After a bit of a stumble, cigar lounges seem poised for a comeback, with steady growth reported across the industry as a whole.
Cigar lounges are a niche and competitive business — so, are they profitable, and is it worth opening one in 2024? The short answer is yes, but success isn’t guaranteed.
In this post, we break down the potential profitability of a cigar lounge and the state of the industry, and provide practical advice for running a successful cigar lounge.
Related Read: What Is a Cigar Lounge? 4 Reasons To Open One
Are Cigar Lounges Profitable? A Look at the Industry
The cigar lounge industry took a hit during the global pandemic but steadily grew to a $2.5 billion industry in 2023. In 2024, the cigar market as a whole was worth a massive $55 billion in the U.S.
How profitable is a cigar lounge? A cigar lounge with good foot traffic and selling high-quality items can expect an average profit margin between 15 and 40%. Some investors estimate that 70% of cigar lounges are profitable.
In other words, if you’re smart about how you run your cigar lounge business, you could stand to make a healthy profit.
Factors Affecting Cigar Lounge Profits
Exactly how profitable your cigar lounge will be depends on various factors:
- Location: A cigar lounge in a bustling area is likely to bring in more foot traffic. It's also better for business if there are fewer competitors in the area.
- Standalone vs. attached: Many cigar lounges are attached to other businesses such as hotels, bars, or smoke shops. These staple businesses provide a reliable source of revenue outside of the cigar lounge alone.
- Startup costs and operating expenses: A high-quality cigar lounge requires heavy initial investment, from renting or leasing costs to buying inventory, staffing, and more. This can make it difficult to achieve a profit early on.
- Health awareness: As consumers become more aware of the health risks of smoking, successful cigar lounges are conscious of minimizing risks through measures such as quality ventilation.
- Marketing and growth: The best cigar lounges regularly attract new customers and find growth opportunities. You’ll need to know your market and run effective advertising to drive growth.
5 Best Practices for Establishing a Profitable Cigar Lounge
An increase in disposable income and a craving for luxury products were behind the initial customer interest in specialty cigar lounges that offer a niche selection and expert recommendations.
However, the financial landscape has changed somewhat. With inflation putting the squeeze on many people’s wallets, cigar lounges need to rely on more than high margins from cigar sales alone to stay profitable.
Here are a few practical ways to set yourself up for success.
1. Focus on Atmosphere and Establish a Niche
Cigar lounge patrons want a welcoming social atmosphere where they can relax and unwind.
Create a welcoming interior design for your lounge. Offer comfortable seating areas that are intimate without feeling cramped. A great cigar lounge is a social experience, so don’t forget the importance of good lighting and decor. Many modern cigar lounges find success with an industrial or minimalist design, using accented lights on tables and bars to create a high-class ambiance.
Consider your current customers or the customers in your area and think about what type of cigar lounge would appeal to them the most. Are they looking for a quiet and classy cigar lounge, one with a TV so they can watch the game, or something else entirely?
Consider what’s in the area already. If everyone’s favorite sports bar is up the block, you probably don’t want to spend a lot of money trying to imitate that ambiance.
You can now start to establish your niche. The more unique your shop is, the more people will be drawn to it — and the nicer it is on the inside, the longer they’ll stay, and the more they’ll spend.
2. Stock Quality Products and Create Product Bundles
A large driver of growth in the cigar industry is consumer interest in handcrafted and boutique cigars. Unlike liquor stores that carry only a limited cigar selection, you have the chance to distinguish yourself by stocking unique, high-quality cigars and tobacco.
High-quality tobacco makes every handcrafted cigar unique, offering customers an incentive to try blends from different regions or parts of the world.
Premium products also have higher profit margins. Even a higher quality machine-made cigar may only sell for $10 vs a premium handmade cigar which might sell for $40 or more.
Upsell customers by using your point of sale (POS) system to create product bundles. Pair cigars with frequently used accessories, or create a mixture of premium and non-premium cigars to let people taste the difference.
3. Retain Customers With a Membership Program
Everyone likes to feel part of something exclusive. A cigar lounge loyalty or membership program creates that sense of belonging while offering value-added perks.
Some cigar lounges require a paid membership to enter, but this may be prohibitive without a bar or another business to supplement your revenue. However, paid membership isn’t the only way to run a profitable membership program.
Sign customers up for a free membership that offers them exclusive discounts and deals. Since these customers will represent your most loyal customers, you can review the sales data on your POS system to understand their preferences and create relevant offers and deals.
Related Read: How To Manage a Tobacco Loyalty Program for Your Store
4. Expand Outside of Cigars
When most people think of a cigar lounge they think of quiet booths, warm lighting, and a sleek, well-stocked bar. Alcohol and food sales are a great way to supplement your income and turn your cigar lounge from just a place to smoke into a social destination.
If you decide to offer a full bar, this will come with increased costs including:
- An on-premises liquor license
- Stocking and managing alcohol inventory
- Additional permits (depending on your state)
If you’re not prepared to get a liquor license there are other options. Many states allow stores to offer “bring your own beer” or “bring your own bottle” (BYOB) without a license or with a limited liquor license as long as all patrons’ IDs are checked before entering. Even if you don’t sell alcohol, you can still make money by offering a BYOB option as a standalone product (e.g., pay $15 at the door).
5. Train Expert Staff
All of the previous points we’ve made, such as creating a great atmosphere, stocking premium products, and crafting exclusive offers will be more effective with excellent staff. The value of training and retaining great staff can’t be understated in a business that thrives on social contact.
Make sure you train your staff both on the technical side of the business (how to use your POS system, how to use age verification, etc.), and also on the more nuanced side like the origins of different tobacco blends and the process different brands use to make their cigars. Have regular meetings to discuss new products and make sure they’re comfortable discussing them with customers.
If your staff can spin a great yarn about the origins of a handcrafted cigar, they will turn that story into a sale. Remember, the more niche your offering, the more you’ll rely on exceptional customer experiences.
Set Your Cigar Lounge Up for Success With a Specialized Technology Partner
Opening a cigar lounge involves a lot of risk. There’s a high upfront investment, the customers are discerning, and you need to get licenses and age verification solutions set up. However, if you work at it, it will all be worth it.
Running a cigar lounge can be extremely rewarding. You get to offer a unique experience that customers won’t get anywhere else.
To ensure your business runs smoothly, leverage a technology partner for your payments, inventory, and store management that understands the tobacco industry inside and out.
Cigars POS was built to smooth out the day-to-day operations of cigar lounges, tobacco stores, vape shops, and smoke shops. With sophisticated tools for sales reports, inventory management, age verification, and in-house high-risk payment processing, your cigar lounge will have all of the tools you need to be successful.
Reach out to our experts today to find out how Cigars POS can help your cigar lounge increase profits.
