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Pedro Perez—Former President, Tabacalera

A talk with the man behind Tabacalera, Spain's $7 billion tobacco company.

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Involved with the Cuban tobacco trade for almost four centuries, Tabacalera is the largest buyer and distributor of Cuban cigars in the world, purchasing nearly 50 percent of Cuba's annual export of handmade cigars. The firm is also the largest purchaser of Cuban bulk tobacco, which goes into machine-made cigars and cigarettes manufactured in Spain and the Canary Islands. In total, the company produces nearly 450 million handmade and machine-made cigars.
Pedro Perez, 45, has been the president of Tabacalera since September 1993. He was instrumental in initiating negotiations with General Cigar, a division of the U.S.-based Culbro Corp., for a 51 percent stake in the company at a price of about $100 million. [Three days after this interview, the deal fell through.] Prior to his position with Tabacalera, Perez served in the Spanish government as the secretary of state for the economy; undersecretary for planning and economy, and commerce; and as executive director for the International Monetary Fund. Marvin R. Shanken, editor and publisher of Cigar Aficionado, interviewed Perez in Havana in late September.
CA: Can you give us a brief description of Tabacalera--how big it is and what industries it operates?
Perez: Tabacalera is a holding company with two major parts, the tobacco business and the nontobacco business. Within the tobacco business, we have a Tabacalera group that covers both cigarette and cigar production. As Tabacalera, we produce two and a half billion packs of cigarettes a year and roughly 350 million cigars.
In addition to Tabacalera, we have subsidiaries, normally 50/50 partnerships. For instance, we have subsidiaries with BAT [British-American Tobacco], Reynolds, and private investors in the Canary Islands. With the subsidiaries we produce a total of roughly 4 billion packs per year. That's roughly 80 billion cigarettes, since the industry standard is 20 per pack.
CA: What are the major brands of cigarettes?
Perez: Our major brand is Ducados. This is the second largest brand in Europe. We produce 1.2 to 1.3 billion packs. The second of our brands is Fortuna. We produce roughly 1 billion packs of Fortuna. These are the two leading brands. In total, we cover almost 95 percent of the cigarette demand in Spain. We are exporting to France. We are manufacturing in Poland and we are exporting also to Russia and some other former republics of the Soviet Union. We also export some small quantities to other European countries. One of our projects at present is to expand our presence in the European market.
CA: Which other areas of the tobacco business are you in?
Perez: We are presently in all phases of the tobacco business, including tobacco leaf and tobacco processing through our two subsidiaries, CETARSA and INTABEX Holding Worldwide. For cigars, we make mechanized cigars through Tabacalera and both mechanized and handmade Canary Island cigars through CITA. The brands include Condal, La Fama, Goya, Peñamil and others.
In the nontobacco sector, we have a company in the dairy business, the leading company in Spain, La Lactaria Espanola. We have a stake in an oil company, Koipe, which is the first olive oil company in the world, [and] a stake in sugar, Ebro Agricolas. We also have a small company in the financial sector, covering pension funds.
Altogether, the Tabacalera group consists of more than 20 companies.
CA: What were the annual sales and profits of Tabacalera in 1994?
Perez: Sales of the group was roughly $7 billion. And profit was around $150 million.
CA: Could you explain the ownership structure of the company?
Perez: Tabacalera was always a company in which the public [government] sector had a majority stake, 52 percent, [with] 48 percent for the private sector. This situation is not a new one. From the very beginning, the company was designed as a monopoly rented to the private sector.
CA: Didn't the government once own the entire operation?
Perez: When Tabacalera began in 1636, the government rented the tobacco monopoly to the private sector; so the private sector always managed the company. More recently, after the Civil War in Spain [1936-1939], there was a change and the public sector took a majority stake in the company. Since then, the structure has been 52 percent controlled by the government. Of the remaining 48 percent, 38 percent is controlled by foreign investors, 10 percent by Spanish investors.
CA: Of the $7 billion in sales, what percentage does tobacco represent?
Perez: It represents 80 percent.
CA: So that's roughly $5 1/2 billion. Of the $5 1/2 billion, what portion of that is cigar related?
Perez: Our cigar business is around $300 million annually.
CA: In the cigar world, that makes you one of the largest players?
Perez: Yes.
CA: Could you describe your cigar business?
Perez: As I mentioned, we produce the full range of cigars, from handmade to machine-made cigars, both in Spain and the Canary Islands. The main characteristic of our production, both in the handmade and the machine-made, is the percentage of Havana tobacco in our blends.
CA: You buy a lot of bulk tobacco from Cuba?
Perez: Yes, we are Cuba's number one client for the tobacco sector, by far. We buy almost 75 percent to 80 percent of total bulk tobacco exports from Cuba.
CA: How many cigars do you sell a year?
Perez: We are producing 450 million cigars annually, and we distribute a total of 660 million cigars.
CA: What percentage of those are handmade versus machine-made?
Perez: Handmade--34 million, 5 million of which are produced by Tabacalera.
CA: What are your major brands of machine-made cigars and where do they come from?
Perez: Our leading brand is Farias. Farias represents 60 percent of the total amount, which means 250 million cigars per year. The blend contains a very high percentage of Cuban tobacco.
CA: Where is it actually made?
Perez: In the north of Spain. Within the Farias brand, we have the so called Farias Centenario. The wrapper is Cuban. It's wonderful. It's the king of the machine-made cigars.
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