THE SMOKY MOUNTAIN CIGAR COMPANY

Quincy Loftleider sat at his desk, working furiously on his business plan for his start-up company, Smoky Mountain Cigars, LLC. Smoky Mountain Cigars would start off with a line of about five different cigars all made with Cuban seed, Dominican tobacco and using Connecticut wrappers. The plan was to enter in the mid-price range ($10-$20 @ manufacturers prices) of the category and expand from there once a foothold had been established in the market.

Quincy had a slew of data in front of him and he needed to make sense of it before he approached his potential investors with his projections. If this venture worked, he figured he would be a 1 percenter within 10 years, tops. If not, he would remain a Wall Street Occupier, or maybe move South where its a little warmer and occupy Woodruff Park. For his report, he would need to provide the investors with the following market information:

(1) Total Mid-Range Cigar market size. (2) Probable $ Sales for Smoky Mountain (3). Required Break even market share. Although prices and costs varied somewhat by different cigar type he would produce, he figured on a mid-range average of $15 retail. The product would be sold exclusively in cigar specialty shops. These shops control approximately 75% of the better cigar market. Typical retail margins are 25%. Jimbos manufacturing costs (Cost of Goods Sold) would come to about 30% of his price. He faced the following costs:

Cost of Goods Sold (per unit) 30%

Salaried (non-sales) employees $ 250,000

Manufacturing Overhead $ 175,000

Overhead and Admin $ 250,000

Shipping (6.5% of revenue)

Advertising and PR fees $ 500,000

Sales Force Salaries $ 250,000

Sales commission 5%

Although figures were somewhat fuzzy, various industry sources indicated that current market shares broke out at follows:

Bad A Bing Cigar Company 25%

Mambo Combo Cigars 37%

Hackney & Coughlan Cigars 22%

All other 16%

The total adult male population is around 150M. Approximately 30% of men smoke cigars on a regular basis. Over 99.9% of cigar buyers are males, according to Cigar Aficionado. About 70% of regular cigar smokers tend to buy their cigars in the mid-price range. Total mid-price cigar sales at Manufacturers Prices came to $ 1.5B in 2014. Jimbo thinks he can capture 1% of the market in year one.

A recent representative survey showed this information about cigar consumption frequency by mid-price buyers.

Survey #1

% of Respondents (Total in Survey = 1,000)	Expected # of Cigars Per Week
% Very interested in Jimbos Cigars	75%
30%	2
30%	3
25%	4
15%	5

Jimbo got out his calculator and his notes. He needed to provide his investors with the following information:

Approximate size of the market for the mid-priced sub-category

Approximate annual sales his company might expect.

Contribution per unit

Required Break Even in dollars in Year 1 of operation.

Required Break-Even Market Share.

His report was due in two days. His investors wanted to see a spreadsheet or a table laying out the information they required.