in my house. But the business plan seems solid.

We are currently negotiating on 3 properties. One is about a 99% sure thing. The other two are 50%-50% as to if we get them. Ultimately the plan is for 12 stores. But the short term goal is 2 stores before July 1, and 3 stores if possible by that date. We have a couple alternate locations already identified if don't get any of our first 3 choices.

I got Indiana D.O.T. traffic counts for all the major roads in the area, mapped out the existing similar stores and looked at their traffic counts, road access, ingress/egress, etc. Location #1 has a traffic count of over 70,000 cars per day and is located at a corner with a stoplight. Location #2 has over 30,000 cars per day located next to a very busy local restaurant. Location #3 has over 25,000 cars per day passing, it also is located adjacent to a stop light. To put this into perspective, the average "busy" road in the county has about 12,000 cars per day for a traffic count; that said, we believe we have identified some premier locations.

The stores will only sell the premium cigarettes and tobaccos. Nothing generic or value prices. The common brands will be things like Winston, Marlboro, Newport and Kool. But we will also have higher grade brands like Nat Shermans, Dunhills, and American Spirit. Cigars will range from Dutch Master on the low end to Partagas, Macanudo and a few other hand rolled premiums. We are going with sort of a NASCAR theme to the logo and designs. Tile floors will be black & white ceramic tile surrounding the perimeter of the showroom. Probably put in a couple flat panel monitors with the SPEED channel playing on them. There will also be a small coffee and cappuccino bar, and we are considering popcorn. None of our initial locations will have Drive-Thru windows, but we are searching for locations that will allow that option and consider it very desirable.

Below is the final logo that we had designed . . . this is well past my graphic abilities.

Sounds like a good idea Bob. The traffic should guarantee success. Your logo looks good.

We have shops here that are similar. Smoker Friendly. They sell quality smokes and beer and alcohol. They were in the mall and only sold smokes. Since they moved out of the enclosed mall to a strip mall they appear to be doing much better.

Very nice. Love additional incomes streams!

Doc, Smoker Friendly is actually a national franchise. I've not been to one, but I actually had dinner with the founder of the company many years ago. It was an accidental meeting, we both were invited to dinner by a mutual friend.

We've had this business plan on the back burner for a number of years but there was always something else to do, or something else to work on. The timing seems to be good right now for this. Smoking restrictions, higher taxes and all sorts of political pressure are working to push cigarettes out of many traditional stores and into specialty stores. Many of the specialty stores are nasty, dirty little places. Some are nicer, bright, and clean. We are definitely looking at the upscale end of the spectrum, but not too upscale.

The major cigarette manufacturers actually have a problem with marketing their brands and have created some nightmares of their own doing. They sell high priced brands and low priced brands are eating away at their marketshare. Yet the manufacturers still promote their brands in the stores that are damaging their marketshare. We've had some meeting with Reynold's America (maker of Winston, Camel, Kool, Salem, Doral, etc) and they are trying to change things so stores that sell "generic" or "4th tier" cigarettes will not get the same level of promotion money that a "premium" store will get. Our stores will feature only the "premium" brands and should be able to maximize their programs. Further, stores that have customers who are price shoppers will not be in a position to alter their product mix to upgrade to the premium brands AND keep their customers. With all that in play, we hope that our stores will be in the ideal position to capitalize on the market dynamics. Like I said, we hope. But the plan sure sounds pretty good.

Snowcat Operations said:

Very nice. Love additional incomes streams!

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Well there is that, but I also plan to put my sister-in-law to work in one of the stores. She's been staying with us and needs a steady job to get on her feet. This may teach her to say out of retail

Bob, you do realize your potential client base is declining and dieing (self inflicted lethal poisoning) and the only way to grow market share is to steal dieing customer from another source. I am not sure this is a real stable cash crop of customers to plan your future on.

On the other hand someone needs to supply the addicts and your approach appears to have a sound thoughtout business plan for the short term. Your approach is different enough it may just work well for the people who must feed their habit and are tired of the tattoo parlor smoke shops.

One last thought is to not allow smoking in the building and thus eliminating your employee liability issues as your sister-in-law may sue you for having to work in an unsafe environment.

Yup, long term business plan is to sell out! But on the other hand, this area is adjacent to several very high tax states, a carton of cigarettes in Chicago is roughly $70, here it is roughly $31. You'd be amazed how many cars from Illinois drive over here every day to buy tobacco. The same is true for Michigan, their tax is about triple the Indiana tax. This pocket of land sells more cigarettes than anywhere in the nation and most of them are "exported" to residents of neighboring states.

Edit: Also Indiana has one of the highest % of smokers (ranked 8th in the nation)

Have you considered franchising??????? I want in.....

Sounds good Bob.
We have the Smoker Friendly stores around here as well. I haven't been in there for years but it does seem there's a steady flow of traffic.

Just make sure there are no Indian Reservations around.

Junkman . . . no we have not considered franchising, we are simply looking for something play with (and make some money with) that will be a new challenge. Honestly the concept is simple enough to duplicate in any area without the need to pay me a franchise fee. I actually looked at buying a few existing stores, and I also looked at getting a franchise from an existing local competitor's chain. There simply was no logic to either of those. This falls into the category of "If I can do this so can you."

Brian, we have no Indian reservation in Indiana. There will be one opening in north-east Illinois. Another in south-west Michigan. Both are in the advanced proposal stages, and both are far enough away from the locations we are setting up to not be too big of an issue. We are intentionally NOT setting up locations in close proximity to the state lines. There are stores that exist only because of cross state traffic. There are others that attract morning commuters, locals, etc.

We are attempting to pick premium locations with:

• easy ingress/egress
• very high volume streets,
• on the 'morning commute' side of the road
• in predominantly middle or upper middle class areas
• in growth areas
• outside of urban settings

Of the 3 properties we are currently negotiating for, they fit ALL those criteria points. We have identified about a half dozen other locations for future locations, each of those meet all or all but 1 of the criteria points.

We do plan on looking for some locations on the 'evening commute' side of the roads at some point. In fact, in some areas I'd like to have one location on each side of the roadway where the roads are divided or otherwise so busy that crossing traffic is inconvenient for our target customers.

I've really tried to think this through. I'm also fortunate that my partner in this really knows the retail trade so each of us have overlapping areas of knowledge.

Bob, as a retail outlet have you also made provisions to be wholesaling the same products to your retail stores or are you buying from another wholesale source? In the past, the large tobacco companies liked large volume wholesale buyers and it always seemed the larger buyers bought at better prices and got more kick backs from the tobacco companies. Is this still true today? If it is, you need to be the wholesaler of your own products also and you will be better able to control the prices to make profits. You then can also sell to your competitors..... Market control is the best way to assure success and profit....

In the past we operated and owned a wholesale business similar to your existing business. I went for market area control and thus I was able to control wholesale prices in the end for many local areas which assured my business success. The same can make or break your new venture.

mtntopper said:

Bob, as a retail outlet have you also made provisions to be wholesaling the same products to your retail stores or are you buying from another wholesale source? In the past, the large tobacco companies liked large volume wholesale buyers and it always seemed the larger buyers bought at better prices and got more kick backs from the tobacco companies. Is this still true today?

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In the "convenience" industry, my wholesale operation is one of the "top 50" in the nation according to industry trade publications, and yes, we already wholesale these same products. However, there are no longer any volume discounts. The discount structure is now based on market share numbers. We are fortunate to maximize the discount structure for the 3 largest manufacturers, and those 3 sell over 95% of the premium brands in the USA.

But the days of kick backs, advertising funds, etc are pretty much gone. Everything is market share performance at wholesale.

B_Skurka said:

Everything is market share performance at wholesale.

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Bob, then you will be your own wholesaler of tobacco products to your own retail stores? This ends up being just a natural extension to your existing wholesale business and assures you continued market share and maintains your maximum discount levels. Is that a correct statement and assumption I am making? I like this idea a lot and it provides for a successful continued business in the face of ever larger mergered wholesale/retail competition.

Yes. I will be the wholesaler and the retailer.

B_Skurka said:

Yes. I will be the wholesaler and the retailer.

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Excellent planning for success in my opinon....

Bob, some questions:

• What is the legal smoking age in your state?
• What are the smoking in public restrictions (i.e. smoking in buildings, etc.)
• You mentioned that a carton of cigs is about $70. Are you planning on selling individual packs also and at what price (I was recently amazed how much cigs cost as I have never been a smoker).
• Is there any possibliity of a, for the lack of a better term, negative backlash against such a store (people picketing, etc)? The reason I bring this up is that smoking is so un-pc these days.
• Finally, along the same line, is there anyone in your family that you expect to give you grief over this venture? I know that your store(s) already sell smokes.

Bonehead

Bonehead, smoking age in Indiana is 18.

Smoking restrictions vary by city, but are generally fairly lax.

Indiana cigarette prices are about $31 to $33 per carton, packs typically sell for $3.50 each.
Chicago cigarette prices are about $65 to $70 per carton, packs typically sell for about $7.50 each
We are opening our stores OUTSIDE of Chicago.

Stores like this already exist in this region, we will simply be building "nicer" and "cleaner" stores to cater to the more upscale smokers. The typical smoke-shop is a nasty place that makes a tattoo parlor look wholesome and a peep-show porn shop look upscale.

I don't talk to the family now, why would that change after I do this?

I don't know if you follow this sort of thing, but within the last year or two, the Seattle area (King County) and surrounding counties have severely restricted where you can smoke. I believe there is no smoking within 20 feet of any entrance to a public building (obviously no smoking in any public building). Down in S. Cal, I believe there is no smoking on the beach, maybe that is in all of California.
Bone

B_Skurka said:

Yes. I will be the wholesaler and the retailer.

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Since both operations are separate entities, you are actually a customer of yourself. A lot of retailers don't like it when a wholesaler becomes a retailer, and change suppliers. This is one good reason to keep the line from blurring. In the pet industry, there was a wholesaler that went into retail, only to loose so much of his wholesale business that he lost the wholesale business. When that happened, he could no longer buy as well, and sell as cheaply, so the retail business failed also. When my supplier is also my competition, I stop purchasing from them.

We currently have other competitors who own their own distribution centers. In my industry this is nothing new. In fact, we are one of the last hold-outs who does not own retail stores, cash & carry centers, or some other operations that somehow compete with retail.

However, in the case of my local area, the overwhelming preponderance of retail stores, regardless of ownership (wholesale owned, small chain, large chain, or independent) sell the generic cigarettes in addition to the premium brands. They are generally sloppy looking. Our approach, and we will see if it works, is to focus on the premium brands, the brand loyal customers, to bring a new level of sophistication to the market that doesn't exist, etc. We hope it works, and obviously are betting against the trend.

Just thought I'd give you guys an update. We have 2 leases signed; one of those has a drive thru window and 40,000 cars per day pass it, the other is adjacent to a busy eatery with 30,000+ cars per day traffic count. 2 more are pending signatures (70,000 and 25,000 cars per day passing those 2 locations). The goal of 2 stores being open before July 1 is realistic. We are currently looking at a 5th location (it could be modified to include a drive thru window), if we can secure it, we could get that one open before July 1st as well. The hardest part will be finding employees quickly enough!

Interestingly, the Indiana legislature just passed a $4.40 per carton cigarette tax, which normally you would think will hurt these stores, but they provided for an interesting twist that will actually help us out. There is no "Retail Floor Tax" on inventory. What that means is that any cigarettes purchased PRIOR to the date the new tax becomes effective will not have to pay the additional tax. So what I plan on doing is stocking each of the stores with excessive amounts of inventory prior to the effective date of the tax, that will allow the stores to make an additional $4.40 per carton after the tax goes into effect. That "tax bonus" would effectively pay for the opening costs of the stores, which I anticipate to be in the neighborhood of $12,000 (security, video, fixtures, Point-of-Sale system, etc) however the cost of inventory will not be 'paid for' by the tax bonus.

Consequently, the tax is actually going to help us pay for the opening of the stores. The governor has not signed the legislation yet, however he indicated he would do so. The legislation cannot be changed as our state legislators have already closed the session.

Even with the new $4.40 per carton tax, Northern Indiana will still enjoy a tax advantage over neighboring Cook County, ILL and Michigan. Cigarettes in Indiana will sell for about $36.00 to $37.00 per carton, while cigarettes in Cook County still sell for over $50 per carton and cigarettes in Chicago sell for over $70 per carton. In Michigan the cigarettes sell for roughly $42 to $45 per carton. All of our locations are near Cook County and Chicago travel corridors.

I can't believe people pay that much money for a vice. Oh wait . . . that's about what I spend on Coffee every month.

PBinWA said:

I can't believe people pay that much money for a vice. Oh wait . . . that's about what I spend on Coffee every month.

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Heck if you think about folks who smoke 1 pack of cigarettes a day, they spend roughly $3.50 to $5.00 on their habit daily. Compare that to the drinkers of Starbucks coffee . . . their typical cappuccino type drink is about $4.50 and I know people who drink one or two of those a day. I know people who drink 4 or 5 beers a day others who drink a glass or two of wine a day. My wife probably couldn't survive without her morning infusion of Diet Pepsi (2 before she goes to work). I'm a pot a day coffee drinker . . . hot & black.

A vice is a vice is a vice.

B_Skurka said:

Heck if you think about folks who smoke 1 pack of cigarettes a day, they spend roughly $3.50 to $5.00 on their habit daily. Compare that to the drinkers of Starbucks coffee . . . their typical cappuccino type drink is about $4.50 and I know people who drink one or two of those a day. I know people who drink 4 or 5 beers a day others who drink a glass or two of wine a day. My wife probably couldn't survive without her morning infusion of Diet Pepsi (2 before she goes to work). I'm a pot a day coffee drinker . . . hot & black.

A vice is a vice is a vice.

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Bumping this Bob .. whats the status as of this date?

I just got store #3 open last Saturday. It appears that it will be our best location based on the early sales figures.

The first store has been open about a month, its not yet at 'break even' but I expect it to reach break even sales by 90 or 120 days. Sales are continuing to grow and new customers are finding the location daily. It will be a good store and we get a lot of compliments from our customers about it. It is the only store we have with a Drive Thru window. Most customers walk in their first visit and then many come back to use the drive up.

Store #2 is our question mark store. The city is giving us fits with putting up grand opening signs and things like that. People who come in tell us we have the best prices and we have loyal repeat customers already, but it is growing in sales slowly. We finally got a permit for a temporary grand opening sign (for 70 days) and sales have grown exponentially since that point, but it is still lagging a little behind store #1. One factor we are waiting to see is the college student factor. The town we located in is a college town and we are near campus, so in about 10 days the population will grow by 5 or 6000 more people and we wonder if that will have an impact on total sales, as well as if it will alter the product mix selection that is required to service a younger demographic?

Just think of what sales would be in that store if they were to legalize POT!

B_Skurka said:

The city is giving us fits with putting up grand opening signs and things like that.

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Bob, a lot of businesses in around here (Northern Va, west of DC) that are in a location that is less visible from the street such as a back row in a strip center buy a van or small truck and paint it as if it was a delivery van for the business with name and advertisements. They then park it on the front row of the parking lot. I've even seen a couple with a big arrow pointing at the business. They usually move them around every day or so and sometimes an employee drives it home when they close.

I've also seen them in some areas sitting in the same place for months with flat tires.

Jim, I'm considering that too! Minus the flat tires.

Bob,

Your ideas for these convenience stores are really innovative and forward thinking. Being a young college age guy, I work at a gas station here in PA, where the prices on cigarettes seem to increase about every other month (and the current legislation is working towards a significant cigarette tax hike - well over a dollar a pack increase i believe). Our station sells a majority of the brands of cigarettes including a variety of the 4th tier brands you mentioned. The main brands (marlboro, kool, newport, camel) all sell really well, but some not so much. I'm glad to hear that your new stores are already forming a regular customer base, because I see the same people come into the store everyday and pay us top dollar, even though they could very well go less than 5 miles up the road and pay a $1.20 less for a pack of Newports (and thats just one example). Those customers are really valuable to us.

I know you explained that these stores only sell the higher grade cigarettes and cigars, but what about smokeless tobacco (either sidewhack or chew)? I know snuff sells really well at our station, and we've had to double our inventory of Copenhagen, Redman, and Skoal for the past two months because its been hunting season, and there is people that chew during deer season that do not chew any other time of the year. But that might just be a Pennsylvania thing!

In my opinion, I really think that these convenience stores will do really well, especially the ones that have the drive-thru in them - that would be extra convenient for those morning commuters.

Best of luck in this particular and any future endeavors,

So Bob..While I am not working and should be I found this thread. So what are the updates now? Do you have five stores going and how are they doing? As a non-smoker myself I read you plan with great interest. Sounds like it ought to be a winner to me!

Well we are still at 3 stores. We have a proposed lease for store #4. I've looked at properties for 2 or 3 more but am trying to be very selective. I've got one store that is losing money outright and don't want to repeat that with any new locations. Actually working 2 to 3 hours a day is pretty tough on me, today I had to take an old truck in for its emission test to qualify for a license plate renewal.

There is a whole thread about this particular truck. It is an old beater step van I bought to screw with the property owner next door to where the truck used to be parked. Its really more of an advertising sign than a truck. But here is what I did today . . .

I came to Pit Stop Merrillville to start up the Pit Stop truck so it could be taken in to be emission tested so I can get a current license plate. No big deal, but I know the heater doesn't work so I waited for today because it is warmer than yesterday. (It was 1 degree yesterday morning, today was at least 10 degrees warmer)

Well I grab the keys and go to unlock the padlock on the door. Nope. Its frozen. Again, no big deal, I have a Mapp Gas brazing torch in my VW, so I walk over and grab that. Fire up the torch and warm the key. OUCH. Nice blister. Mapp Gas burns at something like 400-degrees HOTTER than Propane. But as I say, my life is blessed. I know this because despite the very cold temperatures outside, my thumb is no longer cold.

Pick the key up out of the snow and try it in the lock. No go. Lock is frozen. OK new plan. I'll heat up the lock. Well the lock is encased in rubber to make it weatherproof. Hit the lock cylinder with a blast from the Mapp Gas torch and the rubber case bursts into flames. Dripping flaming rubber fortunately misses my hand, and warms the lock sufficiently to thaw it. Wow that worked!!!

Slide open the door. Hmmm. Where did all this snow come from and why are there icicles dripping from the steering wheel? Back to my VW for some gloves and other supplies. I scrape the INCH of snow off the seat, break chunks of ice off the dashboard, use the Mapp Gas torch to melt the ice away from the brake pedal, and generally clean things up. Pop my butt on the seat and was really glad that the snow acted as an insulator from the cold, because with no heat in that vehicle I was glad the seat was at least comfy. Slipped the ignition key in and cranked it, no go. Try again. It wants to start. 3rd time it fires up. See my life is blessed!

OK now onto the road. Well I am feeling a breeze. Hmmm. Oh, I see, the window is down about 1/2 inch. That explains the snow and ice in the cab. Grab the hand crank and it won't budge. Apparently there is an ice damn inside the window mechanism that has the thing frozen solid. Oh well, I have my parka, gloves & hat, I can tough the cold and the unexpected wind slapping my in the face from the window opening. I get out of the parking lot and am about a block away when I decide it might be prudent to buckle up. So I reach down to my right and find the seat belt, pull it over my lap, lock it in place and it won't budge. It's frozen? Or stuck? Or broken? All I know is that I am now trapped in the seat. Great, I'm driving an aluminum refrigerator, fighting back tears in my left eye from the wind that is now buffeting the left side of my face, I'm stuck in the seat and I notice a knob on the dash for a fan. Flip it on and it turns out to be an interior snow blower sort of machine. All the vents seem to be connected to this fan and there is now snow blowing out of every orifice in the truck. At this point all I can think of is to sing WHITE CHRISTMAS as I motor down the side roads of Merrillville toward the testing facility. Did I mention that the small blister on my thumb is starting to throb?

Well I stayed on the back roads to the testing place and one thing I noticed was that the mirrors are adjusted in just the right manner so that I cannot see anything toward the back or the sides of the truck. No biggie, I figure I'll pull over if I hear a siren, but I have no reason to back up or use the mirrors otherwise. So I keep on motoring along, singing my best version of Bing Crosby's White Christmas as I go. Pull into the Emission Testing Facility and the guy waves me into the diesel lane. He walks up and I slide open the door to talk to him (remember the window is frozen) so he tells me to back up into a spot between two other vehicles. Hmmm? Well I suppose I could back up while looking out the door? OK, so I try to lean to my left, but my seat belt is holding me in place. What the heck, I figure I've been lucky so far, I back into the spot, don't hit anything. The guy takes my papers while I sit there, comes back a couple times for some quick questions, then finally brings me my EXEMPT paper. I'm done.

Start to head back to Pit Stop Merrillville and the window starts to come down by itself. Obviously this means the ice has broken free and the window can operate. I try it. It does. I roll the window up. But the distraction of my joy from having a window that actually is closed on a 14-degree day causes me to lose my concentration and I don't notice that I have just been cut off by a KIA. BAM I slam on the brakes. Miss the car. Hit nothing. See, I am leading a blessed life. Did I mention that the whole back of the truck is loaded with display racks, building supplies and even tools that belong to my partner? Better yet, did I mention that all those things were loaded into the back of the truck by my store manager, her 2 daughters and a gaggle of other ladies? Well does the term "load spill" mean anything to you? I have a whole new feeling for the term, especially since there is a big open doorway between the cargo area and the drivers cab. Yup. The cab is now full of stuff.

The remainder of the trip is uneventful. I make it back to the store, park the truck. Oh, but I'm still held captive by the seatbelt. I decide that it is frozen. The Mapp Gas torch is on the passenger side of the truck. I can't quite reach it. I debate calling someone from my cell phone hoping that they can drive out to rescue me before frostbite sets in. No, I keep trying to reach the torch. I get it!!! I have 2 options. Melt the seatbelt and possibly catch myself on fire or heat up the locking mechanism hoping to melt the ice inside. I opted to heat the buckle mechanism. It works. I'm free. I'm free.

Oh, did I mention the good news? The dome light in the truck works! No headlights. No heat. But at least the dome light works. So if anyone ever uses this truck at night, and they are pulled over for driving without headlights, at least they will be able to read the citation that the police officer gives them!