A Century Mark
With Their Cuesta-Rey Brand Booming, the Newman Family Celebrates 100 Years of Cigar Making
From the Print Edition:
Ron Perelman, Spring 95
(continued from page 1)
Finding an open window on the nearly empty third floor of M & N Cigar's headquarters in Tampa, Florida, isn't an easy task. Company president Eric Newman keeps moving boxes aside, shifting old packing crates around a floor that once throbbed with the pulse of cigar-making machines and pushing on rickety, old frames that won't budge as he searches for an exit onto the roof. Finally, he finds a window that opens and steps out into an unseasonably warm afternoon.
"That U-Haul building over there. That was the Gold Label cigar factory," Eric says, pointing above the treetops across Interstate 75. "Over there, in Ybor Square, is the former American Cigar Company. And, there, that's the old Hav-A-Tampa factory; the Ybor Gold microbrewery is in it today. And back over on the other side is the old Perfecto Garcia factory." The litany of competitors, now long gone from the Tampa area, echoes off the boarded-up face of the M & N clock tower and across the rough, rocky, tarred-roof surface just below a large neon sign: home of cuesta-rey cigars. Despite the bleak implications of the checklist of shuttered factories, the outlook inside the Newmans' building is upbeat: they're still here and still making cigars.
Stanford Newman, the 78-year-old patriarch and company chairman, proudly repeats the same theme: "How many businesses are still going after 100 years?" He answers his own question, with a wry smile, more than once during two days of interviews and conversations. In fact, the family business, started by J. C. Newman in Cleveland in 1895, is thriving today, riding the crest of the cigar-industry boom. Stanford's sons Eric, 47, and Bobby, 44, the executive vice president in charge of sales, are committed to building the family business, and there is already talk about the next generation joining the company by the turn of the millennium.
In many ways, Tampa is home in name only to M & N's flagship Cuesta-Rey brand; the premium hand-rolled cigar is now made exclusively by Tabacalera A. Fuente, owned by the Carlos Fuente family in Santiago, Dominican Republic. La Unica, a bundle brand, is also hand rolled at the Fuente factories, and the other M & N cigars are hand rolled at Nestor Placencia's factory in Honduras. Of course the company's machine-made cigars, Rigoletto and Luis Martinez, still churn out of the Tampa factory at a rate of about 75,000 a day.
Evidence of a long business history, and of much change, is plentiful in the Tampa factory. There are empty rolling galleries and unused spaces on the third floor; there's a room stacked with burlap-covered bales of short-filler tobacco--waste from Tabacalera Fuente in Santiago, Dominican Republic, that will go into M & N's machine-made brands here. In other rooms, sunlight filters through windows, which age and dirt have stained yellow. Crates of packing material sit around, waiting for use. In other rooms, ancient cigar-making machines--some more than 50 years old--clank away monotonously under the watchful eyes of veteran operators. Only about 12 machines are working on any given day, a far cry from the 1950s, when the factory rolled out tens of millions of cigars a year. Deep in a far corner of the basement, Andrew Gordon still "cases" or dampens aged tobacco leaves, which he sways to the sound of rhythm and blues pounding from a boom box and readies for use.
Despite the shuttered factories nearby in the decaying Tampa neighborhood surrounding it, there is a palpable vibrancy in the building. About 150 employees, many of whom have been with the Newmans since they opened the factory in 1953, occupy the premises; most are involved in administration and distribution. The three-story, blocklong building also houses Fanco, M & N's five-year-old joint venture with the Fuente family. Fanco distributes all of M & N's cigars and a good percentage of Arturo Fuente's in the United States. The Newmans recently invested $250,000 in a state-of-the-art computer for the distribution warehouse. In 1994, the distribution division company shipped between 35 million and 40 million cigars to the marketplace: more than 13 million machine-made items from M & N and more than 23 million to 25 million imported cigars from Arturo Fuente, including all the M & N hand-rolled brands. Stanford Newman, citing the competitive nature of the information and the privately held status of both M & N and Arturo Fuente, Inc., refuses to divulge gross revenues.
Bobby Newman, who oversees all the company's sales and manages a national sales team of 20 people, says the Fanco alliance is the best thing that has ever happened to the Newman family. "We think they are just the best manufacturers in the world, and they think we're pretty good at what we do on the sales and marketing end." The partnership, in conjunction with the sales boom, has meant endless hours of work. Bobby can't remember a weekend since 1986 when he hasn't worked at least one day. In the beginning when the debt service from the buyout was a heavy financial burden, "it was like having a gun at our heads." Bobby talks about working the equivalent of two or three jobs, which is one reason the venture with the Fuentes has gone so smoothly: they share the same work ethic. They even share a joke about it, which is "that when we shave and cut ourselves, we bleed tobacco juice, not blood," Bobby says.
For Stanford, the elder Newman, today's successes are sweet vindication. Nine years ago, he was ready to sell out. There simply wasn't a big enough pie for his brother Millard's son, plus his own two sons. No one was happy. They set a mutually acceptable sales price, and Stanford gave Millard six weeks to come up with the money; if Millard couldn't, Stanford would buy the company. Six weeks passed, and Millard said the only way he could get financing was to put his rare collection of 15 antique Rolls-Royces up as collateral, which he wouldn't do. Stanford quickly put together the financing, bought his brother's third of the company and, with some more financial wrangling, bought out his two sisters' one-third share. He won't reveal the purchase price, but admits, "it was several millions of dollars."
At the time of the buyout, the Newmans' business needed a new direction, according to Stanford. The company was selling machine-made cigars almost exclusively, including the highly successful Cuesta-Rey 95, but he saw premium hand-rolled cigars from the Dominican Republic entering the market at a price that was not much higher. "There was no way we could compete," he says. The alternative, Stanford says, was to go head to head with machine-made cigars like Hav-A-Tampa. "I knew how to do that, too. But, as my father was always telling me, you stay in the quality business and learn to stay in your niche. You can't be all things to all people. So we stayed on [the quality] track."
While Stanford had explored several options before 1986, he still wasn't sure whether he should opt for Honduras or the Dominican Republic. Then he ran across Carlos Fuente Sr., the owner and patriarch of Tabacalera A. Fuente. Fuente wanted the Newmans to manufacture machine-made cigars for him, and Stanford agreed, but asked the Fuentes to make a hand-rolled cigar for him. Over the next six years, the Newmans transferred all Cuesta-Rey sizes to hand-rolled production in the Dominican Republic. "I went down there and saw what kind of a person he was, an extremely honest person with a lot of integrity. I've told him 'if I only had two dollars left in the world, I'd give you one of them.' " It didn't take long before the Newman-Fuente alliance grew closer. The Fuentes started making most of the Newmans' hand-rolled cigars, and the Newmans integrated the Fuente brands into their existing national sales and distribution network through the Fanco operation.
The return to hand-rolled cigars was filled with irony for Stanford: it brought the company full circle, back to its roots. "To go from a hand industry to machines, and pay a lot of money for those machines and then go back into hand rolling, well..." his voice trails off. "But we were always pushing for quality." As if to emphasize his dedication to the concept, just behind Stanford's desk in his office, on a wall by itself, not crowded next to the family photographs and framed articles about M & N on the other walls, is a framed poster that reads: The bitterness of poor quality remains long after the sweetness of low price is forgotten.
Themes of quality and innovation run through the family history, dating back to Cleveland and Julius C. Newman. Newman emigrated as a 14-year-old from a small village in the Austria-Hungary area in 1889 and received his middle name when he showed up to vote and told the registrar that he had no middle name. The bureaucrat gave him the name Caesar, and he quickly became known as J. C. His brothers arranged an apprenticeship with a "buckeye," or small cigar maker, in Cleveland; for $20, he received four months of training. After training, J. C. got a job rolling cigars for $6 to $8 a week and, with the exception of a brief two-month stint in a New York cigar factory, was still at work at the same factory in 1894.
But 1895 brought a nationwide financial panic, and J. C. Newman was suddenly unemployed. He decided to start a cigar factory in the barn on the family's property and went out to find buyers. He received orders for 2,500 cigars, for which he figured he needed $50 worth of tobacco. In his memoirs, J. C. wrote, "...since my total capitalization was $65, I was in business." J.C. Newman Cigar Manufacturers had been born.
By 1903, J. C. Newman owned the largest cigar factory in Cleveland. His brands included A-B-C and Dr. Nichol, which used combinations of domestic and imported tobacco with a wrapper from Sumatra. But Sumatran prices jumped, and Newman began experimenting with a Connecticut broadleaf wrapper for a cigar called Judge Wright. This became Cleveland's best-selling five-cent cigar, according to J. C. Newman's autobiography. The company expanded quickly, opening two new factories outside of Cleveland and jumping in ahead of the crowd into cigar-making machines, even though they had not been perfected and cost $4,000--a large amount of money for the day. According to J. C.'s written record, everything went well until 1921, when a recession hit the cigar business and he ended up closing all the factories except the Cleveland one. That period eventually led to a merger with Mendelsohn cigar factory, the other main Cleveland manufacturer. That merger, in turn, created M & N Cigar Manufacturers.
"The name was originally Mendelsohn and Newman Cigar Manufacturing, which my father had agreed to, but as long as they were going to call it Mendelsohn and Newman, he was going to be president, and Grover Mendelsohn would be vice president," says Stanford, who was already involved in the business at the time. The company weathered the Depression. During the 1920s, M & N was the first cigar maker to wrap cigars in cellophane; before that time most cigar makers used foil. J. C. had also started a very successful little cigar called Little Cameo, which had 100 percent Havana filler, Connecticut binder and a Connecticut wrapper. With these successes, J. C. accumulated the resources to buy out his partner by the late 1930s. At that time, Stanford had graduated from Case Western Reserve University, which he attended while selling cigars, and had gone to work for a year at Hartman Tobacco Company in Connecticut. The Second World War interrupted Stanford's service at the company, but when the war ended, he was back on the job.
In 1946, M & N Cigar was making 250,000 cigars a day in two shifts at the Cleveland factory. J. C. Newman was getting more and more interested in Cuban tobacco, but he was concerned that it lost some of its character when shipped north in winter. In 1953, returning from a trip to Havana, J. C. stopped in Tampa to see a cigar-making colleague. Before he left the city, he found a building, called Stanford to come look at it and, against his son's advice, leased part of it to begin making cigars there. By 1954, Stanford had started up operations there with the understanding that if it didn't work they'd move back to Cleveland. But later that year the family's entire operation moved to Tampa and set up shop--originally as the Standard Cigar Company.
The company purchased the Cuesta-Rey brand in 1958, shortly after J. C. Newman's death. The brand became a huge seller in supermarkets and drugstores. Cuesta-Rey also led the family to dream up some unique packaging: when Walgreen's announced it was discontinuing its humidified cigar cases, Stanford came up with a polyethylene bag that held the cellophaned cigars. The bag kept the cigars moist and fresh for up to a year and was a key factor in making Cuesta-Rey a top-selling premium cigar. Stanford also bested his competition by buying Cameroon wrapper for his cigars shortly after the Cuban trade embargo affected supplies of Cuban wrapper leaf. He began attending the now defunct auction of Cameroon tobacco in Paris in 1963, about the same time that Consolidated Cigar started buying Cameroon and almost 15 years before General Cigar launched its Partagas brand.
"You have to be innovative in this business," Stanford Newman says. "Don't copy. Do something that's different. I mean, the worst thing you can do is copy somebody else." Even at this stage, Stanford isn't resting on the company's laurels. He offers a Diamond Crown as an afternoon smoke, a cigar that will be out sometime this year to commemorate the company's 100th anniversary. It is full flavored with a robust finish. "We've wanted to do something different, and this is different for us," says Stanford, who describes the flagship Cuesta-Rey brand as a milder cigar.
Bobby Newman explains that the Diamond Crown is a direct response to the growing demand for full-flavored cigars. The cigars will come in 54 ring gauge from four-and-a-half to eight-and-a-half-inches long and will range in price from $4 to $10. Bobby's other new project at this point is developing the Asian market for Cuesta-Rey cigars. The program is in its early stages, but he expects to establish a presence soon in Tokyo, Singapore, New Zealand and Hong Kong, with the latter serving as a base for moving into China.
The Asian project means more travel, and Bobby is already traveling 40 weeks a year. If he's not visiting a smoke shop, then he's headed to a cigar dinner where Cuesta-Rey cigars are featured. "It's not Monday through Friday, but maybe a Monday, Tuesday, Wednesday or a convention on the weekend," Bobby says. "And when I'm in the office, I'll make and receive 20 to 30 calls a day, whether it's about cigar dinners, or problems with export sales or new opportunities with retail shops. I cover sales to smoke shops, chain stores and military sales. I do the duty-free business, too. It's an eight-day-a-week job, 24 hours a day." But there's an upside for Bobby in his schedule, even though he knows it will get tougher. With the birth of his son earlier this year, he now says, "I'm doing it for myself [and] for the family. I'm not sure I could do that if I was doing it for someone else." He also notes, "It's not that I'm a better salesman out there, but I'm an owner, and I can do different things. You have to see the customer today."
Dealing with his primary customer, the retailer, has become one of Bobby's biggest challenges and the most difficult problem for his staff of 20 regional sales managers because of the consistent shortages of cigars. "We have the best sales force in the country, and they're used to going around making placements. They are used to pounding the pavement. We're concerned they may lose their edge. They were welcome in smoke shops until six months ago, but now all they get are complaints [about shortages]. They are our first line of defense." Talking to retailers has occupied a major part of Bobby's time, too. "There will be a time when we can get more product, and the retailer is one of our biggest assets. What we've been trying to do is explain how the Fuentes work in the Dominican Republic, that they are in the factory until nine o'clock, three and four nights a week, trying to fill orders."
The Newmans have no plans to expand their sales staff because that would necessitate opening new accounts and providing more product. "It wouldn't be fair to our old accounts who supported us all these years. It's a good problem to have. If you ask the smoke-shop owners, they'll complain about the shortages, but they'd rather have [shortages] than an oversupply."
The shortage is, of course, one of the biggest question marks in the cigar industry. The Newmans and other manufacturers wonder whether many retailers aren't overordering in hopes of getting at least some product for their shelves. But the cigars are vanishing from stores as soon as they arrive. "A retailer may get 20 boxes, but he's got 20 customers waiting for [them]," says Bobby Newman. "And we're losing our displays--our billboards, in effect--because [the cigars are] not there. And with our product not there, new brands are getting the opportunity to find customers." But that kind of demand still prompts the question: How big is the shortage? "We know we need a lot more than 10 million handmade cigars a year," Bobby Newman states. "But we don't know what the limit is. Is it 30 million? Forty million? You don't know, when you're short a product, whether you are one day short or a week short. And it starts at the retail level. If a guy walks in and wants one box, but sees a supply, he may buy two boxes and hoard them. So no one in the industry knows how short the shortage really is." Or what exactly it means for the industry.
For Eric Newman, it means more work than he has time to accomplish. When asked about his typical day, he pulls out an electronic date book and begins scrolling through his "to do" list. "I often am putting out fires," he says, admitting that his organizational skills are not what they should be. Fifteen minutes later, he finally finishes the list, after a recitation punctuated by "oh, that's got to be done right away" and "I haven't had time to get to that yet." He admits that he still signs every invoice and probably gets involved in a level of detail that he shouldn't. But in fact, 20 or 30 of the items he has mentioned are indeed things that have to be done right away, and he is the person who has to do them. At one point, he checks on the back-order list. It is 1,000 pages long with up to three orders per page, many pages of Arturo Fuente brands but more than 400 pages of it just M & N brands. When Eric checks with the distribution manager, he finds that orders going out the door in early December had been received five weeks earlier; it has taken that long to get to them on the company's first-in-first-out delivery policy.
Eric isn't worried, however. "Our business is growing by leaps and bounds," he says, citing the advent of Cigar Aficionado as the driving force behind the surge. But, he says, the company commitment to quality is a formula that is working and that it is shifting the drugstore image of a brand like Cuesta-Rey into its current position as a premium hand-rolled product.
As in conversations with every other member of the Newman family, the ghost of J. C.'s commitment to quality appears. Eric Newman quotes his father, "if you pay too much for good tobacco, you only lose money. Pay too much for bad tobacco and you lose customers. My dad was always committed to buying the best tobacco" and making the best cigars. Eric also says there is a deep satisfaction in the business for him right now because "we are going back to the basics."
The present success and promising future of the company are sweet for Eric, just as they are for his father. He remembers the buyout from the family in 1986 as a decision "made with the heart, not the head." Given the debt load and the state of the cigar industry, business was extremely tough in the late 1980s. "At one time, I thought we hadn't used our heads at all. I used to wake in the middle of the night wondering. We did a lot of soul-searching. But [having] been dragged through the mud like we were for a couple of years, we feel [as if] we've earned our stripes. We'll never forget where we came from."
Eric isn't someone who believes that hard work is the only way to success. "In this business, timing is everything, and there's a lot of luck [involved]. Carlos Fuente says, rightly, that we caught the last train to imported cigarland for hand-rolled cigars." Eric also says timing has played a role in the mu-tual success of the Fuentes and the Newmans. "We are [his] biggest customer, and now we're selling his product. It could be tricky, but his demand exceeds supply so he's happy with the job we're doing for him." Mutual respect, Eric adds, is important to the entire enterprise.
The M & N formula, in fact, depends heavily on just that sort of mutual respect, both for their partners and for each member of the family. Eric explains that as a small, family-owned company, the principals can make quick decisions about matters that might take a bigger corporation weeks or days to resolve. "We often just run into each other in the hallway and start discussing a problem. If it needs a decision, we can do it right here." That level of coordination demands fundamental agreement, which, fortunately, exists among the Newmans. It's not uncommon to hear the same idea or business philosophy expressed by all three of the Newmans. Perhaps they each adopt a slightly different manner or choose different words, but they leave no doubt that they share a common vision and common goals for the future.
Both Bobby and Eric are quick to say how glad they are that Stanford has witnessed a resurgence in the cigar market. "He could have missed all this hoopla," Bobby says. "We thank God every day." It's a genuine sentiment that traces back to the brothers' true love of their business and their acknowledgement that their father has been not just a parent, but a mentor and teacher. Bobby says, "[Stanford] didn't ask my brother and me to come into the business. We asked to come into it. He didn't force us." Bobby hopes his son, who is 10 months old, will also want to come into the business. And Eric is already having a hard time keeping his 13-year-old son, Drew, out of the business. He shows off a picture from the Retail Tobacco Dealers' of America, Inc., trade show last August in Chicago: Drew is talking to a retailer, explaining the company's ci-gars. "He's already one of the best salesmen we've got," Eric, the proud daddy, says. "He wishes he could start working for us full-time right now. He thinks he is the reincarnation of J. C."
Stanford also can't help but play the proud father. "I'm not making the same mistakes my dad made with me...we didn't always get along. So I try to bend over backward and not tell them that I have the experience and they don't. They have to get their own experience."
The patriarch is clearly pleased that his sons are enjoying a period of success. "For all my life, there was a ceiling on what people would pay for a cigar. The big volume for so many years was in 25-cent cigars; the consumer didn't want to pay any more for a product. You couldn't make a better product because you couldn't sell it. You couldn't put much more money in packaging because [the consumer] wouldn't be receptive. This is the first time in my lifetime that I have seen young people taking an interest in our business. It was mainly old men, even though like my dad told me, there were new old men every year. But today there are lots of young men. That's what is different today. That's our future."
With a gleam in his eye, he starts talking about the company's 200th anniversary, in 2095.
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