A Brief History of the Cigar Industry
War, revolution and regulation have failed to snuff out the continuing story of the cigar.
From the Print Edition:
Cigar Aficionado's 20th Anniversary, September/October 2012
(continued from page 1)
When the big-name brands caught up with demand, many of the cigars without pedigree no longer interested cigar lovers. By 1998, the discount retailers were buying up unwanted cigars from new manufacturers who suddenly found themselves without customers. Mark Goldman of House of Oxford Distributors set up a table in the Gran Almirante Hotel in Santiago in 1998 and bought cigars that had once retailed for $200 a box for as little as $7. “Basically, we’ve been buying cigars for less than it costs to make them,” he said at the time.
Imports dipped as the market struggled to absorb all the cigars that had been made in the dizzying, final days of the cigar boom, falling to 248.3 million cigars in 1999. At the same time, the Wall Street love affair with cigars came to an end. (The cigar industry is a long-term business, in which tobacco bought today might not be sold for two or more years—a poor match for the stock market, which seeks gains in every quarter.) Swisher bought back its stock in 1999, JR Cigar went private the following year and Holt’s followed suit in 2001.
Europe’s Tabacalera S.A. had bought heavily in the U.S. cigar industry, investing at the very peak of the market. The company spent more than $350 million on three deals, including an eye-popping $27 million on two Central American factories owned by Nestor Plasencia. When the market began to cool, the European influence grew. In 1999, France’s SEITA S.A. acquired Consolidated Cigar for $730 million. SEITA merged later that year with Tabacalera in a $3.3 billion deal that created Altadis, which then bought half of Cuba’s Habanos S.A., and was itself acquired by Imperial Tobacco PLC.
Altadis rival Swedish Match AB, which bought the La Gloria Cubana brand in 1997, acquired General Cigar in a two-part deal beginning in 1999.
With the cigar market undergoing radical change, the industry was remade. In 2000, General Cigar closed its Jamaica factory, ending some 30 years of history and putting an end to Jamaica’s era as a cigar-industry power (it had ranked third among major shippers in the early 1990s). Cigar shipments from Mexico, also once vibrant, have shrunk yearly, from 11 million in 1998 to fewer than 1 million last year. Nicaragua is the new star of the cigar world, with shipments growing continuously since 2003. The nation’s cigars, once embargoed in the U.S. market, have soared from 33 million in 2003 to 102 million last year, vaulting to second place among premium cigar producers. The shift is a sign of the changing tastes of
connoisseurs, who are flocking to the fuller flavors of Nicaraguan tobacco.
Cigar imports have since recovered from the post-boom years. In 2001, they began to climb again—albeit at a far slower rate— and between that year and 2011 imports have increased by an average of six percent annually, with more than 278 million cigars imported last year—approaching three times the size of the cigar market in 1992, on a unit basis.
Today, the myriad companies that make, market, distribute and retail cigars worry not about who will buy their cigars, but if the government will cripple the industry with over regulation and taxes. The possibility that the Food and Drug Administration will slap restrictions on the industry, increasingly higher taxes and fewer and fewer cigar-friendly venues are the worries of the moment, and some fear that the government could ruin the cigar business.
But the legacy of the cigar boom can be seen in the heir apparents to some of the world’s most famous cigar brands.
Children of cigarmakers, who had nearly forsaken their birthrights in the industry, were once again emboldened to join their parents. Today the cigar business is rich with father/son, father/daughter, brother/brother and brother/sister teams, including the Fuentes, Padróns, Quesadas, Eiroas, Garcias, Patels, Levins, Kelners, Newmans, Plasencias, Turrents, two Oliva families (one growing leaf, one making cigars) and many more. Charlie Toraño abandoned his law practice and joined his father in 1996, and today is president of the company, becoming the fourth generation in his family in the tobacco business.
Today Quesada proudly sits at the helm of MATASA, albeit in a new, far larger and more modern cigar factory, with his two daughters, Raquel and Patricia, taking an increasingly active role in the company, along with a number of nephews, nieces and cousins. They make blends using leaves that weren’t grown in the 1980s, package the cigars in vibrant boxes with modern logos and use their Blackberries to tweet about the products to cigar lovers around the world.
Twenty years ago, cigarmakers toiled in obscurity in a business that few felt had any future. “Nobody knew who was behind the products,” says retailer Gary Pesh. Today, cigarmakers are stars, similar to celebrity chefs. And while cigar sales today aren’t nearly as vibrant as they were during the peak of the boom, the cigar market is far larger today than it was before the boom. Premium cigar imports in 2011 (the last full year available) were 278.5 million cigars, well more than two-and-a-half times their level in 1991, when only 103.6 million cigars were imported.
While the market for cigars is far larger on a unit scale, the impact of the past 20 years is far more pronounced when you look at the overall value of the market. The average price for a premium cigar in 1990 was $1.75, according to Cigar Insider estimates, giving the U.S. premium cigar industry a market value of $186 million. The average price of a cigar rose to $3.23 by 1996, giving the market a value of close to $1 billion.
Today, cigar prices have pushed even higher. While there are bargains to be found, most lie in the $5 to $7 range. Many cigars sell for around $10, and special cigars push the upper limits of premium cigar pricing to $25, $30 and more per cigar.
The average retail price of a premium cigar rated by either Cigar Aficionado or Cigar Insider in 2012 is $9.51. At that average price, the U.S. premium cigar market would have a value of $2.6 billion—14 times the value of the annual market in 1990.
The cigar world has been completely, unforgettably transformed. Cigarmakers work alongside their sons and daughters, and no one who makes a cigar in 2012 worries that consumers down the road will lose interest in their product.
“Thank God for the cigar boom,” says Carlos Fuente Jr., one of the icons of the cigar business. “For the first time in history, tobacco farmers, tobacco dealers, people who own smoke shops were all able to make a decent living.”
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Doc Diaz — December 4, 2012 1:51am ET
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