Pedro Perez—Former President, Tabacalera

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

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CA: Wait a minute. You're saying that of the 27 million, roughly 12 to 14 million is Montecristo and of that, 7 million is No. 4. And what would No. 2 be?
Perez: No. 2. Half a million.
CA: Is No. 2 your second largest size?
Perez: No, no. After No. 4 is No. 3 (corona), and after that, No. 2.
CA: So No. 2 is over half a million cigars?
Perez: Yes. And the third largest brand is Partagas. Within Partagas, 8-9-8 is the most appreciated.
CA: What would be the size of Partagas annual sales overall?
Perez: About 3 million, I would say.
CA: Three million is Partagas and you're saying the largest size in that brand is the 8-9-8. You are describing extremely good cigars. Is that a sign of the sophistication of the Spanish market?
Perez: The Spanish are very educated Havana cigar smokers.
CA: Why is Spain's reputation otherwise? What we hear is that Spaniards want the cheap cigars, little cigars, and don't appreciate finer, high-qualiity cigars. But what you're saying is that they are very sophisticated.
Perez: Yes. For example, we received 500 boxes of Lusitania in May. They were sold out in less than a week.
CA: Why are prices in Spain also apparently very good?
Perez: We have the lowest prices for Havana cigars because we have the lowest taxes in Europe on tobacco products. We also have the narrowest margins, both with retailers and the wholesalers.
CA: Is there very little difference in price at duty-free versus cigar shops in Spain? Is it fair to say that the duty-free might be five or 10 percent cheaper, or is it basically the same price, more or less?
Perez: That's the situation, in general terms, but in some cases prices in duty-free are more expensive than in Spain.
CA: From your observations, are duty-free cigars any different in quality than Cuban cigars sold by Tabacalera?
Perez: No, no.
CA: Has there ever been cases where one is getting preferential treatment?
Perez: No. I am sure that the boxes are the same, the same quality. Perhaps for some consumers, it's more agreeable to buy at the dutyfree because the shops may be nicer, but that is it.
CA: Does Tabacalera own any retail shops?
Perez: Just one in Madrid.
CA: Do you ship cigars to customers outside Spain?
Perez: They have to come to Spain.
CA: Is there any evidence that you get a better or lesser quality Cuban cigar in Spain than in England, France, Italy, Switzerland or Canada?
Perez: The only difference is that perhaps the British or Swiss market is more sophisticated in the sense that they demand more premium cigars, while in Spain we are covering the full range.
CA: Of these 27 million cigars that you distribute in Spain, what percentage are bought by Spaniards versus tourists?
Perez: The majority is purchased by Spanish people.
CA: Can you give me a percentage?
Perez: I would guess about 90 percent.
CA: In as much as a large part of our readership are Americans, are cigars well accepted in restaurants in Spain?
Perez: Every restaurant in Spain allows cigar smoking and any decent restaurant will have cigars to sell.
CA: What percentage of your business is restaurant and hotel versus retail?
Perez: Normally in our system, restaurants buy from the retailers. They do not buy directly from us.
CA: But you say, virtually every middle- and upper-market restaurant is cigar friendly?
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