Let the Good Times Roll
Cigar Sales are Going Through the Roof as Premium Cigars Become Increasingly Difficult to Find
From the Print Edition:
Bill Cosby, Autumn 94
How many times in the past six months have you walked into your favorite tobacconist, hankering after your favorite smoke, only to find that the brand is out of stock? The retailer throws up his hands and says, "try me again next week. I'm expecting a shipment." You are lucky if this scene hasn't been repeated every time you've been out on a cigar-buying trip. The truth is that unless there's a dramatic downturn in demand, it's going to happen again and again for at least the next couple of years.
The old-timers in the cigar business are unanimous: they've never seen anything like the recent boom in cigar sales. Sales of premium, handmade cigars are up, not just 1 or 2 or 3 percent, but 20 percent or more in the first four months of this year versus 1993--and that's after some retailers experienced sales increases of 50 percent or more in 1993 over 1992.
It would be nice if there were a way to make the reason sound less self-serving. But here it is. The sales boom coincides with the debut of Cigar Aficionado. If you really investigate, you can find retailers and manufacturers searching for other explanations, but they all agree on one thing: the magazine has forever changed the way they do business.
But how exactly has the market changed? In the past, good retailers counted their blessings if they had a 3 percent sales increase each year. Manufacturers could predict sales trends for years in advance. And it wasn't hard to guess how much tobacco needed to be planted because the year-to-year changes in demand were minimal. Now retailers are witnessing huge percentage sales increases. Manufacturers are having to increase production as much as 20 percent. And tobacco growers are under extreme pressure to increase production.
Austin McNamara, president and CEO of General Cigar, the makers of Macanudo and Partagas, says that the company's inventories are based on crop decisions made up to three years ago, before the boom in cigar sales. "Demand is higher than expectations," says McNamara. "The tobacco in the pipeline is less than the demand." He says that even though its vast inventories offer some flexibility in stepping up production, the company's strict quality standards, especially for brands like the Partagas Limited Reserve, prohibit meeting demand. "There's always a tension between standards and demands."
Back orders have become a fact of life for cigar manufacturers. ProCigar, the association of cigar makers in the Dominican Republic, estimates that as of last January, there were more than 8 million cigars on back order. By May, some companies had begun to catch up. Consolidated Cigar Corp. reported that its back orders had decreased significantly, but H. Upmann was still behind by 125,000 cigars and Don Diego by 80,000. Ashton (made by Arturo Fuente Inc. in the Dominican Republic), however, had back orders of 200,000 cigars, and the total was rising. At Matasa in the Dominican Republic, three brands it makes also have significant back orders: Fonseca, 100,000; Romeo and Julieta, 225,000; Licenciados, 125,000. And factories in Honduras were also reporting back orders, especially on large cigars.
Total exports of cigars to the United States rose about 11 percent last year to 109 million, according to statistics provided by the Cigar Association of America. That follows an approximate 5 percent increase in 1992. However, Dominican cigar exports to the United States rose by about 18 percent last year to more than 55 million. Demand continues to climb this year, too. "It's not going to get any better for some time," says McNamara. And Robert Levin, of Holt's Cigars in Philadelphia, who markets Ashton cigars, says simply, "every factory in the Dominican Republic is maxed out." If there is no letup in demand, some experts estimate the total increase in cigar exports from the Dominican Republic alone could climb 20 percent this year.
Richard DiMeola, CEO of Consolidated Cigar, the makers of H. Upmann, Montecruz, Dunhill Dominican, Royal Jamaica and others, says that his daily reorder sheets are often as long as three pages, up from just a page a couple of years ago. "We've done a great job catching up, but we're not out of the woods yet," says DiMeola, who estimates his factory was nearly 3 million cigars behind at one point. He notes that H. Upmann sales were ahead 45 percent in the first four months of this year over 1993 and Henry Clay was showing an 80 percent increase.
Catch-up is not easy. Manuel Quesada, the owner of Matasa, says that it takes time to train new rollers and make them productive enough to increase output. Unusually shaped cigars--pyramids and torpedos--are especially difficult to produce because the shapes require unique skills and a long apprenticeship. And Quesada says he keeps running out of those shapes.
The other major problem, according to Carlos Fuente Jr., the president of Arturo Fuente, also the maker of Ashton, Cuesta-Rey and others, is that oversized wrapper leaves for big cigars are in short supply, especially Cameroon wrappers. (It's not just Cameroon wrappers either; one non-Dominican producer says he has 4,000 boxes of large Connecticut-shade-wrapped cigars on back order.) So even though Fuente is about to open a third factory in the Dominican Republic this year and increase total exports to nearly 23 million cigars, he says there still won't be enough tobacco to make all the cigars people want to smoke.
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