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An Interview With Dr. Reto Cina President and Chief Executive Officer, Oettinger/Davidoff Group Posted: Tuesday, May 18, 2004
By David Savona
Reto Cina is the guardian of one of the cigar world's most treasured and famous cigar brands -- Davidoff. As chief executive officer of the Oettinger/Davidoff Group of Basel, Switerland, the spry, slim, 57-year-old has shaken some of the dust of the notably conservative company during his six-year tenure, expanding its portfolio of cigar brands with full-flavored cigars, most notably the Davidoff Millennium Blend Series. Cina was instrumental in creating a joint venture combining the $2 billion company with a pair of hip partners to create one of the cigar world's most expensive offerings -- the $39 Zino Platinum Crown Series Stretch. Recently, Dr. Cina met with senior editor David Savona to speak about his plans for the Davidoff group.
David Savona: You joined Davidoff in 1997. How
did that come about?
Dr. Reto Cina: I was running a discount chain
called Pick Pay in Switzerland for ten years. Part of their assortment was
cigarettes. Oettinger Imex was running the wholesale cigarette business of
Pick Pay. So through this business relationship, I got to know these
people, and in 1995, I got a phone call from the managing director of
Oettinger Imex asking if I would be ready to join as CEO of the
Oettinger/Davidoff Group. And I said yes, of course. We let quite a long
time pass, almost one year after the first meeting, but I got to know all
of the family members, because at that time, the Oettinger Imex Group was
still owned by three families. This has now changed -- there is only one
family owning the whole thing -- the Schneider family.
Q: Did you deal with Oettinger chairman Dr.
[Ernst] Schneider in the negotiations to bring you into the company?
A: Directly with him. Formally speaking, it
was the vote of the directors who gave the final OK, but as a matter of
fact, it was he who said, 'I want to go with it.'
Q: I've heard that things tend to move
kind of slowly at Davidoff, or with the Group. Did you think it was unusual
for an entire year to go by between being hired and the meetings?
A: Certainly, it isn't unusual. But I
wasn't under pressure at all because I had a good position. It may be
a Group thing, that you let pass a little while to really get the feeling
whether two characters may get along together or not. So I think it was a
good idea. Obviously, it was the right decision for both sides.
Q: Let's talk a bit about the company
in general, because I think all of our readers know about Davidoff, but
very few know about Oettinger. Could you describe the company?
A: Actually, we are in four fields of
activities. We are a producer, we have an import and export business, we
are in the wholesale business and we are retailers. The company is divided
into three divisions: tobacco products, accessories and confectionery,
which includes cigars; diversification, which are all the other brands,
such as cosmetics, leather goods, writing instruments, glasses, ties and
Cognac; and, of course, cigarettes.
Q: How large a company, in terms of annual
revenue, is the Oettinger/Davidoff group?
A: The tobacco products, accessories and
confectionary division comes to 910 million Swiss francs ($717 million),
cigarette licensing is 1.2 billion ($946 million), and diversification is
501 million ($395 million). The number of employees is 2,600. Outside of
the Dominican Republic, most of them are in Germany, with more than 800.
Q: Where do you sell Davidoff cigarettes?
A: Only in Switzerland, plus we have some
distributing rights for other cigarettes; for instance, we are the
distributor of the American Spirit cigarette -- in Switzerland, in
Belgium and in Holland -- but it's a tiny thing. In addition to
that, we are the importer for Zippo lighters, for Savinelli pipes and so
on. Having our sales force selling our own brand together with these
imported products makes the portfolio much more attractive, and delivery
costs come down with the percentage of the value of the order. By using our
infrastructure to the utmost, signing the same customers and adding up
other products, we are able to generate additional margins.
Q: What about your fragrances?
A: We have them made, but we are doing the
whole thing: the advertising, the distribution and everything. For
cosmetics, Lancaster is our licensee. For Cognac, it is Hennessy, and so
on.
Q: What is the breakdown of stores that you
own?
A: We started, years ago, buying tobacco
retailers in Switzerland because we were aware that sooner or later we
would have the situation that this retail business would no longer be
attractive. We would have less retail shops and we had to have an outlet
where we can promote our own brands. At the end of the day, the retail shop
will be the only place where you can promote your products. Having the full
vertical integration coming from production, wholesaling and also
controlling the retail business, we have 100 percent control.
There are 48 Davidoff flagship, or pilot, stores
worldwide. These are stores that carry the Davidoff logo on the storefront
and feature the entire Davidoff product range, from cigars to fragrances to
Cognac and other Davidoff products. Among them are the Madison Avenue store
and the newly opened shop at Columbus Circle in New York, four in Las
Vegas, seven others in North and South America, 18 in Europe, 16 in Asia
and one in the Middle East. Of these flagship stores, Davidoff owns eight.
The remaining 40 are franchised. In addition, we have 150 shops in Germany,
26 in Switzerland, two in Belgium and two in Holland. These carry a variety
of Davidoff and other brands.
Q: How is the cigar business divided between
countries?
A: First, the biggest market is still the
U.S., with slightly more than 20 percent, followed by, changing from one
year to the next, three countries: Germany, France and Spain. One year
France is in the second position, the other year it is Germany, and so on.
The fifth is Switzerland, followed by Turkey, then all the rest.
Q: Are there some cigar brands in your
portfolio that maybe do great in one country, but aren't spectacular
in others?
A: Yes. I mean, let's take Avo.
It's a really big brand in the U.S. It's doing well in Germany
and Switzerland and in other European countries, but honestly, in the Far
East, where we are really successful with Davidoff, we have a hard time.
Q: Why?
A: In Asian countries, people are looking for
the big names. And it is much easier for us to get them buying a Davidoff
cigar than an Avo. That is certainly a reason why it is so difficult to
start new lines throughout the world. It's a hard thing.
Q: During your tenure as CEO of the Group, it
seems as if Davidoff has become considerably more aggressive in coming out
with new cigars. Is that accurate?
A: We have always been known for excellent
quality, no doubt about it. But the launching of new products was certainly
not at the level it is now. Of course, at the time, this need for new
products was by far not as important as it is nowadays. But I believe that
also we were taking, in a rather short period of time, a big step forward,
opening, first of all, new avenues in promoting cigars with Avo in
Switzerland, for instance. Also within the Davidoff brands, we are
launching new products at a quite different level.
Q: And you've got some very big ones, like
Davidoff Millennium.
A: That was really the big event, that we
were able to produce such a well-balanced and consistent cigar pleasing all
these people complaining about the fact that Davidoff, since we left Cuba,
has no really strong, aromatic cigars. I believe that with this Millennium
blend, we are very near to that kind of taste, having at the same time,
qualitywise, an excellent cigar. So we cover both sides, on one side the
quality and on the other side the taste.
Q: Is that something that people bring up,
Davidoffs from Cuba?
A: No, no. We know that there are people who
like to have a much stronger cigar and we knew that within the Avo line we
had one, but it wasn't a Davidoff. Now we are able to really have a
Davidoff cigar for each different kind of need of the customer, from the
very mild one up to the really strong and full-bodied cigar. Of course,
when we were launching and promoting the Millennium blend, that was
certainly one of the arguments we had given to the customer, that with that
cigar, we are back to the more aromatic cigars, similar to the time when
the Davidoff cigars were produced in Cuba.
Q: You must have been very happy with the
reception to that cigar.
A: Here we have to say that we thank [Hendrik]
Kelner; we really have a great producer, not to say artist, in blending
cigars, and we may say that we really are the masters of blending. The big
thing is that we are able to create and develop new lines, not really in
the same way as the existing ones.
Q: What other new plans do you have?
A: I cannot reveal all the secrets. We are
working on different items in order to maintain this aspect that the
Oettinger/Davidoff Group is -- or at least tries to be -- ahead of
our competitors. For instance, we now have launched the first vintage cigar
which has ever been made by Davidoff. Why did we wait such a long time?
Because we think and strongly believe that if we, as Davidoff, have a
vintage cigar, it must be something really extraordinary. We were waiting
until we had the chance to have the harvest of the year 2000, this
extraordinary year -- weatherwise, humiditywise -- that allowed us to
create these extraordinary cigars. To blend this cigar was really a special
effort, because if you have the chance to add tobacco from different years,
from different farms, coming from different soils, you may more easily get
to the blend you really would like to have. But being limited and
restricted to the tobaccos coming out of one year, it has made the path
even more difficult for Henke [Kelner] to really get a well-balanced cigar,
as we have now in hand with this Davidoff Vintage cigar.
Q: This sounds like a new corporate strategy
for Davidoff.
A: It compares to traditional businesses like
cosmetics, where this obligation to create new products and new fragrances
every year is huge. If I may give you some proportions, 62 percent of the
annual turnover in the fragrance business is made with fragrances not older
than 18 months. Out of 100 new-launched products, after 18 months, 95 have
completely disappeared from the market. So you see, if you want to realize
a considerable sales turnover, then you are obliged to launch new products.
The rate of flop is unbelievably high. So it's a really demanding and
competitive product category. Not in the same way [for cigars], but surely
compared to what happened 10 or 15 years ago, the cigar business also goes
more and more in pthis direction.
Q: In the 1980s, Davidoff made a dedicated effort
to attack counterfeiters using the company name. Is that battle won?
A: No, no. We are permanently confronted with
people producing falsifications all over the world.
Q: Is that only cigars?
A: Especially cigars. I would say 98 percent
of the cases are cigar-related.
Q: There are counterfeit Davidoffs?
A: Yeah, especially in China.
Q: Do you have an estimate as to how much
falsifications cost the company every year?
A: No. I don't have an estimate
at all. I only know what we are paying the fees for the lawyer, and
it's a lot of money. You end up with almost $600,000 year after year,
protecting the brand name all over the world in all the different product
categories.
Q: Let's discuss the creation of your
newest cigar brand: Zino Platinum. How did the Zino Platinum Crown and
Scepter Series projects come about?
A: You remember that in 1983, when we were
joining Zino together with the Baroness Philippine de Rothschild, the Zino
cigar line had a price point of three, four, five dollars. Everybody was
saying, 'They are crazy, they will never sell one cigar at that
price.' Prices went up, and there is no doubt that we were at that
point the first one trying to enter the market with such an upscale price.
We always try to be a little step in advance of our competitors. For
instance, we are now launching a small Davidoff cigar, Esquisitos, which is
the smallest hand-rolled cigar that exists in the world. And with Zino
Platinum, we had the first discussions with Peter [Arnell] and Arnell Group
three years ago. It takes time, and when we were discussing it at the first
meetings, knowing Peter and Arnell and knowing the Swiss people,
that's like oil and water. These discussions took more than one year
until we founded a 50-50 joint venture. The whole Zino Platinum business is
within this company owned 50 percent by Oettinger Imex and 50 by PASS,
which is owned by Peter Arnell and Steve Stout.
Q: Who approached whom first?
A: They did. They said, 'We believe that
the cigar business needs to be refashioned, rejuvenated and
rethought.' We said, ‘Let's take the risk and let's
do it in order to try to be once more a step in advance of all of our
competitors in the way we were launching and promoting this new cigar
line.' Undoubtedly we can say that was a success. Nobody else had
ever done the launching of a new line in such a way. Not only pricewise,
but in the whole strategy, with a really highly priced predecessor with the
Crown line, followed with the -- let's call it the bread and
butter line, Scepter, accessible to everybody.
Q: You said, 'Let's take the
risk.' What was the risk?
A: We brought into this joint venture the
registered trade name Zino. Whatever happened would have happened to Zino
Platinum. Of course, we could have said 'It's Zino Platinum,
not Zino,' but it's linked to Zino. And with Zino, we still
have a very great name, well known. The second thing, that's obvious
to everybody, is we put a lot of money behind it, in an amount which
normally is not done in advance. If we weren't successful, then the
risk is that a part of this money invested in advance would be lost.
Q: Do you think that your target customer for
Zino Platinum might not smoke cigars right now?
A: Hopefully, we will be able to bring a lot
of new people into the cigar-smoking segment of the population. But, for
sure, we will be able to make it more attractive because it is so
different, that young, hip people would go for such cigar packaging or such
ads.
Q: Is Scepter off to a better start than Crown?
A: Sure. The higher the mountain you are
climbing, the less oxygen you are able to inhale, so the quantities of a
cigar you are selling at $39 must be limited.
Q: What does Zino Platinum do to your other Zino
cigars?
A: For the time being, we are continuing with
the existing Zino line as it is, but we are working on the remaining other
Zino lines to get a more homogeneous picture of the Zino brand. Now
there is a huge discrepancy between the traditional Zino line and the Zino
Platinum line. We have to see how we can arrange to have both lines in
harmony, one beside the other.
Q: Do you have any plans to launch any of the Zino
Platinum cigars outside of the U.S.?
A: Yes, sure. We launched it last fall in Germany and
Switzerland, and especially in Russia and in duty-free. You know that the
duty-free still is for us a very important distribution channel, with
almost 30 percent of our turnover going through duty-free.
Q: The Zino Platinum Crown is expensive, and I
think it may be record-setting in terms of a price for a
regular-production, non-Cuban cigar. Were you at all worried about putting
a price on one of your company's cigars that was higher than the
price of your Davidoff white label cigars?
A: No, because we were absolutely aware that it
will remain a small community who are really able and eager to be ready to
pay such a price for such a cigar. So it actually even doesn't enter
into competition with the white label, and it was really the aim to have
the chance to get the attention of the celebrities, politicians and all
these kinds of people, and if you don't come out with something
really special, extraordinary, you won't get this attention,
especially not for a product like cigars, which is unfortunately not in
everyone's favor. So that was the basic strategy, really putting the
price to a level that everybody really thinks, ‘Oh that's
great, I cannot afford it.' It is the same thing with Mercedes. Once
there were only expensive Mercedes, then they launched the E line, then the
C line, then the A line. And if you are asked, Which car do you drive,
certainly you say, Well, a Mercedes. And as long as you are not
obliged to mention that it's only an A model or a C model, you are
within this Mercedes community. And exactly the same will happen with Zino
Platinum.
Photos by Bob Schatz/Getty Images
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