One of the latest trends to come out lately in terms of strip mall retailing is the roll-your-own cigarette store. From what I’ve been reading, they have become so popular and growing so fast in popularity, the government stepped in and now trying to tax the heck out of the business. However in this article, we are going to look at the roll your own business model and see if it is a viable model for the hood and if there are ways to keep the momentum of these stores popular in spite of the tax.
What is a Roll Your Own Store?
A roll your own shop is most likely an existing or a new smoke shop that been popping up over the past 5 years in explosive numbers. They usually focus on selling tobacco related products such as cigars, cigarettes, chewing tobacco, rolling paper, hookahs and so on.
But the roll your own concept is the result of a machine that allow people to roll their own cigarettes and this is what Bruce Ramsey at the Seattle Times wrote describing this business model:
In the past two years, 65 shops in Washington — including Cheap Smokes in White Center, Butts Tobacco in Auburn, Tobacco Joe’s in Everett — have installed $35,000 machines made in Girard, Ohio, that roll 200 cigarettes in 10 minutes. These shops have cut the cost of a carton’s worth to around $36, which is half or less than the price at retail.
The savings is in tax. Per pack, the federal tax on cigarettes is $1.01. Washington’s, the fifth-highest in the nation, is $3.025.
But this isn’t a sale of a pack of cigarettes. It’s a sale of loose tobacco and paper tubes. The buyer pays state and federal tax on the tobacco, but it’s lower than for cigarettes, and the federal tax is lower still on pipe tobacco.
If the shop operated the machine, it would be a cigarette manufacturer. It would need a license from the U.S. Treasury, and have to sell packs with government health warnings. But the shop doesn’t operate the machine. It rents it, just as a laundromat rents its washers and dryers.
The customer is not in the cigarette business. He’s rolling his own.
I can’t describe it better than that what Bruce wrote and that’s the hustle and from what I’m hearing, these shops are very profitable with lines all around the corner in places like Florida so people can roll their own. In a way, this also sound like a roll your own shop can be a nice smoke café where cats can come in and not only roll their own, but have a patio outside serving drinks and smoke em if they got them.
But the Smokers Seem to Love It!
And it sounds like these smokers love these roll your own shops! They keep talking about how it “taste” better and is more fresher and most of all, it’s probably a novelty and “fun factor” in the whole operation of a smoker making their own cigarettes.
Making that extra trip to Bogie’s Tobacco Factory on East Main Street, a roll-your-own tobacco shop that opened several weeks ago, allowed Foss to buy the equivalent of a carton of smokes for $39.95.
“For one thing, I like the tobacco I buy here, it’s got a much cleaner, fresher taste,” she said during a recent visit to the shop. “And you just can’t beat the price. I come here and use the machines to roll my own smokes because I like the way they taste, and I really like the savings. But the big reason is really the savings. You can save an awful lot of money by coming to a place like this.”
The point of saving money should not escape the whole point of this article and why these shops are being so successful. Here is another article from the Wall Street Journal last year on the topic:
Some loose-tobacco makers and retailers say they are doing nothing wrong and that Congress created the problem by raising the excise tax on rolling tobacco—typically used by smokers with lower incomes—by more than 2,000%. “I don’t think the founding fathers of this country meant for taxes that could put companies out of business,” said Jeff Martin, general manager of Rouseco Inc., a pipe and rolling tobacco maker in Kinston, N.C.
Phil Accordino, co-owner of RYO Machine Rental LLC of Girard, Ohio, says his company has sold or leased about 200 of the rolling machines. He said his company, which is about two years old, simply has improved on gadgets some consumers use to roll their own cigarettes.
Jerry Kunz, 39 years old, left a store in Addison, Ill., recently with five cartons of cigarettes made by the machines. “They’re not as good as Marlboro,” he said, but “it’s saving you money.”
I think that’s why I’m wondering if this is a viable model for the hood because the ones who are lining up and keeping these roll your own operations profitable during this recession are low-income smokers who cannot afford the high price of cigarettes and tobacco. Even further, you know that these smokers are probably talking word of mouth about going with them and roll their own and they bringing friends to these shops, increasing more and more customers.
And do the damn math – these cats are smoking 20 packs a day and if you convert a 20 pack-a-day consumer to roll up their own in your shop, you are going to be rolling in green paper just as much as they be rolling it up in tobacco paper. And from what I’m hearing, the major tobacco companies and these mini-mart stations that sell cigarettes to the low-income cats are mad as hell and trying to work with the government to sabotage these roll your own shops because they are a growing competition for low-income smokers.
So Let’s Break Down the Model Here
The first and foremost thing that needs to be done is to get your business license and your tobacco license and certificate. There are specific steps in your region and there are also federal steps you have to take. The second thing is find a spot or location and from what we are reading, the money appears to be around low-income cats who love to smoke. This is not among any ethnic lines but I think the real money would be in a high density urban and suburban area where cats like to go get a pack of cigarettes which is almost anywhere, right?
Now, I’ve seen these empty strips malls that are desperate for tenants talking about free rent for six months or whatever. If these roll your own business models are making the kind of money and getting the foot traffic and spreading word of mouth among these addicted chain smokers, looks like a side hustle profitable operation to me.
Looking at the picture above, I believe this is the model of the roll your own cigarettes. You see the big roll-your-own machine that they say cost $30,000 or you can rent it. Then you see the utility shelves and plastic bin that have a bunch of loose tobacco and then you have a weigh scale. Now, I’m going to be honest, this shop looks tacky as hell but it also appear that the chain smokers don’t give a damn either. But here is the video of the breakdown:
So it appears they are charging them for the tobacco on a weighted basis and sell the tubes. Again, the rule has been past a few weeks ago declaring them but manufacturers but the way they are getting around it is they are claiming they are not manufacturing and the customer is using these machines in a do-it-yourself manner.
But in the video, the shop owner broke down the real talk about why I’m even bringing up this subject and this man is the exact kind of entrepreneur that I want to see more of and what makes America great! He stated that he is saving the smokers some money and now they have extra money to spend at other shops nearby. So as cause and effect of his roll your own shop, his business is helping the local economy. That’s the focus of why we talking about these roll-your-own shops here on Dream and Hustle.
The Economic Benefit of Roll Your Own Shops in the Hood
I pretty much realized exactly what the dude in the video said in terms of the economic benefits. If you are looking at lines of smokers and they saving money and this is a small-format shop, then this is a ripe model for not only profits but also create economic development in any hood. Remember that to create economic development, you need foot traffic.
So with that said, it is very possible that we can build a starter economic cluster pack for the hood that includes a roll your own shop as one of the business models to bring in the foot traffic. That means the taco/burrito food truck will see more customers, they hire more people, more shops open up and hire more people and increase the economic development in that hood. This is how you create jobs by having that one thing that can generate foot traffic and consumers are coming to spend money.
Now, Let’s Take a Harder Look at this Roll Your Own Shop Business Model
I want you cats to think of other business models that sound similar to this roll your own shop that is taking off in the past few years. Yeah, those pour and blend your own margarita shops and also those frozen yogurt shops where you dispense and blend your own yogurt, right? But in this case, they have a roll your own cigarettes where customers buy the raw tobacco and tubes and manufacturer their own smokes like this is Build-A-Bear and ish.
The thing I have a problem with is that big $30,000 machine at the focus of this roll your own shop. Remember and never forget the number one rule to making real money is to operate in batches and parallelism. You need to have multiple process lines and you have to manage the demand in batches for a smooth and manageable operation. If you got lines and just got that one machine or even three of those $30,000 machines, that is not efficient. Now what if one of those $30,000 machines break down on you while these addicted smokers are all lined up? See, now your money is all tied up in those expensive machines and even if you need to fix it, you got lines of smokers waiting.
Instead I prefer this business operation in the picture above instead of those big machines. Each of those cigarette roller machines are around $500 instead and easier to fix and replace. Instead of people lining up around the corner, they can sit down 6 people at a time and even expand and add more tables. If you understand the math and the money, your goal is to get as many cash transactions per hour in retailing, not have cats waiting lined around the corner. So these $500 machines have a bigger ROI than that $30,000 machines for that reason.
Second, in the top photo of the roll your own shop, I hate looking at those big plastic buckets of tobacco as if someone wouldn’t come in and smash and grab that ish. You definitely can’t do that arrangement in the hood and besides, they smash and grab cigarettes cartons so why wouldn’t they go after these tobacco bins if they are not traceable? So you have to be smarter than to do something like this. I don’t have a problem with selling bulk tobacco and weighing it, but at least have a more bullet-proof environment. I prefer the loose tobacco already packaged and just sell it in plastic sandwich bags like the street cats, if you want to be real about it.
Overall, I like this business model because it taps into an addicted smokers and gives them a cheaper and more novelty option to their habit meaning guaranteed revenue and foot traffic. That foot traffic can attract other commercial foot traffic if part of an economic cluster pack in the hood and can possibly revitalize an area in the hood.
What I don’t like is the tacky nature of some of these roll your own shops and they should have a better and classy model to attract smokers such as having an outdoor patio and waiting area to smoke. This will increase not only patronage but also sales as they can buy a pack of cigarettes while they wait to roll their own carton worth of cigarettes. In addition, there is no need to market as smokers will talk to each other while they on smoke break.
The missing part I’m not seeing is this being setup in the hood. The reason we not seeing this setup in the hood is because of that $30,000 price tag on that machine. However, there are cheaper ways to create parallel and batch processing of customers and transactions to get more revenue per hour and brothas and sistas should improve on this aspect. Just remember that you are just selling loose tobacco and tubes and “renting” the machines so the customers can manufacture their own cigarettes.
But most important and maybe this is the biggest part that is missing from all of this – I think the brotha or sista who learn how these machines are manufactured and build a cheaper and better one in Asia (where they smoke way more than we do) and sell them here in America and maintain these machines is the real one that will be rolling up in dough…