Buyer Beware: Counterfeit Cigars
Not the real thing—counterfeits of the top Cuban cigar brands are flooding the world market.
"Amigo. Hey, amigo," said the waiter who had just brought me an extremely cold Hatuey beer at the Hotel Nacional in Havana. "Do you want to buy some Cohibas? Only $25 a box. I have a friend who has some. What do you think?"
Cohibas at $1 a stick, I thought to myself. How can I lose? Cuba's most prestigious and highly sought-after cigars usually sell for at least $10 to $30 each, depending on the size.
I told the man that I would buy a box the next day. I waited in anticipation of enjoying my heavily discounted Cohibas. The next evening he arrived at my chair by the pool with a white, cardboard cigar box properly decorated with the Cohiba logo. It looked no different than what was currently being offered to tourists in most hotels and other authorized distribution points in Cuba. (At the time, the white, cardboard boxes were used only domestically for Cohiba while the more distinguished, varnished cedar boxes were kept exclusively for export and a few, key cigar shops in Havana.)
Before giving him the $25 in cash, I opened the box and looked at the cigars. They appeared slightly rough for the usually long and elegant-sized Lancero, but they carried the proper yellow, white and black Cohiba band, and they appeared to be the right size. The only difference I could see was that thecellophane was slightly shorter than normal and was not folded over at the end of each Lancero. But for $25, I thought, what would be the risk? How bad could they be?
I gave him the money and asked him to bring me another beer to celebrate my shrewd purchase. I decided to try one right away. I selected one of the 7 1/2 inch by 38 ring gauge cigars from the box. I pulled it out of its cellophane, cut the end and lit up. It was awful. Green. Harsh. And much too peaty. I used my beer to extinguish the fire in my mouth.
I was too embarrassed to tell any of my traveling companions what I had done. And I thought there was no use in trying to get my money back from the waiter; he needed the $25 more than I did. I threw the "Cohibas" in the trash in my hotel room.
This was not an isolated incident, and many cigar lovers have gone through the same disappointment. From a few boxes of cigars on the streets of Havana to large consignments in warehouses in the Middle East, the counterfeit cigar business is growing. Counterfeiters can't resist the temptation to copy some of the world's most sought-after luxury-cigar brands--including Cohiba, Montecristo and Davidoff. They can copy the bonafide product for next to nothing and then sell the bogus cigars for 10 to 20 times' the production cost--still a fraction of the market value for the real thing.
At the moment, counterfeiters have not focused their attention on well-known cigar brands from such countries as the Dominican Republic, Honduras, and Jamaica. "There isn't enough margin in the prices to do it with domestic brands," says Leonard Gold, national products manager for Consolidated Cigar Corp., producers of the Dominican Republic's H. Upmann, Don Diego, Primo del Rey as well as Mexico's Te-Amo. "Counterfeiters just couldn't make enough profit on domestic (U.S.) cigars."
However, Cuban cigars--especially those clandestinely sold in the United States--are an entirely different matter. With the average Cuban cigar selling for about $8 apiece and some as high as $20, the margins are more than ample for making large profits with forgeries. Currently, Cohiba represents the majority of counterfeit cigars traded around the world due to the incredible demand and high prices. Other cigar producers might secretly relish the idea of having a similar problem, but most other premium-cigar brands just don't have Cohiba's consumer sex appeal. The decline in the production of Cohiba because of a series of small crops in Cuba's tobacco plantations has only exacerbated the situation. With ample crops and supplies, the Cubans may make as many as 4 million Cohibas a year, but production was less than half that in 1993.
"Counterfeiting is a steady problem that we have to deal with," says Francisco Padron (see interview, page 75, Spring '94), general director of Cubatabaco, the Havana-based marketing organization for Cuban cigars, and the man who put Cohiba in the humidors of the world's cognoscenti. "All sorts of people try to counterfeit Cohiba and other brands. It's difficult to control. How can you stop people who counterfeit French perfume or Swiss watches? Nobody can. All over the world they do this, and they can't stop it."
Premium cigars are just another product on the long list of luxury goods counterfeited and sold around the world. If there's a demand for it, whether it's a Cartier watch, Givenchy perfume or a Cohiba cigar, counterfeiters will make and sell it. According to the Comite Colbert, an organization of 70 of France's luxury-goods producers including Cartier, Christian Dior and Louis Vuitton, the international counterfeit business costs manufacturers billions of dollars a year. The lost sales in Europe alone due to fakes is estimated at more than $500 million, according to a recent study released by the European Economic Community.
"We can't estimate how much our members lose a year due to counterfeits, but they probably lose more than they sell in a year due to the problem, and that equals $5 billion," says Christian Blanckaert, president of the Comite Colbert.
"It is very, very difficult to stop counterfeiting cigars," adds Padron. "In Cuba, we have tried to do our best. We have stopped small factories and people from doing it. But outside it is very difficult. For example, you can go to Switzerland and pay the duties and then you put whatever you want in the market. A few days ago, there were 200 boxes of Cohiba caught in Brussels. They said that they were Cuban, so I sent my fellow there. They were all fakes. I was in Beirut recently, and I went to the monopoly's warehouse. There were hundreds of boxes of counterfeit Cohibas. The monopoly said that they took them away from a fellow who was trying to smuggle them into the country."
Padron and other cigar executives interviewed couldn't put an estimate on the global counterfeit-cigar business, but most agreed that the losses in retail sales to bogus smokes could be in the millions of dollars. In fact, Ernst Schneider, the president/general director of Davidoff International, admits that the main reason his company decided to go into the perfume and fashion business was to protect its brand name from counterfeiters. Products had popped up all over the world with the name of Davidoff on them--from vodka in Holland to T-shirts in Italy. Someone was even selling Davidoff ice cream in Spain. Until Davidoff began producing men's after-shave, ties and eyeglasses, the firm had no legal recourse to stop unauthorized producers from using its brand name.
"I cleaned up the whole world market, which cost me a fortune," Schneider admitted in an interview in New York (see story, page 65, Spring '94).
"We had 32 lawsuits to clean the (world) market. The cost was about 3.5 million Swiss francs ($1.95 million)."
However, Schneider admits that stopping counterfeit cigars is a much more difficult task than putting an end to the unauthorized use of his brand. Although it has been less of a problem since Davidoff began producing cigars in the Dominican Republic, his company was plagued for many years by phony cigars coming from Central and South America, especially Brazil. Schneider said that his company suffered from the production and sale of counterfeit Davidoffs in Brazil for nearly 16 years. Located near Sao Paulo, a company under the ownership of the Koenig family made Davidoff cigars in the same sizes and packaging. The company was named Davidoff Commercio y Industria.
"We tried to make an arrangement with them, but it never worked," says Schneider. "We could never trust them. They always started selling cigars again. We did not get one cent back for all the money we spent on stopping them. This is what happens when you have a luxury brand."
To make things worse, the Brazilian cigar producer even guaranteed the product, stating on the box that the cigars could be returned or exchanged with an authorized Davidoff merchant if the consumer was not satisfied. The British Davidoff agent still has a box of 25 Brazilian cigars in his office, which he inadvertently exchanged for a customer who said that the cigars were unsmokable. "We just assumed that they were the real thing," says Simon Chase, of Hunters & Frankau, who worked for Davidoff 11 years ago. "We were surprised, to say the least, when we received the cigars in the mail, and we had already made good on the cigars with the real item."
Brazilian courts, however, recently ruled that the only company authorized to use the Davidoff name is Davidoff of Geneva. But that doesn't mean that damage wasn't done to the company.
Creating bad will with the consumer is one of the key issues with counterfeit cigars, according to most cigar producers. "It is not really a matter of money," says Cubatabaco's Padron. "It is a matter of prestige because people smoke these cigars and then they are disappointed with the quality. I saw a fellow in Spain recently, and he said to me, 'look at this poor Cohiba Lancero.' He was on the other side of the table, and I told him that that happened because he bought his Cohibas on the streets of Havana. He got what he deserved, but it didn't make things any better."
Adds Davidoff's Schneider: "In (lost) sales, that's not so important, but we lost time dealing with this matter. We also lost a lot of money in court and lawyer fees. But we also lost our nerves. It was extremely upsetting."
It certainly takes a lot of chutzpah to make and to sell bogus Cohibas, Davidoffs and other cigars. Periodically, small factories are set up in just about every major cigar-producing area in Latin America. A recent source for fake Montecristos was a small factory on the outskirts of Santiago in the Dominican Republic. The cigar manufacturer had been making Montecristos for some time despite the fact that the ownership of the brand remains in the hands of the U.S.'s Consolidated Cigar Co., Cubatabaco and Spain's Tabacalera. It has been difficult to stop them because of an oversight by the Dominican government that inadvertently approved the company to produce Montecristo. "The government has admitted that it has made a mistake and is taking action to stop them from producing Montecristo, but it all takes time," says José Seijas, vice president and general manager of Tabacalera de Garcia, the key cigar factory for Consolidated Cigar Corp. "It's all a little embarrassing for the government of the Dominican Republic."
Counterfeiting is not confined to offshore operations. Such hard-to-find cigars as La Gloria Cubana--produced by El Credito Cigar Co. in Miami, Florida, and owned by Ernesto Carillo--are allegedly available at La Gloria Cigar Co., also in Miami. Call here and a man identifying himself as "Ernesto" will tell you that Wavells and Charlemagnes (two highly coveted sizes made by El Credito) are readily available. To neophytes and even regular smokers of El Credito cigars, it's hard to know the fake cigars from the real thing, until they are smoked. "They're just awful," says one unwary buyer who purchased and smoked the bogus cigars.
A similar case recently occurred with a cigar producer in Honduras, the Honduras Cuban Cigar Co., which began selling bogus Cohibas earlier this year. According to Cubatabaco, the company was making cigars for a Miami-based man, who claimed to have documentation giving him the rights to the brand name. He had Cohiba's distinctive yellow, black and white packaging produced by a printer in Miami, and the boxes and bands were so good that they were impossible to discern from the originals made in Havana.
The bogus Cohibas, mostly in the Lancero and Corona Especial shapes, were packaged in Honduras and shipped to various countries including Panama, Spain and Colombia. About 30,000 cigars were shipped and another 30,000 were ready to be exported to Germany before they were stopped. General Cigar Co., the United States company with the rights for Cohiba in the American market, is currently pursuing a settlement with both parties.
"It was the best counterfeit I have seen," admits Adriano Martinez, a key member of the Cubatabaco staff, who added a few of the Miami/Honduras boxes to his growing collection of counterfeits. "I don't know how a consumer would have ever known."
Most counterfeiting of cigars is less in the open, however. Phony cigar production is widespread in Cuba, but it's hard to stop because
of the number of people making them. It's usually individuals making a few boxes a week in their homes from stolen tobacco, boxes and bands. "They come from the farmers. They get the tobacco and make them themselves," says Padron. "They also steal cigars and bands from the factory. Some people even print the bands themselves. We have caught printers doing it. It is amazing how quickly things can be done with computers."
One of the biggest sources for fake Cohibas in Europe is through returning tourists who pay $15 to $25 a box for them and resell them to friends, restaurants and cigar merchants for four to five times' the price. Each year, more and more foreigners visit Cuba on holiday. The number of tourists has increased in the past three years from about 300,000 to more than 1 million annually. The idea of making a few hundred dollars after spending a week or two in the sun is too good to pass up for many, and it's easy to find a few boxes of cheap cigars while on holiday in Cuba. Just walk down a street in a popular tourist area in any town, and you're bound to be offered a box or two for sale.
"I sell 20 to 25 boxes a week here," said a young, clandestine street dealer who was selling cigars in the old part of Havana. He held boxes of Cohiba Lanceros and Montecristo No. 4's. "I get about $20 to $25 a box. There are two ways that we get these cigars. We either get them from someone who makes them in the streets or from someone who gets them from the factories. The ones that are made in the streets are no good. I sell only the best quality, and that means they come directly from the factory.
"I can get you anything--the very best brands," he continued. "You name it: Montecristo, Cohiba, Romeo y Julieta Churchill--even Davidoff Dom Perignon. I know Dom Perignon is not made anymore, but I have a friend who works in the factory where they were made [La Corona], and he makes the same cigar with the same blend at home."
The dealer, who asked for anonymity due to the danger in trading contraband cigars, said that he normally splits his money with his cigar suppliers. Together, their income may reach $750 a week. Not bad when the average cigar roller makes only about $140 a month using the official Cuban government exchange rate (one peso to the U.S. dollar). The peso, however, is now trading at about one cent on the black market in Cuba, and most locals admit that without dollars they could not survive.
"I have been arrested before for selling cigars," the dealer said. "If I am caught again, I will go to jail for two years. It is very dangerous selling cigars now, but you can make money doing it, and you have to have dollars to live now."
Segundo Delgado, production director of the Briones Montoto Factory (Romeo y Julieta), admits that it's nearly impossible to control the flow of cigars leaving the factory. "We have a problem with people stealing cigars in all of our factories," he says. "Everyone is allowed to take one or two cigars a day, anyway. So it shouldn't be surprising that some are sold. They also steal tobacco leaf from here and roll cigars at home."