Ron Perelman, one of the wealthiest men in America, sits down for his first ever Q&A.
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Perelman: Mass market.
Shanken: Right. And you have a number of different brands . Has there been a reexamination of investment for advertising or for marketing? So far, you've concentrated on only a few of your brands. Are there any plans at this point to become more aggressive given the strong U.S. market for cigars?
Perelman: I don't think so. I think we've got brands that have been established for many years, particularly the old Cuba brands. On the mass-market and premium-mass level, we are coming out with some new products; but on the premium level, we're just going to be consistent supporters of our existing brands, and unless an acquisition of an existing brand comes along, we're just going to support our existing brands.
Shanken: What are the sales of Consolidated?
Perelman: Around $130 million. In 1994, premium cigar units [from the Dominican Republic, Honduras and Mexico] sold were 40 million and mass-market cigar units were 900 million.
Shanken: Do you recall what it was 10 years ago when you originally bought it?
Perelman: It was around, I would guess, $85 million to $100 million, something like that.
Shanken: And now it's $130 million. Is the level of profitability greater?
Perelman: Much greater.
Shanken: Consolidated owns a number of prestigious Cuban brand names--like H. Upmann, Montecristo and Por Larrañaga. How do you plan to take advantage of these trademarks when the trade embargo with Cuba is lifted?
Perelman: I think when that happens--and it's probably more likely than ever to happen in the next five years--we'll have to see what opportunities exist for us to take advantage with regard to Cuba.
Shanken: Well, do you plan to establish operations in Cuba when the embargo's lifted?
Perelman: I think we'll wait and see what the world looks like then. You know, clearly, when Cuba opens up, there's going to be a market for Cuban cigars, and we are going to want to be a player in that market. If you look at the pricing of a Cuban cigar currently sold in Europe and the Far East, it's a $15-plus cigar. The likelihood of it replacing the current $5 to $6 premium product in the United States is not great. But there will be a segment that will pay the price to buy a Cuban cigar. But those cigars will have to be blended in and layered on top of the existing pricing structure and the existing products available. We'll have to see what the opportunities are then. It won't happen overnight.
Shanken: Isn't it every cigar lover's fantasy--like a wine lover's to have a château and a vineyard in Bordeaux--to have a factory, a business in Cuba?
Perelman: If you're asking me whether I'd ultimately like to be there, absolutely. But we'll have to see what the opportunities are at the time.
Shanken: But it almost doesn't even have to be a sound business judgment.
Perelman: Yes, it does.
Shanken: On Route 29 in Napa Valley there are over 200 wineries of which probably 50 wineries were uneconomic from day one. All the wineries were built in the last 15 years without any regard to investment or business reality. Rich people came in, they wanted to have a winery, they wanted to build a château. They'll never make a profit. The standing wine-industry joke is: Do you know how to make a small fortune in wine? Start with a large one.
Perelman: We've been very disciplined in staying away from nonfinancial, ego-gratification-type businesses.
Shanken: Just this one time, Ron?
Perelman: OK. If the right opportunity comes along, it might be interesting. And we'll look at it anyway.
Shanken: What kind of cigars do you smoke?
Perelman: They [Consolidated Cigar] actually do an H. Upmann for me at about a 38 ring gauge, a long, narrow cigar that I love.
Shanken: Is that the only cigar you smoke?
Perelman: I'm smoking one of yours now, which is great. I'm going to come back here once a week and smoke cigars.
Shanken: When you sold Consolidated did you continue to smoke H. Upmann?
Perelman: No. I wasn't getting the product then. I was smoking Davidoff, a little bit of Cohiba. But our cigars coming out of the Dominican now are very close to--if not as good as--the Cuban product that I was getting.
Shanken: Have you ever visited Cuba?
Perelman: No. I've been scheduled to visit and unfortunately had business conflicts, but I am very anxious to go down. Absolutely.
Shanken: Do you recall how you first got interested in cigars? Did your father smoke cigars? Did your grandfather?
Perelman: I remember specifically. I was about 26 years old, and I was at a meeting with about 12 people, and the meeting was dragging and dragging and dragging. Across the table from me was one of our lawyers, who pulled out a cigar, and I'd never thought about smoking, but it looked like he was enjoying it to such a great extent that I wanted to try one. So I had one that day, and from that day on, I have smoked cigars.
Shanken: Had you smoked cigarettes before then?
Shanken: Who was the lawyer? He deserves recognition.
Perelman: Laddie Montague.
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