The CA Interview: Austin McNamara

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McNamara: All our early indications are tremendous. Sales are very positive; demand in terms of people requesting it and seeking information is very, very high. But you know sales have really only been going for five or six weeks, so it's really too early to tell.

CA: How many cigars are you going to put into the marketplace between now [the November interview date] and the end of the year? It has to be a small number.

McNamara: We don't talk about numbers like that.

CA: You can't even talk about what your long-term goal for the brand is?

McNamara: Our long-term goal is to make it the very best cigar that is available in the United States, that will be considered one of the best cigars in the world. We think that it has the potential of being one of the world's great cigars.

CA: Cigar brands have had to boost prices in recent years to offset increased costs of tobacco and labor. But there are signs that consumers are beginning to resist the higher prices, especially above six dollars, and they are becoming more and more price conscious. What are your thoughts on pricing in the premium cigar market, and what are your thoughts about General Cigar's pricing?

McNamara: Macanudo, if you go back 10 years, was always the highest-priced, highest-quality cigar in the marketplace. And when the boom occurred, let's say in the beginning of 1993 and accelerating in 1994, there were many new brands that were introduced with prices well in excess of Macanudo. In some ways, we were sandwiched. We took price increases in line with what the market could bear. Our prices are definitely higher today. But we are still well below a lot of the brands that came to market during that period, and there are many new brands quite a bit higher priced. We've seen little or no price resistance on our major brands. We took a healthy price increase in the beginning of the year and we took one in midyear, and we've seen no slowing up in the demand for our product.

CA: Do you have plans for another price increase in 1998?

McNamara: Generally, we have annual price increases, but we do not have it in our plans at this time because obviously, we're sensitive to the pricing issue.

CA: What percentage increase did you have in 1997, in the beginning of the year and then later in the year?

McNamara: I think we took about an 11- or 12-percent increase in the beginning of the year and then we took another 5 or 6 percent in September. That has been our pattern over the last couple of years. Because of this pricing sensitivity, I'd be surprised if we take two increases [in 1998], if any.

CA: Many of the new brands, which have been very high-priced, are reportedly dumping their product on the market right now, in some cases at 10 to 20 cents on the dollar to various retail chains. How does that affect your business, especially when some of these brands which were priced more expensively now will be less expensive than your brands?

McNamara: I think it goes back to the quality of the tobacco. I believe that a lot of those cigars are finally getting to the price that they are actually worth, rather than what they were charging in the beginning. In terms of cigar quality, a lot of those cigars didn't justify the price they had before. So, the drop in their prices is healthy. I think that value and quality are coming back both into the retailer's mind and the consumer's mind. I don't think that that will affect or restrict our ability to sell our major brands.

CA: When you think about the premium cigar market five years ago at 100 million cigars, and in 1997, if it surpasses 500 million imported cigars, where do you see the market reaching in five years? Where would you like to see General Cigar in that framework?

McNamara: It's really tough to project the future. I mean, even the change [in 1997] is really dramatic in terms of shaking out the market. We did an analysis of all similar categories that had this kind of explosive growth, one of which, you know, is the wine business. We went and looked at the wine business. We looked at premium meats. We took a look at premium coffee. Their rate of growth went through a bell-curve shape. They started out slow--5, 10, 15 percent, and they would accelerate to a peak somewhere around the fifth, sixth or seventh year. And then they would gradually go down about the rate at which they went up. Obviously, you can't say that experience is going to be replicated here. But, I believe that good, healthy growth for premium-quality brands will be double digit for some years to come.

CA: You mean the cigar market, or General Cigar's share of the market?

McNamara: I think that we will outpace the market, because of the quality of our brands.

CA: So, you're saying that General Cigar's market share will increase over the next five years?

McNamara: Yes.

CA: What is your market share today?

McNamara: (laughs)

CA: Percentage-wise?

McNamara: We don't give those numbers out...(laughs). Sorry.

CA: Can you tell me a little bit about the history of Jamaica vis-à-vis Macanudo, and what the present and future plans are, in terms of production?

McNamara: We expanded the capacity of Jamaica by 50 percent in 1997. We're about tapped out in terms of the present facilities. We don't have any plans to expand.

CA: Does your factory in Jamaica produce anything other than Macanudos, or is it strictly Macanudos?

McNamara: Some Temple Hall, but largely Macanudo. Macanudo was an old Jamaican brand that actually came about because of the special relationship with the United Kingdom. Because they had an opportunity to import it during World War II.

CA: Which sizes are made in Jamaica?

McNamara: All sizes are made in Jamaica.

CA: And, are all sizes made in the Dominican Republic?

McNamara: Oh no. We only have a selected few. Probably only three or four are made in the Dominican Republic.

CA: Do more Macanudos come out of Jamaica or the Dominican Republic?

McNamara: Oh, much more comes out of Jamaica. Much more.

CA: Given the market leadership of Macanudo, does that present problems in the future, or does that present opportunities for the future?

McNamara: Opportunities. Definitely opportunities. We have the ability to take Macanudo into other areas, whether it be line extensions or extended lifestyle products. It is a tremendous brand name. A brand name much bigger than just the cigar. We've been very successful with our logo clothing and we have plans in place to expand that out on to other products. Club Macanudo is a perfect example. Who could have ever dreamed that it could be that successful? A cigar bar.

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