A Conversation With Javier Estades
General Manager/Premium Cigars U.S.A., Altadis U.S.A.
From the Print Edition:
Jeff Bridges, July/August 2013
(continued from page 4)
But you won’t hear him using the word “I” very often; his comments and observations revolve around the team at Altadis U.S.A. Inc. His responses to questions are laced with today’s common buzzwords in the corporate world—empowerment, innovation—and he is quick to attribute all the changes to the team that he helped install and has been working with since he took the top job.
For an executive steeped in the consumer goods market in Spain, the move to America in 2011 was a bit daunting. He stepped into a job with one of the behemoths in the U.S. cigar market, and with some of the most revered and well-known brands in the United States: Montecristo, Romeo y Julieta and H. Upmann. While the country was beginning to show some signs of coming out of the recession, the economy was still not in great shape, and the assault on tobacco was never greater. And, there was a concern that the consumer was moving away from the kinds of cigars the company had always made.
With Tabacalera de Garcia Ltd., the company’s manufacturing facility in La Romana, Dominican Republic, and the La Flor de Copan factory in Honduras churning out 40 million to 50 million cigars a year, the main goal was to keep those factories humming and keeping demand high for the company’s cigars. Estades not only accepted the challenge, but now seems comfortable in his role, and excited about the direction Altadis U.S.A. is headed.
Estades sat down recently with Gordon Mott, the executive editor of Cigar Aficionado, in Altadis U.S.A.’s headquarters in Fort Lauderdale, Florida.
Mott: You run one of the biggest premium cigar companies in America, but very few people know you and where you came from. Can you tell us about your background?
Estades: I have had the privilege of working in this industry for the last 10 years. Before that, my background was in fast-moving consumer goods companies. I started as marketing manager at Altadis in Spain in what we call the popular [priced] brands, or machine-made cigars. I got several promotions and I became responsible for the commercial operations of all mass-market and premium cigars in Spain. After Imperial Tobacco acquired Altadis, and before coming to the U.S., I was responsible for the premium cigar operations in Spain as well as some responsibilities for the Cuban machine-made brands internationally. For the last two and a half years, I have been responsible for the premium cigars in the U.S.
Q: When you were offered the job here in America, what was your first reaction?
A: I thought it was a great opportunity. The U.S. market is the largest premium cigar market in the world. I would also say it’s the most competitive one. Having the opportunity to come here, and to work with the team, it was professionally a real opportunity for me. So I was very happy for the opportunity.
Q: For many foreign executives, their understanding of the size and scope of this market hasn’t always matched the reality of just how big and complicated a market it is. Have there been any surprises for you?
A: I’ve learned that the consumer in the U.S. is a bit different than we have in Europe. The consumer here is very knowledgeable. I mean they’ve got quite a lot of experience in terms of the premium cigars. And they’re also very demanding. They want two basic things: outstanding cigars and a very competitive price. And that is key. That’s something that’s very different here from European markets like Spain.
Q: Has that realization of the U.S. market influenced your strategy choices?
A: One of the first things that I did when I got this position was to understand the consumer. We have invested quite a lot over the past two years in doing consumer research because we really wanted to understand what were the drivers, to engage the consumer. We discovered that the three most important things are quality and taste profile, a good draw and price. That information really has been valuable, not only to me, but I would say for the team as well. We are using that information to try to identify opportunities in the market, always having the consumer in our mind.
Q: Altadis U.S.A. has made some obvious changes in its brands, some of which had to start before you had that information in hand. But you’ve hit some home runs already, and you must have begun to change the process immediately. What was the first step?
A: The first step was to revisit our brands. We have 68 brands including line extensions in our portfolio, and it is just too difficult to invest in everything. We knew that Romeo y Julieta and Montecristo, which are two of the most recognizable brands in America, would be a key to our success. It was clear that we needed to come up with a winning strategy and in order to do that we needed to prioritize, to make calls, to make choices. Because of our assets we have an extensive portfolio, but we needed to identify those brands that in our opinion have the highest potential. So that is one of the things we did.
The second thing we did, and that is very clear in my mind, is that we needed to bring outstanding cigars into the market. So we had to come up with a new process, of identifying those new opportunities and identifying those new cigars. Now, all our experts get together regularly. We now work directly with the blenders, with the leaf purchasers, with the packaging guys, with the real experts at each level to leverage all that new information in the company.
Q: Do you really bring them together in the same room?
A: Absolutely. Absolutely. It’s new in the way we approach it. I mean the knowledge was in the company, but we have improved our ability to use that knowledge, and to transform that knowledge into concepts and into cigars. That has been a real step forward. And we’ve had some good successes, like with Romeo, where we are applying that process.
Q: Walk us through that Romeo process. The creation of Romeo by Romeo y Julieta [Cigar Aficionado’s No. 3 cigar of 2012] is one of the most obvious changes in a brand from top to bottom, from the packaging to the cigar itself.
A: First of all, Romeo is a very important brand, in fact the most important brand that we have in our portfolio.
Q: Is it the largest selling brand?
A: It is the largest selling brand in our portfolio. One of the things that was clear was that we needed to focus on those brands with high recognition. Romeo y Julieta is one of the brands in the United States with the highest recognition or awareness that we have. What we wanted and what we identified in Romeo, was that we wanted something new. We needed something more modern, more in line with the latest trends in the market. Our portfolio was missing a fuller bodied, more complex flavored cigar within the brand. We said let’s work on a concept to see what cigars we can develop that fit that opportunity.
The team worked together. They come up with outstanding cigars. It’s very nice. It was complex, it was very different from the cigars that we had in the Romeo y Julieta brand, but also the packaging was very distinctive. It was more creative. We took some risks. But I think that it paid off and that we came up with something that people really appreciated and are enjoying.
A: Once we have determined what it is we want, the team comes up with different alternatives, and then it’s up to the team to try the different products and to approve those that are better. That team includes the leaf guys, the blenders in the factory, the marketing department and the packaging people.
The beauty about this project is the consistency, in the sense that everything works in the same direction. But in order for that to happen and to be successful you have to have guidance about what it is you want to get. But for sure it was a very lengthy process. But we follow the right kind of steps until we have what is a winning proposition.
Q: The changes actually seem to have happened relatively quickly. Am I wrong?
A: The team was extremely engaged even though it was complex. But we made all the decisions in a very organized but effective manner.
Q: How long did it take?
A: It was about a year. The team worked together. Of course I signed off on everything, but there was a team consensus. We needed something different. And this is what we were trying to do—bring new things to the market that are relevant for the adult consumers and for our customers. We have the brands, so what we need is to bring value to those brands through initiatives that bring innovation and new concepts, and then leverage this fantastic portfolio that we have.
Q: What about Montecristo? When you took over, the brand had numerous line extensions—Montecristo Platinum, White—have you abandoned those?
A: Montecristo is a brand that we are trying to elevate. It’s a brand that if you see the history and the heritage, it needs to play in the higher end of the market. But in order to do that, we need to come up with some initiatives that allow the brand to be credible in that market segment. This is why we have focused on the Epic. And in the future you will see more quality premium initiatives.
Q: You are moving toward a fuller-bodied profile for Montecristo as well, aren’t you?
A: Yes. If you want to be credible, you have to come up with something that is relevant for the consumers. You need to make also cigars that are in line with the trends. So we are trying to develop really good cigars for those brands.
Q: We have noted that you have adopted a more modern look to Montecristo packaging as well, without losing any of the tradition.
A: It is a combination of elements. By doing the packaging if you don’t have good cigars at a reasonable price, you know it’s not going to work. The consistency and the combination of all of the elements is what allows you to be successful in this market.
Q: Let’s talk about H. Upmann. You’ve just come out with Legacy. Is that another element in the modernization of your brands?
A: H. Upmann is another great brand that we have. We are trying to innovate with the H. Upmann Legacy, which is our newest initiative. That cigar has been produced in our factory in Honduras. The price point is very competitive. It’s basically in what we call the sweet spot. It’s between $6 and $8.
We are very excited about this new launch because we really think that it’s a very good cigar at an incredibly competitive price. So as you can see we are touching on initiatives in those brands that we think have got the highest potential in terms of growth. Now our job is to find the right initiatives so that the consumers think that they are relevant for the market.
Q: You said that one of the first things you did was prioritize with your three big brands: Romeo, Montecristo, H. Upmann. Are those the three you wanted to focus on initially?
A: We do have some other brands that are important, like for instance VegaFina. It’s an international brand that is non-Cuban. We restaged that brand two years ago. And we are very happy with that brand because in that time we have almost doubled the sales here in the United States.
Q: Doesn’t it sell well in Spain too?
A: As a matter of fact, it is among the top three best sellers in Spain. It’s also got a presence in France, Germany and some other countries. It is a fantastic brand for those who are new in the premium market. It’s a mild cigar at an affordable price. We have some new plans for VegaFina too, such as the Sumum, which is a limited edition of VegaFina. Or even VegaFina Fortaleza 2, which is the latest thing. It is a cigar that is a little bit fuller bodied versus the standard brand. But we are happy about the performance here in the U.S.
Q: What percentage of VegaFina is sold outside the United States?
A: We don’t release total sales volume, but I can tell you that about 80 percent of VegaFina production is sold outside the United States.
Q: This may be difficult to discuss given that your parent company is involved in Cuban cigar production. How much do they get involved in this kind of project? They do own the brands worldwide, so how those key brands are presented here has some impact globally.
A: Even though we are part of Imperial Tobacco [Group PLC] and part of the premium division, we run very separate operations. We have no contact and this business is run totally independent with a focus on the U.S. market. That’s how we operate. I don’t have any contact or involvement with them.
Q: But they are global brands. Do you have to be sensitive to that reality as you move forward?
A: If you see what we are doing in the U.S., the approach that we are following is quite specific for that country. What we are doing in the end is getting a sense of understanding about the brands in the United States. Basically, we are developing cigars that are very specific for this market.
Let me give you an example. We have, for instance, the regional editions in Montecristo. This is something that we have developed for some consumers in some specific areas in the U.S. Those are cigars that we feel are best for those people, and are pretty much U.S. concepts. We have the New York regional edition, we have Texas, we have Las Vegas, and we have Chicago, which is the latest one. They are all unique blends, not the same cigar in a different box. And, the packaging is built on concepts that are unique for the states. By the way, you can only buy them in those states or areas.
Q: On your website, there is a long list of brands that you produce. What are the plans for the other brands in your portfolio?
A: We have some other brands that we are trying to revitalize: Gispert, Saint Luis Rey, Te-Amo. In the case of Te-Amo we launched Revolution, which is very innovative. Gispert and Saint Luis Rey are great brands. We are upgrading the packaging on Saint Luis Rey. It’s more modern, more up to date. It’s a great cigar at a very competitive price.
But in the end, we are reviewing our strategies. What we want to have is the right brand for each of the price segments in the U.S. market. And I think that we have such a good portfolio that we can offer a different product to each consumer. And be competitive in that segment. We are trying to position those other brands to accomplish that goal.
Q: Is it the same process for all these brands? You look at the blend, decide to change the blend or not, then you look at the packaging, update or modernize it? Are you doing that for all these cigars?
A: The process and the steps are the same. But what’s important is if we put a cigar in the U.S. market, it needs to have a story. We need to have a reason for why we are doing that.
With some initiatives, the cycle is shorter. Sometimes we don’t change the blends because we are happy with what we’ve got. In those cases, the only thing we are focusing on is in modernizing the packaging. But again, everything needs to be done thinking about the adult consumer, making sure that we help our retail customer with products they can sell, and we can help them to maximize their return. And there is a rationale for that.
Q: Are you going to change the blend in all of the brands?
A: No, absolutely not. We have fantastic cigars, and we want to keep the base that has been so successful in the business. Look at Saint Luis Rey. It’s the same great Saint Luis Rey we’ve always had. People love it. But we have updated the packaging. Here let me show you. This is brand new, a line extension for Saint Luis Rey. We call it Generation 2. So, we are trying out new things to do to help the brand.
This is a fuller-bodied Saint Luis Rey. The traditional Saint Luis Rey was medium-bodied, so this newer Saint Luis Rey is fuller bodied, a completely different blend, but with the same brand identity to play off those same sweet spots. This is the kind of initiatives we are doing with these other brands too. If you want to be successful, you have to leverage the brands that we have in our portfolio and make sense of it.
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Marne Jurgemeyer — Fort Morgan, CO, USA, — August 22, 2013 10:15pm ET
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