Non-Cubans Go Global
Cigar companies have long been content to focus their sales efforts on the U.S. market, but today many are expanding their brands abroad
From the Print Edition:
Andy Garcia, March/April 2014
When the phone rings in the middle of the night in a typical household the sound is an alert, a harbinger of dreaded news. But when Brian Shapiro’s phone comes to life in the early hours of the morning, it’s business as usual.
Shapiro lives in Connecticut, on the East Coast of the United States, and his phone rings early when people call from Europe and stops ringing late when people in Asia are finishing up their business. It’s all part of his job as the head of international sales for Oliva Cigar Co., the big producer of such Nicaraguan cigars as Oliva Serie V, Cain and NUb.
“We looked at the world very early on, and said while the U.S. is the world’s biggest market, there’s the entire planet—and we can’t ignore it,” says Shapiro. In 2005, the company had no international sales at all. Today, Oliva products are sold in more than 45 countries, including such far flung regions as Ghana, Sierra Leone, the Ivory Coast, Finland, Aruba and Singapore.
For years, non-Cuban cigars were sold in the United States and Cuban cigars were sold abroad, and the two categories rarely met head-to-head. The U.S. market is the world’s largest for handmade, premium cigars, but many of the bigger brands sold there are locked out of foreign markets because they use brand names that have Cuban duplicates. Just as Cuba can’t sell its Romeo y Julietas or Partagás cigars on U.S. soil, the companies that own those respective U.S. trademarks can’t sell their versions outside of the United States.
On top of the conflict around brand names with Cuban roots, the sheer effort needed to tackle the huge market in their own neighborhood kept most U.S. cigar companies from building sales outside of their familiar domestic borders. The 1990s cigar boom only exacerbated the situation. With cigar shops in the United States clamoring for three or even four times the number of cigars that companies could roll, few expended any energy looking at selling in new international markets.
But things have been changing of late in the cigar world. With U.S. cigar sales growing at a far more manageable pace and increasing numbers of cigar brands, many without Cuban names, the wide, wide world beckons. More and more cigar companies are expanding their sales outside of U.S. borders.
“There’s no question in my mind—everybody is waking up,” says Hans-Kristian Hoejsgaard, the chief executive officer of Oettinger Davidoff AG. The Basel, Switzerland, company owns the Davidoff, Avo, Camacho and other cigar brands, and gets 80 percent of its cigar sales from non-U.S. markets. Davidoff has long been the undisputed leader in terms of selling premium cigars on a global scale. “Davidoffs can be bought in 179 countries around the world,” says Hoejsgaard. (Of course, Davidoff cigars were first made in Cuba, which precluded the company from selling that brand in the U.S. market until 1990, when it shifted production to the Dominican Republic.)
Many of those countries have growth potential that easily outstrips that of other, more mature, Davidoff markets. The Asia/Pacific region, the Middle East, Russia and its surrounding countries are the areas where Hoejsgaard sees the greatest growth potential—and where he has made strategic investments of late. Over the past 12 months, Davidoff made four key international moves, two of them in emerging markets and the others in traditional markets.
In January, Davidoff opened an office in Dubai, its first in the Middle East. Last May, the company opened a subsidiary in Moscow for sales, marketing and promotion. Previously Davidoff did its business in Russia via a small distributor, but increasing sales justified the expansion. “It’s way ahead of our expectations and plans,” says Hoejsgaard of the results so far. The same month it opened in Moscow, Davidoff opened an Austrian subsidiary, a country where the brand enjoys stronger marketshare than any other country in the world. And just this January, Davidoff bought back its business in Spain, eyeing expansion in the world’s largest market for Cuban cigars. Still, these markets are part of a region that Davidoff says has seen better days. “Old Europe is in decline,” says Hoejsgaard.
Davidoff is even seeing some activity in Africa, a region that traditionally has not been on the long-range radar of cigar companies. Davidoff has seen increasing sales in Togo, the Congo and Nigeria, thanks to a partner in Dakar, Senegal. Davidoff’s portfolio is a large one, and outside the United States it competes head-to-head with Cuban cigars. Davidoff white label cigars, which are considerably expensive, are priced relatively equally with the Cohiba brand.
This year, Davidoff is doing a major push of its Camacho brand—which was recently reblended and repackaged—in Europe, starting in Germany. Camachos will sell for six to nine euros each, compared to 12 to 20 for many Cubans, Hoejsgaard says.
Hoejsgaard sees the product line as divided. “Davidoff, Camacho and Zino Platinum have global potential,” he says. The rest—Winston Churchill, Cusano, Avo—he calls “regional.” Davidoff’s global reach has even resulted in products that have gone from abroad to the United States. Davidoff’s Limited Editions for Chinese New Year were originally conceived as exclusives for the Asian market. The first was the Davidoff Year of the Dragon, in 2012. Consumers outside of Asia took interest in it, and 2013’s Year of the Snake had stronger sales outside of Asia than in Asia itself. Hoejsgaard predicts the 2014 Year of the Horse, which recently hit the market, will be strong in all markets.
Spreading your wings internationally has its price, in terms of more days on the road for those seeking to make their brands more global. Hoejsgaard says in 2013 he spent some 100 days outside of his home base of Switzerland.
Clay Roberts, the vice president of A.J. Fernandez, relishes the time he spends on planes. Roberts, who previously worked for the Travel Channel, has flown so far and so often that he has a nearly peerless portfolio of frequent flier miles. He gets on board a flight heading outside the United States just as soon as the big U.S. tradeshow concludes. “The three weeks after IPCPR [America’s largest cigar industry show], no one is buying in the U.S.,” says Roberts, a compact, sharp dressing man with slicked back hair and fashionable eyeglasses. “I go right from the IPCPR to abroad the next day.”
The trips Roberts takes result in small sales that add up. He says the company gets around 10 percent of its cigar sales from outside the United States. A.J. Fernandez has two divisions, one focusing on contract brands made for big distributors, the other on sales of its own cigars, principally the San Lotano brand. The company, which recently had seven small buildings spread across Estelí, Nicaragua, recently consolidated its manufacturing into a larger factory in the Nicaraguan cigarmaking capital. Roberts got the travel bug early. “When I was a kid my wall was a world map. My father would go to my bedroom and say ‘What’s the capital of Mongolia?’ ”
A.J. Fernandez now sells cigars in more than 32 countries, including Kazakhstan, Nigeria and Australia and the U.S. western Pacific territory of Guam. Western Europe is the largest international region for the company, followed by Russia and Australia. Iceland, Kenya, Lebanon and New Zealand are expected to be added in the first quarter of this year, but Mongolia is not yet on the list.
The longheld belief in the cigar industry was that cigar smokers outside of America were most interested in Cuban cigars, or non-Cuban cigars with a heavy body resembling Havana smokes. Litto Gomez, the maker of La Flor Dominicanas, says the changing tastes of cigar lovers outside the United States are shattering those perceptions. “What [international cigar smokers] didn’t like about us is that we didn’t taste like Cuban cigars. Now that’s the good part. It’s one more choice for them to enjoy.
“Two years ago, we had only two countries [outside of the United States] that we were selling to, Germany and Norway. Now it’s more than 40 countries,” says Gomez, who explains that cigar aficionados who live outside the United States have become extremely well informed about what used to be solely a U.S. product. “They’re very much aware of what people are smoking here in the United States.”
Gomez, who bears a passing resemblance to actor Andy Garcia (see cover story), is an opinionated executive who bristles at the term “non-Cuban cigar.” He prefers calling Dominican, Honduran and Nicaraguan smokes “New World Cigars.”
“It’s not the right definition for us. We have incredible cigars in the Dominican, Honduras and Nicaragua—we don’t need to be compared to anybody,” he says.
Like most serious cigarmakers, Gomez would never dream of skipping the annual IPCPR trade show, held each summer in the United States. Today there’s another trade show he attends each year, the Inter-tabac trade fair, held each fall in Dortmund, Germany. He’s hardly alone. Once largely the domain of Cuba’s cigar industry, today Inter-tabac is attended by many non-Cuban cigar producers.
Ashton Distributors Inc. is in Dortmund on an annual basis, as is My Father Cigars and plenty of others. “I’ve been going there for seven years,” says Oliva’s Shapiro. “It’s getting bigger and bigger. We’re finding that more and more [retailers in] countries outside of Germany use it as their shopping place.”
Jorge Padrón of Padrón Cigars Inc. has been going to the show as a visitor since 2011, and took his first booth in Dortmund in 2013. He says the show is a way to reach customers who “traditionally don’t go to IPCPR.” He found 16 new potential customers for 2014. Cigarmakers who are expanding internationally say it can be a long-term affair. Making investments on the ground speeds up the process.
“We decided to take international sales seriously—you need local people on the ground,” says Rocky Patel. His company, Rocky Patel Premium Cigars Inc., gets only five percent of its sales from international markets, but those revenues come from across a vast area. “We’re in 126 countries,” he says. His company is in its early stages of international sales, doing cigar events and dinners in far-flung regions to build the buzz around the brand. He says Asia is of extreme interest. “We’re spending money and making a real effort. We want to bring international sales up to 20 percent.”
Dunhill has a long history in cigars, dating back to 1907 with the opening of the Dunhill shop in London. It’s quite the international brand, sold in 70 countries. The company has noticed that some cigars sell better than others as tastes change across borders. “As an international brand, the challenge for us is to be able to produce cigars which will resonate on a global scale rather than creating cigars for specific countries. We may not use the same sizes for each market. However the blend will remain the same,” says Yves Politi, who heads Dunhill cigars for British American Tobacco International Ltd. He says Dunhill’s mild Aged blend sells well across many markets, while the stronger Signed Range sells well across Asia, East Europe and the Middle East.
Ashton Distributors Inc. has been selling cigars outside the United States for longer than most of its competitors. “I’ve been dealing with Germany since 1988,” says brand owner Robert Levin. He calls that country the best international market for non-Cuban cigars. “We’ve been growing pretty nicely—we’re in about 40 countries. Ashton is worldwide.” While international sales have been part of his business strategy for 25 years, Levin says the U.S. market is still the main focus of his business by far. “Some of these [entire] European countries, what they do per year is what a good retailer in the states does.”
While Ashton can be sold without restriction outside the United States, some of Levin’s other brands have ties to Cuba, so he has had to makes some concessions. His La Aroma de Cuba brand goes by the name La Aroma del Caribe outside the United States. San Cristobal is called Paradiso—even though Levin named the brand before Habanos did. “I had it first,” he says, “but I didn’t register it internationally.”
Altadis U.S.A. Inc. can’t sell its Dominican Montecristos and Romeos in Europe, but it does considerably well there with the VegaFina brand. The company gets 80 percent of VegaFina sales from outside the United States, and claims the cigar is among the top three sellers in Spain.
The Spanish market was so alluring to Quesada Cigars that the company took the unusual step of creating a cigar strictly for that market in 2011 with the launch of Quesada Selección España. The brand debuted with three thinner, more European sizes, and was blended specifically for the Spanish market. “The Spanish prefer a lighter wrapper and a Cuban-style taste,” said Raquel Quesada at the time of the launch. Interest in the cigar led to the Quesadas selling some in America.
Oliva Cigars still gets about five percent of sales from outside the United States, but it sees international sales as a vital part of the future—one worth an investment. The international business was built from scratch over a period of eight years, led by Shapiro, who had relatives in Holland and began traveling there in earnest in the 1980s. On his trips he spent a lot of time in a cigar shop in The Hague, and he eventually met Sasja van Horssen, the owner of van Horssen BV, a cigar and tobacco company that dates back to 1949.
“His family goes back more than a generation in the tobacco business in Holland,” says Shapiro. “He owns his own company that sells a tremendous amount of machine-made cigars—it’s a large company. He also owns three premium cigar shops in Holland. He covers all the bases.”
Soon, van Horssen told Shapiro he was interested in importing Oliva’s premium cigars to the Netherlands. At the time, the company had zero international sales. The company began selling in Europe via van Horssen and Shapiro in 2005, and Oliva’s international division was created.
“In Europe, you can cross a border that’s 10 miles away, and the tastes are completely different. It’s crazy, and you have to keep track of all that stuff,” says Shapiro. He thought the Oliva Serie V No. 4, a cigar roughly the size of a diminutive Montecristo No. 4, would be a top seller, but instead an ultra-fat smoke has been his star student. “The cigar I have most trouble keeping in stock in Europe is the Oliva Serie V Double Toros,” he says. “The demand is through the roof.”
The original international business was small, slow and somewhat inefficient. “Previously we shipped direct from the factory [in Nicaragua], in bond through Miami. Individual orders were staged in Nicaragua, which was very inefficient. It would take a very long time, about two weeks. And not only that, the cost of transport was huge. In some cases the bill for transport could be 8 to 10 percent or more the cost of the invoice,” says Shapiro. The big change came four years ago, when Oliva took over a portion of van Horssen’s bonded warehouse, creating its own spot in Europe. The move not only sped up its international shipments and made them more cost effective, but it showed European customers the commitment Oliva was giving to selling abroad.
“We were really taken seriously when people said, ‘You’re actually on the continent.’ That makes a big difference,” says Shapiro. “We ship containers full of cigars over to Holland, to our bonded warehouse. About three years ago we decided to install computer systems there…Now Oliva pays the freight from the factory to our bonded warehouse. Now all [customers] have to do is pay the freight from Holland to wherever, which usually averages about two percent.”
Oliva has also created seven branded cigar lounges in Europe—three in Germany, two in Holland, one in Portugal and another in Switzerland—to advance its image among European cigar aficionados. Another is scheduled to open later in the year. Local laws have changed, prohibiting the advertising of cigar brands in some cases, so some of those lounges bear the name of its StudioTobac arm.
In the early days “the average guy didn’t know Oliva. You are starting, in a lot of cases, from scratch. We had to establish an image and a name,” says Shapiro. “We are now truly an international company—and it has really paid off.” More than 170 shops in Germany today carry Oliva cigars, more than any other country outside the United States.
International markets allow for different levels of competition than in the United States. Some of the biggest U.S. cigar companies, namely Altadis U.S.A. and General Cigar Co., can’t sell the lion’s share of their products abroad due to conflicts with Cuban brands. The Dominican Romeo y Julieta, H. Upmann and Partagas, and the Honduran Punch, for example, can’t be sold outside of the United States. Without some of those big brands competing, sometimes smaller brands can find an unexpected foothold.
Daniel Marshall has been crafting fine humidors since 1982. He also has a small cigar business, selling smokes that bear his name, and his European cigar sales slightly outstrip U.S. sales. London, Austria and Germany have been good to him so far, and he is opening up sales in Spain. “I love the idea of breaking into a new territory,” says the tanned, slim Californian. “In Germany, my last name goes far,” he says, referring to the Marshall Plan, named for former General and U.S. Secretary of State George Marshall, who laid out a strategy to rebuild Germany and Europe in the days following the Second World War. Marshall sees an increasing number of non-Cuban cigars in the humidors he has visited abroad. “I went into this cigar shop in Spain, and half the humidor was Nicaraguan,” he says. But he realizes global sales take time. “It’s very slow to build relationships over there,” he says.
Most cigar companies agree that expanding abroad is a long process, and that these are early days. But they also agree that it’s worth the investment. Even mighty Davidoff has eyes on further expansion. With 179 countries represented, and some 229 countries on the United Nations roster, “we still have 50 to get to,” says Hoejsgaard.
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