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The CA Interview: Austin McNamara

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CA: And as far as Macanudo outside of the United States?

McNamara: We believe that Macanudo is the world's largest-selling non-Cuban cigar today in units.

CA: But as a percentage of Macanudo sales, I'm sure [outside America] it's very small.

McNamara: Very small.

CA: Recently you acquired an export company that you used to do business with anyway, to expand the international distribution of Macanudo.

McNamara: Yes.

CA: How small was it and how big do you think it will get, in terms of potential?

McNamara: It's less than 5 percent of our total sales. As our sales have grown, it has kept pace with that.

CA: It's not outgrowing it?

McNamara: No, it's not growing faster. In terms of potential, we're beginning to see around the world many of the same signals we saw here in early 1993 and 1994. Particularly in Europe and in the Far East, younger people, between the ages of 25 and 40, are getting interested in smoking premium cigars. And as the international market becomes more aware of other sources of cigars, from the Dominican Republic and Jamaica and Honduras, that opens up more opportunity for us and Macanudo.

CA: Are you sold all over the world now, or are there a lot of markets that you're still not in?

McNamara: We're in probably half the countries of the world.

CA: From what you said earlier, you are actually predicting or projecting in your business plan that whatever the total sales of your brands are in 1997, it is going to increase by 50 percent in 1998?

McNamara: Yes.

CA: Do you see a shift in power, so to speak, in the cigar industry, in that it was a seller's market--limited supply, strong demand--to a changing buyer's market, where the retailer has a much stronger role to play? If you do see that, how does that affect your business?

McNamara: The retailer has always had a very important role, not only with the new experimental smokers, but also in communicating information about the brands. I mean if you really think about the cigar business, it's a very complicated, educationally driven pleasure. A testimony to your own success. So the retailer has always been on the forefront of educating and guiding the consumer and training them. That relationship is going to continue. Yes, [we and other manufacturers have had trouble keeping up with the demand] and we've tried to do the best we can to sort through that.

CA: Today, there may be five times as many retailers in America as there were five years ago, and that number is going to continue to grow as new outlets and distribution channels are created for cigars. Is this good or bad?

McNamara: The core tobacconists, who were good before the boom started, and during it, are going to be with us for a long time. However, there are some opportunistic people who have come into the marketplace. If they have fundamental respect for the tobacco and the education process, they'll be here for a long time, too. But some will come and go quickly, much like the brands which have come and gone quickly.

CA: Does it strengthen your growth potential to have many more outlets for impulse sales, creating opportunities in hotel lobbies, golf clubs and different kinds of retail chains, such as drugstore chains? Is that bad? Does it matter? Is it worthwhile to create more convenience in purchasing the product?

McNamara: On the premium level, for the premium cigar, it's a perishable product. Therefore, it has to be handled properly. I think that when it's properly handled, with the right outlet, I think that's positive. But there are a lot of outlets that don't handle the product properly and that damages the smoker's experience. So I think that some is good and some is bad.

CA: You mentioned briefly Partagas, your number two brand. Is it still number two, even though you have Hoyo and Punch?

McNamara: Yes.

CA: Do you have any plans, in terms of 1998, to build the brand?

McNamara: Yes. Actually, Partagas has grown faster in the absolute and on a percentage basis than even Macanudo. It's a great brand that we have been marketing well. The Partagas 150 is a good example.

CA: But Partagas 150 is gone?

McNamara: Yes. But it added a halo effect to the Partagas brand overall. We significantly increased the marketing support behind it. The availability of Cameroon wrapper was the physical constraint on that growth. The farmers there had a very good year last year, and it looks by every indication that it's going to have another good year this year. We're very hopeful.

CA: In other words, you are going to have the raw material to greatly expand Partagas again?

McNamara: Yes.

CA: Are there any areas where you are dependent on crops that have, for whatever reasons, had a bad year or will have a bad year, that will affect your ability to buy tobacco?

McNamara: We have long-term tobacco commitments and because our tobacco ages so long, most of the tobacco that we need for 1998, we've already acquired. It's already been aging. There are some hot spots. With Connecticut shade, we've had record levels of quality tobacco for the last couple of years. With Cameroon we're doing very well in terms of [quality]. We would like to have more, but it's not a hot spot. I believe that two areas of some concern are the Mexican binder and a little bit of a filler, and of course with Hoyo de Monterrey and Punch brands, which use Ecuadorian tobacco; because of El NiƱo, the rain there is a threat.

CA: But you don't see any major problems in terms of raw materials?

McNamara: No, but it continues to be spotty.

CA: So you basically have your tobacco for 1998?

McNamara: Yes. Because we like to age the filler two years minimum and the wrappers, except for Cameroon. Cameroon is used from the same crop. It's not aged.

CA: Where's the Cohiba wrapper from?

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