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 3)
In November 1996, Cuba launched the Cuaba brand, the first new brand from the island in nearly 30 years. That was soon followed by such creations as Vegas Robaina, Trinidad and San Cristobal de la Habana. Cuba opened new cigar factories and vastly increased plantings of tobacco. Alas, the mandate to pump out cigars at such a rate resulted in a rash of inferior product.
Wall Street soon took an interest in cigars, and six cigar companies went public in 1996. Newcomer Caribbean Cigar Co. became the first stand-alone public cigar company with its August 1, 1996 initial public offering. Sixteen days later, high-profile financier Ronald Perelman took his Consolidated Cigar Holdings public for $23 a share. Machine-made giant Swisher International Group Inc., the cigar retailers JR and Holts, and even a one-year-old company named Tamboril soon followed suit.
By 1995, more than 25 million cigars were on back order, and in 1996, that number was more than 50 million. Cigar brands such as Arturo Fuente and La Gloria Cubana became impossible to find. For six weeks of the summer of 1996, General Cigar didn’t ship a single Macanudo cigar, the best-selling premium cigar in the United States at the time. “We were using tobacco so rapidly we got caught. We didn’t have enough in the aging blend,” said then-company president Austin T. McNamara.
The influx of boom-time smokes often meant substandard product. The April 1997 Cigar Insider had ratings for 50 cigars and, for the first time since publication began in January 1996, not one scored 90 points or more. Low ratings abounded, with a trio of 83s and one of the most expensive cigars in the issue—a $6.25 effort from a Canary Islands brand called Goya—scored 82 points.
Newcomers arrived in droves, cash in tow, in Honduras, Nicaragua and especially the Dominican Republic, hoping to make a quick profit on the boom. New factories appeared across the Dominican Republic, hiring away talented cigarmakers. Some factories ran double shifts to keep up with demand, and it became a battle to find tobacco, cellophane, cedar boxes—everything used to make a premium cigar. Tobacco companies planted seeds in such unlikely places as Peru, Colombia, Panama, even Canada, and cigar factories opened in Indonesia, Ecuador and elsewhere. The once enemic industry tradeshow expanded from a few dozen booths to hundreds, and some enterprising attendees went so far as to sell their badges to those hoping to get inside. There were more than a few quirky market launches, among them cigar vending machines (created by two separate companies in 1997) and a line of cigars aimed at female cigar lovers called Cleopatra, which never quite got out of the planning stages.
Cigar sales had grown at an untenable pace. It was 1997 when the cigar industry started to catch up to the demand for cigars. The established companies began filling all the back orders for traditional cigar brands, a number that turned out to be inflated as cigar retailers had over-ordered through the boom, asking for 10 boxes, say, in hopes of receiving five. As the old-time brand names filled up the distribution chain, most of the newcomers found themselves in a pinch.
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.
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Doc Diaz — December 4, 2012 1:51am ET
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