Now in its third generation of family ownership, Colorado-based Smoker Friendly has 342 stores under different banners across 13 states and has evolved from a typical convenience retailer to one that CEO and Chairman Terry Gallagher said is “definitely not traditional. We still have fuel and convenience, but we emphasize the tobacco and nicotine category in a big way.”

With an expansive selection of tobacco and nicotine products—including its own private-label line—and more than 40 stores with cigar lounges for customers to stay and enjoy their products, Smoker Friendly takes a service oriented-approach.

Gallagher spoke with NACS Magazine about the company’s decades of evolution since its founding in 1984, future plans, how he successfully runs a family business and Smoker Friendly’s annual cigar festival, which he called “one hell of a party.”

Smoker Friendly has positioned itself in the market to be unique and distinctive. How did you accomplish that?

Some days I sit back and am a little surprised about the direction we ended up taking for the business. We became a family company in 1984 as Gasamat when my dad bought 96 operating locations in a leveraged buyout. The intent at the time was to take this mix of gas stations, which were a few-hundred-square-foot buildings with two to three fuel pumps, and evolve into convenience stores. But a couple of things happened in the ’80s—there was the savings and loan crisis that really impacted us in Denver in a big way, and there was also an oil bust in 1984 that struck Denver and Houston pretty dramatically.

That was the year we had made the purchase, and we had a heavily leveraged loan when our bank got taken over by new management. We went from having friends in the bank to having a mark against us. That was around the same time the underground storage tank laws went into effect, so we dumped all our money into underground storage tanks to comply with the new laws. We were a single-commodity company that lived and died on gasoline margins, which at the time were slim, and found ourselves with no banking relationship and no cash.

So we asked ourselves what we could do with what we had, and that’s when we started putting cigarettes in our facilities in a much bigger way than just offering standard packs. That started our evolution into total tobacco, from cigarettes into moist, snuff and machine-made cigars. When the premium cigar boom hit in the mid ’90s, we were one of the first ones to jump into that business.

We’ve had this constant evolution of becoming better and better tobacco merchants, and learning the tobacco business and what our footprint within the four walls of a store really looked like. We’ve worked with manufacturers to create private label products under the Smoker Friendly brand, and now more than 40 of our stores have full cigar lounges. That’s pretty unique to us that we provide a space for our premium cigar customer to enjoy their products in a space with like-minded consumers.

Over the last six or seven years as we’ve expanded our footprint, we’ve also migrated to some combo tobacco-liquor convenience stores. We have over 70 liquor licenses, which is new for us since a lot of the mountain states we operate in had fairly onerous liquor laws. We will continue to expand in that space because it’s a very good blend for our customer base—there’s a lot of crossover between tobacco/nicotine users and liquor consumers, and that definitely expands our in-store baskets.

“When the premium cigar boom hit in the mid ’90s, we were one of the first ones to jump into that business.”

What are you most proud of about your company?

We are now in our third generation of a family business and have 10 family members within Smoker Friendly. I am proud of that, and a lot of our employees are too. It’s amazing to me how many convenience retail businesses are family owned and become multigenerational. People do such a good job of succession in our trade.

On that note, I’m also proud of our retention, especially among our managers, and that is a testament to the culture that we’ve created within our company. We have a lot of employees that have been with us 10 to 30 years and have stayed on through acquisitions, and they all make us stronger as a company. We can’t run our stores without good people, and we make it very clear from the beginning when we acquire a company that we believe people are a company’s best asset. Even though we’ve grown, we’ve continued to act like a family company and live by the creed of treating people the way we want to be treated, which is something I stress within our company.

Are there any lessons you’ve learned about successfully running a family business that have allowed you to become a third-generation company?

We didn’t have a formalized plan when we became a family business. My dad had purchased the retail end of a public company, and then my brother, sister and I went to work for him right away. We had some bumps in the road here and there, but one of the things that we found out in that first and second generation is that you have to be pretty transparent and vocal. You can’t let things build up, and we did a good job as a family of getting things out on the table and not letting issues fester. We always sat down and worked through whatever problems there might be, and we made sure that we continued to have really good lines of communication. If we blew up our business somehow, then we would blow up our family. We’ve tried to take that same rule into that next generation.

What are your expansion plans and future goals for Smoker Friendly?

We’ve been successfully growing through acquisitions, which we think is the best way to grow these unique types of stores—it’s much faster than organic growth, and that’s a somewhat unique perspective given how much new store growth you see in the convenience industry. We have had 10 acquisitions since 2016. We are very opportunistic in terms of where we can go with further acquisitions. There are about 10,000-14,000 unique types of tobacco stores [similar to ours] around the country, many of which are family owner-operated, single generation stores whose owners might not have a good exit strategy. We feel like we have built the platform for that type of business and can be an exit strategy for them.

What do you think the future of the tobacco category looks like?

I’m a firm believer that the convenience channel will continue to own this category. There are so many good operators out there, and it’s still a very important category within the four walls of a convenience store. Where we will see further erosion of tobacco is within drug, grocery and mass retail as they continue to deemphasize those products. That will continue to create opportunities for convenience stores because we know how to sell these products and we own the tobacco and nicotine channel.

You started a festival for dealers that grew into oneof the largest cigar festivals in the United States. Can you tell us about the Rocky Mountain Cigar Festival?

We have a Smoker Friendly-authorized dealer program where we co-brand with other tobacco stores and some convenience operators to sell our private-label products. There are about 700 licensed Smoker Friendly retailers out there, and we started bringing them together in Colorado for a summit almost 30 years ago. It’s a two-day business meeting where we share ideas, do roundtables, talk about the brand or legislative issues, have panels with speakers, that sort of thing. It would always end on Friday afternoon with a tobacco festival street fair that had about 100 vendor tents. It was a buying show but had a little bit of a party atmosphere.

As the event and our business continued to grow, the tobacco festival evolved about 15 years ago into a consumer event. Our premium cigar guys were like, ‘Hey, you’ve got all this awesome merchandise already here, let’s open it up.’ That’s when we started the Rocky Mountain Cigar Festival. It’s probably one of the largest cigar festivals in the U.S., with 2,500 consumers and about 135 cigar, spirit, craft beer and other lifestyle product vendors all within the same street fair we used for the business event the day before. The diversity of the show is amazing, I think last year we had 43 states and 74 countries represented. It’s one hell of a party.