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Welcome to the 21st Century

Posted: April 14, 2000

Posted April 14, 2000, 5 p.m. e.s.t.

It looks as if it is going to be a brave new world in Cuba -- at least for cigars. Just about anyone interested in premium smokes has wondered what the gigantic multinational tobacco conglomerate Altadis plans to do with the Cuban cigar industry after investing $500 million in it. At first, I thought Altadis wouldn't change much. Now, I think big changes might be in the works.

I think that the Altadis investment will mean better quality Cuban cigars to smoke. I have high hopes for better availability and prices for everyone.

I am saying this because Altadis has already implemented changes. According to sources with Cuban cigar connections, Altadis recently initiated personnel changes in Havana at the offices of the Cuban cigar marketer and distributor, Habanos S.A.

"I have never seen some people work so hard in the offices," said one source, who added that dozens of jobs may be eliminated. "Employees know that if they don't work hard now then they may no longer be working for Habanos."

In addition, Habanos now has joint presidents -- Cuban native Oscar Basulto, a former vice minister of agriculture, and Jaime Garcia Andrade, a Spaniard. Andrade worked at the Spanish cigar giant Tabacalera for years and has spent nearly a decade in Cuba as Tabacalera's tobacco man. He's young, bright and knowledgeable. Moreover, he knows how the system works in Cuba and how to get things done.

Critics say that having two presidents of Habanos is useless, but they don't understand the importance of the change and investment. How many foreigners in Cuba have a major position in the tobacco industry on the island? Very few, if any at all.

Altadis is bringing the Cubans into the 21st century. The days of legendary inefficient business practices in the Cuban cigar industry are going to come to an end, or at least be greatly reduced. The object is to make the Cuban cigar business more profitable as well as more quality conscious.

An important factor will be how Altadis can streamline the cigar production and distribution process. Until now, it has been too segmented with the Ministry of Agriculture establishing tobacco harvest goals, UNETA (The National Union of Tobacco Factories) setting cigar production levels and quality standards, and Habanos deciding where the products should be sold. Little to no communication has existed between the three organizations. Or, said in a more negative way: One arm didn't know, or care, what the other arm was doing. What else could explain the oversupply of small cigars such as Montecristo No. 4s when the market is looking for large-sized smokes such as Montecristo No. 2s, Cohiba Robustos or Hoyo de Monterrey Double Coronas?

Altadis may find it easier to control the global distribution of Cuban cigars than Habanos. Through SEITA and Tabacalera, Altadis controls the distribution of Cuban cigars in the two major export markets for Habanos -- France and Spain. Nonetheless, the market still appears to be a free-for-all at times. Agents and merchants continue to complain of counterfeits and parallel imports (cigars being sold by unofficial suppliers, such as cigars that are shipped from the Middle East to Europe) while consumers seldom get the Cuban cigars they want.

And what about marketing? Altadis is certainly going to improve this part of the business. Other than taking out some hopeless generic advertisements and giving away or selling T-shirts, hats and other paraphernalia, the Cubans have done virtually nothing to market their brands. Granted, since Cuban cigars were historically in short supply, all the Cubans really had to do, until recently, was take orders. They didn't need to market. However, that's not the case anymore. The cigar boom is over and solid marketing is going to be essential in the future, even for Cuban cigars.

When I was in Havana for the annual cigar festival a few months ago, I heard a cigar merchant say that the key reason Altadis paid such a high price for Habanos was in preparation for the lifting of the U.S. trade embargo against Cuba. "Think of all the money they can make when this happens," the merchant said. "And they will control nearly all the key cigar brands in America and the world."

I just smiled and thought to myself: "Don't kid yourself. Altadis has to worry about its investment today. That's why we are already seeing some changes." And more will come, sooner than later.

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