An Interview With Dr. Reto Cina
President and Chief Executive Officer, Oettinger/Davidoff Group
From the Print Edition:
Andy Garcia, Mar/April 2004
Reto Cina is the guardian of one of the cigar world's most treasured and famous cigar brands -- Davidoff. As chief executive officer of the Oettinger/Davidoff Group of Basel, Switerland, the spry, slim, 57-year-old has shaken some of the dust of the notably conservative company during his six-year tenure, expanding its portfolio of cigar brands with full-flavored cigars, most notably the Davidoff Millennium Blend Series. Cina was instrumental in creating a joint venture combining the $2 billion company with a pair of hip partners to create one of the cigar world's most expensive offerings -- the $39 Zino Platinum Crown Series Stretch. Recently, Dr. Cina met with senior editor David Savona to speak about his plans for the Davidoff group.
David Savona: You joined Davidoff in 1997. How did that come about?
Dr. Reto Cina: I was running a discount chain called Pick Pay in Switzerland for ten years. Part of their assortment was cigarettes. Oettinger Imex was running the wholesale cigarette business of Pick Pay. So through this business relationship, I got to know these people, and in 1995, I got a phone call from the managing director of Oettinger Imex asking if I would be ready to join as CEO of the Oettinger/Davidoff Group. And I said yes, of course. We let quite a long time pass, almost one year after the first meeting, but I got to know all of the family members, because at that time, the Oettinger Imex Group was still owned by three families. This has now changed -- there is only one family owning the whole thing -- the Schneider family.
Q: Did you deal with Oettinger chairman Dr. [Ernst] Schneider in the negotiations to bring you into the company?
A: Directly with him. Formally speaking, it was the vote of the directors who gave the final OK, but as a matter of fact, it was he who said, 'I want to go with it.'
Q: I've heard that things tend to move kind of slowly at Davidoff, or with the Group. Did you think it was unusual for an entire year to go by between being hired and the meetings?
A: Certainly, it isn't unusual. But I wasn't under pressure at all because I had a good position. It may be a Group thing, that you let pass a little while to really get the feeling whether two characters may get along together or not. So I think it was a good idea. Obviously, it was the right decision for both sides.
Q: Let's talk a bit about the company in general, because I think all of our readers know about Davidoff, but very few know about Oettinger. Could you describe the company?
A: Actually, we are in four fields of activities. We are a producer, we have an import and export business, we are in the wholesale business and we are retailers. The company is divided into three divisions: tobacco products, accessories and confectionery, which includes cigars; diversification, which are all the other brands, such as cosmetics, leather goods, writing instruments, glasses, ties and Cognac; and, of course, cigarettes.
Q: How large a company, in terms of annual revenue, is the Oettinger/Davidoff group?
A: The tobacco products, accessories and confectionary division comes to 910 million Swiss francs ($717 million), cigarette licensing is 1.2 billion ($946 million), and diversification is 501 million ($395 million). The number of employees is 2,600. Outside of the Dominican Republic, most of them are in Germany, with more than 800.
Q: Where do you sell Davidoff cigarettes?
A: Only in Switzerland, plus we have some distributing rights for other cigarettes; for instance, we are the distributor of the American Spirit cigarette -- in Switzerland, in Belgium and in Holland -- but it's a tiny thing. In addition to that, we are the importer for Zippo lighters, for Savinelli pipes and so on. Having our sales force selling our own brand together with these imported products makes the portfolio much more attractive, and delivery costs come down with the percentage of the value of the order. By using our infrastructure to the utmost, signing the same customers and adding up other products, we are able to generate additional margins.
Q: What about your fragrances?
A: We have them made, but we are doing the whole thing: the advertising, the distribution and everything. For cosmetics, Lancaster is our licensee. For Cognac, it is Hennessy, and so on.
Q: What is the breakdown of stores that you own?
A: We started, years ago, buying tobacco retailers in Switzerland because we were aware that sooner or later we would have the situation that this retail business would no longer be attractive. We would have less retail shops and we had to have an outlet where we can promote our own brands. At the end of the day, the retail shop will be the only place where you can promote your products. Having the full vertical integration coming from production, wholesaling and also controlling the retail business, we have 100 percent control.
There are 48 Davidoff flagship, or pilot, stores worldwide. These are stores that carry the Davidoff logo on the storefront and feature the entire Davidoff product range, from cigars to fragrances to Cognac and other Davidoff products. Among them are the Madison Avenue store and the newly opened shop at Columbus Circle in New York, four in Las Vegas, seven others in North and South America, 18 in Europe, 16 in Asia and one in the Middle East. Of these flagship stores, Davidoff owns eight. The remaining 40 are franchised. In addition, we have 150 shops in Germany, 26 in Switzerland, two in Belgium and two in Holland. These carry a variety of Davidoff and other brands.
Q: How is the cigar business divided between countries?
A: First, the biggest market is still the U.S., with slightly more than 20 percent, followed by, changing from one year to the next, three countries: Germany, France and Spain. One year France is in the second position, the other year it is Germany, and so on. The fifth is Switzerland, followed by Turkey, then all the rest.
Q: Are there some cigar brands in your portfolio that maybe do great in one country, but aren't spectacular in others?
A: Yes. I mean, let's take Avo. It's a really big brand in the U.S. It's doing well in Germany and Switzerland and in other European countries, but honestly, in the Far East, where we are really successful with Davidoff, we have a hard time.
A: In Asian countries, people are looking for the big names. And it is much easier for us to get them buying a Davidoff cigar than an Avo. That is certainly a reason why it is so difficult to start new lines throughout the world. It's a hard thing.
Q: During your tenure as CEO of the Group, it seems as if Davidoff has become considerably more aggressive in coming out with new cigars. Is that accurate?
A: We have always been known for excellent quality, no doubt about it. But the launching of new products was certainly not at the level it is now. Of course, at the time, this need for new products was by far not as important as it is nowadays. But I believe that also we were taking, in a rather short period of time, a big step forward, opening, first of all, new avenues in promoting cigars with Avo in Switzerland, for instance. Also within the Davidoff brands, we are launching new products at a quite different level.
Q: And you've got some very big ones, like Davidoff Millennium.
A: That was really the big event, that we were able to produce such a well-balanced and consistent cigar pleasing all these people complaining about the fact that Davidoff, since we left Cuba, has no really strong, aromatic cigars. I believe that with this Millennium blend, we are very near to that kind of taste, having at the same time, qualitywise, an excellent cigar. So we cover both sides, on one side the quality and on the other side the taste.
Q: Is that something that people bring up, Davidoffs from Cuba?
A: No, no. We know that there are people who like to have a much stronger cigar and we knew that within the Avo line we had one, but it wasn't a Davidoff. Now we are able to really have a Davidoff cigar for each different kind of need of the customer, from the very mild one up to the really strong and full-bodied cigar. Of course, when we were launching and promoting the Millennium blend, that was certainly one of the arguments we had given to the customer, that with that cigar, we are back to the more aromatic cigars, similar to the time when the Davidoff cigars were produced in Cuba.
Q: You must have been very happy with the reception to that cigar.
A: Here we have to say that we thank [Hendrik] Kelner; we really have a great producer, not to say artist, in blending cigars, and we may say that we really are the masters of blending. The big thing is that we are able to create and develop new lines, not really in the same way as the existing ones.
Q: What other new plans do you have?
A: I cannot reveal all the secrets. We are working on different items in order to maintain this aspect that the Oettinger/Davidoff Group is -- or at least tries to be -- ahead of our competitors. For instance, we now have launched the first vintage cigar which has ever been made by Davidoff. Why did we wait such a long time? Because we think and strongly believe that if we, as Davidoff, have a vintage cigar, it must be something really extraordinary. We were waiting until we had the chance to have the harvest of the year 2000, this extraordinary year -- weatherwise, humiditywise -- that allowed us to create these extraordinary cigars. To blend this cigar was really a special effort, because if you have the chance to add tobacco from different years, from different farms, coming from different soils, you may more easily get to the blend you really would like to have. But being limited and restricted to the tobaccos coming out of one year, it has made the path even more difficult for Henke [Kelner] to really get a well-balanced cigar, as we have now in hand with this Davidoff Vintage cigar.
Q: This sounds like a new corporate strategy for Davidoff.
A: It compares to traditional businesses like cosmetics, where this obligation to create new products and new fragrances every year is huge. If I may give you some proportions, 62 percent of the annual turnover in the fragrance business is made with fragrances not older than 18 months. Out of 100 new-launched products, after 18 months, 95 have completely disappeared from the market. So you see, if you want to realize a considerable sales turnover, then you are obliged to launch new products. The rate of flop is unbelievably high. So it's a really demanding and competitive product category. Not in the same way [for cigars], but surely compared to what happened 10 or 15 years ago, the cigar business also goes more and more in pthis direction.
Q: In the 1980s, Davidoff made a dedicated effort to attack counterfeiters using the company name. Is that battle won?
A: No, no. We are permanently confronted with people producing falsifications all over the world.
Q: Is that only cigars?
A: Especially cigars. I would say 98 percent of the cases are cigar-related.
Q: There are counterfeit Davidoffs?
A: Yeah, especially in China.
Q: Do you have an estimate as to how much falsifications cost the company every year?
A: No. I don't have an estimate at all. I only know what we are paying the fees for the lawyer, and it's a lot of money. You end up with almost $600,000 year after year, protecting the brand name all over the world in all the different product categories.
Q: Let's discuss the creation of your newest cigar brand: Zino Platinum. How did the Zino Platinum Crown and Scepter Series projects come about?
A: You remember that in 1983, when we were joining Zino together with the Baroness Philippine de Rothschild, the Zino cigar line had a price point of three, four, five dollars. Everybody was saying, 'They are crazy, they will never sell one cigar at that price.' Prices went up, and there is no doubt that we were at that point the first one trying to enter the market with such an upscale price. We always try to be a little step in advance of our competitors. For instance, we are now launching a small Davidoff cigar, Esquisitos, which is the smallest hand-rolled cigar that exists in the world. And with Zino Platinum, we had the first discussions with Peter [Arnell] and Arnell Group three years ago. It takes time, and when we were discussing it at the first meetings, knowing Peter and Arnell and knowing the Swiss people, that's like oil and water. These discussions took more than one year until we founded a 50-50 joint venture. The whole Zino Platinum business is within this company owned 50 percent by Oettinger Imex and 50 by PASS, which is owned by Peter Arnell and Steve Stout.
Q: Who approached whom first?
A: They did. They said, 'We believe that the cigar business needs to be refashioned, rejuvenated and rethought.' We said, ‘Let's take the risk and let's do it in order to try to be once more a step in advance of all of our competitors in the way we were launching and promoting this new cigar line.' Undoubtedly we can say that was a success. Nobody else had ever done the launching of a new line in such a way. Not only pricewise, but in the whole strategy, with a really highly priced predecessor with the Crown line, followed with the -- let's call it the bread and butter line, Scepter, accessible to everybody.
Q: You said, 'Let's take the risk.' What was the risk?
A: We brought into this joint venture the registered trade name Zino. Whatever happened would have happened to Zino Platinum. Of course, we could have said 'It's Zino Platinum, not Zino,' but it's linked to Zino. And with Zino, we still have a very great name, well known. The second thing, that's obvious to everybody, is we put a lot of money behind it, in an amount which normally is not done in advance. If we weren't successful, then the risk is that a part of this money invested in advance would be lost.
Q: Do you think that your target customer for Zino Platinum might not smoke cigars right now?
A: Hopefully, we will be able to bring a lot of new people into the cigar-smoking segment of the population. But, for sure, we will be able to make it more attractive because it is so different, that young, hip people would go for such cigar packaging or such ads.
Q: Is Scepter off to a better start than Crown?
A: Sure. The higher the mountain you are climbing, the less oxygen you are able to inhale, so the quantities of a cigar you are selling at $39 must be limited.
Q: What does Zino Platinum do to your other Zino cigars?
A: For the time being, we are continuing with the existing Zino line as it is, but we are working on the remaining other Zino lines to get a more homogeneous picture of the Zino brand. Now there is a huge discrepancy between the traditional Zino line and the Zino Platinum line. We have to see how we can arrange to have both lines in harmony, one beside the other.
Q: Do you have any plans to launch any of the Zino Platinum cigars outside of the U.S.?
A: Yes, sure. We launched it last fall in Germany and Switzerland, and especially in Russia and in duty-free. You know that the duty-free still is for us a very important distribution channel, with almost 30 percent of our turnover going through duty-free.
Q: The Zino Platinum Crown is expensive, and I think it may be record-setting in terms of a price for a regular-production, non-Cuban cigar. Were you at all worried about putting a price on one of your company's cigars that was higher than the price of your Davidoff white label cigars?
A: No, because we were absolutely aware that it will remain a small community who are really able and eager to be ready to pay such a price for such a cigar. So it actually even doesn't enter into competition with the white label, and it was really the aim to have the chance to get the attention of the celebrities, politicians and all these kinds of people, and if you don't come out with something really special, extraordinary, you won't get this attention, especially not for a product like cigars, which is unfortunately not in everyone's favor. So that was the basic strategy, really putting the price to a level that everybody really thinks, ‘Oh that's great, I cannot afford it.' It is the same thing with Mercedes. Once there were only expensive Mercedes, then they launched the E line, then the C line, then the A line. And if you are asked, Which car do you drive, certainly you say, Well, a Mercedes. And as long as you are not obliged to mention that it's only an A model or a C model, you are within this Mercedes community. And exactly the same will happen with Zino Platinum.
Photos by Bob Schatz/Getty Images
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