Q&A: An Interview With Jorge Padrón
The president of Padrón Cigars Inc. speaks about his Nicaraguan cigar brand.
From the Print Edition:
Gen. Tommy Franks, Nov/Dec 03
Jorge Padrón has been surrounded by tobacco his entire life. As a child, he spent his summer vacations working for the family business—Padrón Cigars Inc.—learning the art of cigar making and tobacco processing at the side of his father, chairman Jose Orlando Padrón. He has spent more than seven years as president of the Miami company, and today the 35-year-old is taking a more active role in the business. In June, senior editor David Savona traveled to Nicaragua to meet Padrón the week he opened the company's new, larger factory in Estelí, the small, agricultural town where most of Nicaragua's cigars are made.
David Savona: How did you get your start in the family business?
Jorge Padrón: In our family, we were not forced to enter this business. It just sort of happens. I remember when I was young, in high school, I'd spend the whole summer working in the factory. I used to call that the tobacco tan. All my friends would go to the beach, and I was going to the factory in Miami.
Q: Would you also do this after school?
A: No, school was school, but in the summers I would spend most of the time working in the factory. Before I drove, my dad would wake me up at 6:30 in the morning to go to the office. Early in the morning he would come into my room, turn on the lights and start shaking my feet so I would get out of the bed.
Q: I'm sure you loved that.
A: Well, at first, you kind of resisted, but after a while you would just expect it.
Q: About what age did that start?
A: I must have been 13, 14. I came to Nicaragua in 1976 for the first time, when I was eight.
Q: Do you have memories of that trip?
A: Yes, that was in the old factory. We had the apartment right upstairs, right on top of the factory; we would go down the stairs and the factory was right there. I was running around the factory, in the pilones [editor's note: bulks of fermenting tobacco.]
Q: When did your family's company start making cigars here in Nicaragua?
A: 1970. Before that, we made cigars in Miami. In 1977, because
of the problems [with political unrest] in Nicaragua, my father opened up a factory in Honduras. For several years, both factories were operating side by side. In the '80s, during the civil war, I never came to Nicaragua, but I did go to Honduras on many occasions. Then in 1985, [President Ronald] Reagan placed the embargo on Nicaragua, and at that point we shifted all our production to Honduras. For five years there, all the production we had came out of Honduras.
Q: Was that difficult? It's a small factory, isn't it?
A: Yes, it was very difficult, but at the time we were taking advantage of every possible space in that factory. That factory was full. We had a lot of tobacco and raw material that we were able to salvage in years earlier, and that's what really helped us get along and get through. It wasn't until 1990 that we actually came back to Nicaragua for the first time and started the factory again.
Q: Wasn't your father living at the Honduran factory at that time?
A: He was living inside the factory. We both—when I was there—lived inside the factory. As we did for many years in Nicaragua.
Q: How were the accommodations?
A: Let's just say it was one room.
Q: One room for you and your father?
A: Those were good times. It was rough, but at the same time it was very practical. Don't forget, it wasn't very safe. There were a lot of kidnappings. We were in our little shell inside the factory.
Q: Kidnappings of local businessmen?
A: Yeah. There was a plot to kidnap my father in Honduras. They were found with plans of the factory, the layout, where his room was. Those times were very rough times, particularly in Nicaragua; and [in] Danlí, Honduras, being very close to the border, there was a lot of military activity.
Q: It must have been very challenging to run a business in that environment. How old were you?
A: 20 years old, 17, 18, 19. And at the time I was, more than anything, just accompanying my father, but in all of those trips you learned something. Even if it was not about tobacco, you learned something else. So I can tell you that, in all the years that I spent next to my dad, I think I learned more than I did all the years I spent in school.
Q: Tell us about your education.
A: I graduated from a Jesuit high school in Miami, and from there I went to Florida State University and got a bachelor's degree in marketing. After I graduated there in 1990, I worked in the family business for a year, in Miami, and then I went to the University of Miami and got my master's degree.
Q: When you got your MBA, what were you thinking in terms of a career path?
A: All my friends were interviewing for jobs with different companies, and I told them I was going into the cigar business and they thought I was crazy.
Q: When was that?
A: That was the tail end of '92. For me, all the family members had seen the hardships that my dad had gone through, so we felt an obligation. At that time, I always felt that what my father had created was something special, but that it could be taken to another level or taken advantage of in a way that we weren't doing at the time.
Q: Describe Padrón Cigars at that time. What products were you making, and where were you selling them?
A: The philosophy of the company has been the same since day one: to produce quality products, and to concentrate on the quality of our products, rather than the quantity that we produced. The only changes that we've made have been in the type of cigars that we make and in the areas that we sell. For many years, my father concentrated mostly on the Miami market, to the local Cuban communities in the area—and most of the consumers who smoked the cigars were Cubans—and some mail-order business that we had across the country, direct to individuals. We made the decision to expand our distribution and to go into the national market. Luckily, my father had enough confidence in me to allow me to try to get that done.
Q: That was your job?
A: Yes. At that time we had a lot of customers who were mainly older Cubans. When I kept seeing all these older people coming in, I said in 10 years, 20 years we're not going to have a market left. And that's when we went to our first trade show, in 1993.
Q: What type of reaction did you get to your product?
A: The initial reaction was that our cigars were too strong. Many people felt the types of cigars we were making were not what the marketplace was accustomed to at the time. At that first trade show we sold to 12 retailers. That was the extent of our business.
Q: Were you disappointed?
A: No. Actually, I thought we did well. We went in there not knowing what to expect. My main concern was to cover our expenses.
Q: They said your cigars were too strong—what were they like?
A: Our cigars, using sun-grown tobacco, were much darker in color than other cigars on the market. The mindset at the time was not what it is today.
Q: What were the retailers looking for? What were the big sellers?
A: To be honest with you, I was not that well informed as to what was going on in the marketplace. Our style has always been to make cigars that we like to smoke, and the rest we sell. So we've never really been preoccupied with what's going on outside our little world. We went in there, we felt confident that we had good products to sell, and I knew that all it took was for people to try them. At the time, our cigars ended up on the lower end of the price range. I think, at that time, many people felt that because of the price point, the quality was not there. And that, to a certain extent, was a problem for us at the beginning. I think a Padrón 2000 was priced at $2.75; many people felt at that price point there couldn't possibly be a quality product.
Q: How can you charge such reasonable prices for your cigars? Your core brand, Padrón, is still very inexpensive.
A: The most important thing for us is the vertical integration, the fact that we control all aspects of our business. We grow our tobacco, we do our own sorting, we do our own processing, we do our manufacturing, distribution, everything to the retailer. Over the years—many, many, many years—many people have commented on why our cigars are so inexpensive, and we've always felt that the important thing is to make the cigar as best as we can and charge a reasonable price. Long term, you establish a much more loyal customer base that way. If you look at the price points over the last 10 years, there really has not been much of an increase, relative to what happened in the industry. Our cigars are still priced, on the Padrón line, between $2 and $6, and then you have the Magnum, which is a much bigger cigar that is more expensive.
Q: Did you ever consider going with a distributor?
A: Never. Because our philosophy is not about quantity. With the amount of products that we make, it's a better concept for us to handle the distribution ourselves. It allows us to keep more control of our products and who sells them and who represents our lines. That's a very important issue for us, to get feedback from our retailers directly and from our customers, to let us know if there's something wrong. If there's a problem with our cigars, we want to know about it right away.
Q: Describe the creation of the Padrón Anniversary cigar.
A: The idea for the Anniversary came out to celebrate our 30th anniversary. We had to come out with a cigar that was aged longer, different composition, different blend, that we could offer as an alternative to the type of cigars that we were making. The difference was the tobacco that goes into it and the overall taste at the end. We also—and this was my father's idea—he wanted to create a box-pressed cigar that was similar to the type of cigars that he used to smoke in Cuba, in the '40s and '50s, so we came out with the box-pressed Anniversary. Not that we invented the box press, but at the time there weren't any box-pressed cigars in the market.
Q: Was the Anniversary a hit from day one?
A: It was a hit from the minute it came out.
Q: How did that make you feel?
A: Not to sound cocky, but we knew it was an excellent cigar coming out. We're not about to tarnish our image and our brand by coming out with a product we don't feel is up to par.
Q: When did you start to see the oversold situation on the Anniversary?
A: From day one. We've never had enough of that product.
Q: Your cigars are made of Cuban-seed tobacco, from the filler to the wrapper. When you introduced Padrón on a national level, were there other cigars with Cuban-seed wrappers on the market?
A: I don't think there were many. There were some. Our wrappers were different, especially [because of] the fact that our cigars were all made with sun-grown tobacco.
Q: You never use shade tobacco?
A: Never. Wrapper is always the challenge. We try to maximize the yield as best as possible, but sometimes, of course, we have to deal with the elements, and crops vary from year to year, so there are times when the wrapper yields will be better than others. But that's why we maintain an inventory of six years' worth of tobacco, to allow us to counterbalance the years that are bad.
Q: Is six years' inventory your comfort zone, where you want to be?
A: We can never have enough tobacco. If we can grow to eight years, we'll have eight years.
Q: Can you hold eight years' worth of tobacco?
A: Over the years we've built a lot of infrastructure here in Nicaragua to manage the amount of tobacco that we're growing. You need a lot of space in order to handle that much tobacco. Space is always an issue.
Q: Speaking of space, you've moved into this new space here in Nicaragua. Describe the reasons for the move, and what you can achieve by being here.
A: Before, we had the factory in the center of Estelí and then we had two warehouses adjacent to it across the street. And at this complex we're at now, we had all the processing and fermentation of tobacco, and all the deveining and all the sorting. And that posed, not a problem, but it was inefficient in that we had to be transporting tobacco from one place to the other, and it was just not as comfortable as we have now, where we're all in one place, and you can go from one department to the next just by walking. It produces a lot more efficiency.
Q: The factory is bigger than the other one; does that mean you will be increasing production?
A: Well, production eventually will be increased. At this point, we're staying where we are. But we have the capacity to increase if we feel we can increase. The idea is to stay where we are, but to increase eventually if needed, and if possible.
Q: How much has your production increased over the past 10 years?
A: In the early '80s, we made six million cigars a year. Then, of course, with the war, and the move to Honduras, production went down, and it gradually went up.
Q: Where are you today?
A: This year, we'll be a little bit less than 4.5 million cigars.
Q: And compare that with 2002.
A: About 5 to 10 percent growth.
Q: How many of those are Anniversaries?
A: Close to 500,000.
Q: I think a lot of people reading this will be surprised to hear you make so few Anniversaries, and say. "Why can't you just pump out more?"
A: If it were only that easy. You've been here for a couple of days now in the factory; you've seen everything that's going on: how many people it takes to produce a single cigar, how many hands touch that tobacco, the processing, the space, the sorting and deveining. There's a lot of added steps or work that has to be done in order to get to the final product. So it's difficult to increase at one end without increasing at the other ends as well. I would say it's more like a support system; the support system has to grow as much as you want your production to grow.
Q: Can you plant more tobacco?
A: Sure, you can always plant more tobacco, but the problem is you're going to need more space, you're going to need more people to sort, you'll need more people to process and ferment; you just need a lot of things to happen in order to get the most out of that extra tobacco.
Q: Do you think your company will ever make a cigar that's in the top 10 in terms of sales in the U.S. market?
A: I haven't even thought about that. I don't want to be in the top 10—I want to be No. 1 in quality. High sales don't necessarily mean high quality. For us, sales are not the goal. It's quality.
Q: Tell us about your newest creation, the Padrón Serie 1926.
A: The idea behind the 1926 was, first of all, to celebrate my dad's 75th birthday. It's the third—not counting the Padrón Millennium, which was a one-time production of 100,000 cigars—it's the third line that we've ever developed. So we just don't come out with products for the sake of putting new products on the marketplace. We've been a very conservative company in terms of how we produce new products, and only doing it when we felt that we could really make something that we felt could be different. We wanted to create something that was more full-bodied than we had with the Anniversary, but at the same time that was balanced, which we felt would be the biggest challenge—not just to make a strong cigar, but to make it complex and balanced at the same time. Last year was the first year that they came out, and we've only put out 20,000 cigars. And that was in six months. This year we hope we can keep the same pace and make 40,000. But there are no goals here as far as quantities—the important thing is that they come out the way they should.
Q: It's more full-bodied; is there anything else that sets it aside from the Anniversary?
A: The tobacco is aged for five years, as opposed to the Anniversary, which is aged for four. And on the Padrón, two and a half years.
Q: Some people age their cigars after they make them, but you don't do that.
Q: Why not?
A: Our tobacco is aged before it's made into a cigar. If you walk around our factory here, you notice that we were out of cigars. Everything that's made is exported. We don't keep any cigars, we don't have any aging rooms or anything like that. The tobacco that goes into those cigars is aged prior to going into a cigar.
Q: Because you're a small, family-owned company, and you and your father play a direct role in what goes on here, does that also limit your growth? If you had twice the tobacco coming in, would you still be able to have that hands-on approach?
A: Our strategy reflects our family situation as well. We like to keep a very tight control of our operation. So that's always a consideration.
Q: How would you describe your dad's management style?
A: Very direct, not democratic, not an autocrat, he's out there on the floor. There aren't a lot of meetings, no memos; when there's a problem that needs to be resolved, he goes and does it.
Q: What's your greatest challenge, Jorge?
A: There's a lot of challenges. My goal is to make sure that this company continues in the way it has for the first 39 years that we've been in existence. My father has worked very hard to get where we are today, and I consider it a responsibility, not just on my end, but my family members as well, to uphold that tradition that's been passed down.
Q: Are you taking a more active role in the day-to-day operations of the company?
A: I'm fortunate enough to have a father who is 77 years old and is still actively involved in the business, to have someone looking over me, someone who is probably one of the most knowledgeable people in the industry, on both cigars and the management of people from a production standpoint. Am I taking a more active approach? Absolutely. My goal is to one day, and little by little, take some of the load off my father's back, and to help him continue what he's already begun. My responsibility is to ensure that I earn the respect of the people who are associated with this company, and that they realize that I'm going to do what's fair and what's right for the company as well as the employees.
Q: What are you doing specifically that's maybe a little different than from what you did two years ago?
A: In the cigar industry, there are many different processes that affect the overall product. Obviously, we have what we call the distribution end of it, which is in Miami, which we have been handling now for over 12 years, and I have handled personally for that amount of time, along with my brother, Orlando, and my sister Elizabeth. I have been involved in the operations in Nicaragua, but my objective now is, at some point down the road, to handle the same types of responsibilities that my dad handles now, which entails the coordination of all the employees, all the different parts of the business—the growing, the manufacturing, the sorting and deveining—just getting a firm grasp on all the different parts of the company, as well as the personnel within them.
Q: Do you ever come to Nicaragua without your father?
A: I have come here on my own; very soon I will begin to do more and more of that. The types of things that you learn here are things that you don't learn in a university or a book. The things that you learn here are things that are just day-to-day issues that you have to learn how to resolve through experience. For me, the important thing is to learn little by little, and to ensure that I know every aspect of the business.
Q: You have a number of people here in Nicaragua who have worked for your company for 10, 15, even more years. Is that more of a challenge?
A: No, no, on the contrary. The employee base that we have here is an experienced staff, both in supervisory positions as well as in day-to-day positions. Some of the rollers and bunchers have been with us for 15, 20 years, and they are the most important part of this business. Every single one of our employees has a mentality that they have to make the best products. The fact that they're experienced is something that helps me. We all are on the same page as to what we want to accomplish.
Q: When your father first started making cigars with Nicaraguan tobacco, he said he was smoking the next Cuba, something that reminded him of the H. Upmann No. 4s that he liked to smoke in Cuba. What happens to Padrón Cigars, what do you think you will do, the day there is no longer an embargo against Cuba, and Cuban tobacco and Cuban cigars are allowed to enter the United States freely?
A: There's no question in my mind what we would do. We would not abandon what we've done in Nicaragua. I think we're making products that compete in all aspects of cigars. Quality-wise, I think we're producing excellent products that can compete in any marketplace with any product from any other country, including Cuba. Having said that, though, I can't sit here and say I would ignore the possibility of going in there and having and using tobacco from Cuba, which is something I've talked about extensively with my father.
Q: As a tobacco man, do you find it intriguing, the idea of one day working with Cuban tobacco?
A: Absolutely. I would love to have the opportunity to work with Cuban tobacco that we would grow and process to our specifications, with our attention to detail, proper fertilization of the soil, proper seed selection, and doing it the way we're used to doing it here. As well as to be able to process the tobacco, because that's one of the most important parts of this business.
Q: You have three brands now—
A: We have one brand: Padrón (laughs). We have three lines.
Q: OK, one brand with three lines. Do you have any plans on the horizon to introduce something else?
A: You can never say no. There's always the possibility that we'll develop new products. But as I said earlier, we're very conservative by nature, and that's not something we do just to bring something out to the marketplace. Now next year we have our 40th anniversary; with the inventories of tobaccos we have, it's not out of the realm of possibility that we could do something if we wanted to. That's not to say that it's going to happen, but it could happen.
Q: Anniversaries are very important to your family, right?
A: Absolutely. The Padrón Anniversary came out on our 30th anniversary, my dad's 1926 came out for his 75th birthday. Now, who knows?
Photo by Angelo Cavalli
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