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Interview: Francisco Padron, Cubatabaco

Marvin R. Shanken
From the Print Edition:
Groucho Marx, Spring 93

(continued from page 4)

His face was difficult to see through the haze of fresh Cohiba smoke, but you couldn't help noticing his slightly satisfied smile as he announced the introduction of five new sizes in the Cohiba range. Not only had he been at the cutting edge of developing the new cigars, Padron had been the impetus behind establishing Cohiba as the world's most prestigious cigar brand.

Padron began in 1985 as director of Cuba's cigar export sales organization, Cubatabaco, after preparing an extensive study on the tobacco industry for the foreign trade minister. "There were so many things to change," he said, looking back eight years. "There was such great potential. We just needed to sell more."

Increasing sales was not the only strategy Padron used. He set out on a well-focused plan to take control of his worldwide distribution through establishing partnerships with his agents in key markets. Having now achieved his goal, Padron is looking toward the future with great anticipation.

CIGAR AFICIONADO Editor and Publisher Marvin R. Shanken met with Padron in November 1992, in Havana, to discuss the Cuban cigar industry and Padron's plans for the future.

CIGAR AFICIONADO: Connoisseurs the world over appreciate Cuban cigars. During the past several years, you've had serious business difficulties with Davidoff which have resulted in the end of your relations with the Swiss company and the discontinuation of Davidoff cigar production in Cuba. Is there confusion in the international marketplace caused by the Davidoff situation?
Francisco Padron: None at all. Let me tell you something. We made an agreement with Davidoff. We think that it [canceling production] is a very good agreement. We signed the agreement, and we must not talk about it.

CA: What is the future strategy for Cuban cigars?
Padron: We want to have Habano cigar, not a brand name. It doesn't matter if it is Bolivar, Montecristo or even Cohiba. For the last four years, we have been telling the connoisseur how to recognize a Havana. When we launched the smoke ad we just put Havana, now Habanos. We think the most important thing is the umbrella that can cover all the brand names. We can create a brand name whenever we want.

CA: I think that a connoisseur understands that Cuba is a statement of origin and quality but he typically buys brands. Once he buys a brand, then he buys sizes in a brand. He is very brand loyal. He smokes Cohiba. He knows that Cohiba has a certain taste and style and so forth. You speak of this marketing of Habanos, but isn't there a strategy to promote individual brands?
Padron: We have two strategies. One is the institutional campaign I just described, and the second one is the brand campaign.

CA: Which do you feel is more important?
Padron: We at Cubatabaco are in charge of both of them. We deal with the institutional, and we let our enterprises [agents] around the world, in agreement with us, work on brand campaigns. For example, what does Fonseca mean to you?

CA: It is well known as a highly respected Port wine.
Padron: Yes. But in Barcelona it is a wonderful brand name for Cuban cigars. We sell almost three million cigars. So that is why we let our agent analyze the best way to promote the Fonseca brand in Spain.

CA: You approve the brand advertising, and the local agent decides on which brands should be advertised depending on the importance of the brand in that marketplace?
Padron: Yes. We create the image. We are now creating the image for various brand names; they must use that image and the concept of being under the Habanos umbrella.

CA: Cuba has approximately 30 brand names of which about 20 are popular. Do you think the future should favor fewer or more brands?
Padron: Fewer. We are not going to kill any of the brands. We are going to let the market select the best ones. We are going to let the market kill them.

CA: At a meeting recently with your agents from around the world, you made it very clear that volume is nothing and that quality is everything. But having said that, today you export approximately 60 million cigars. You know if you produced 100 million cigars the market would absorb them. The demand greatly exceeds supply. And knowing that cigars are agricultural and that there is only so much land, only so many workers and only so much money for inventory and aging and that the economy in Cuba is in such great difficulty right now, is there any significant way that you can increase cigar production without adversely affecting quality so that more people can enjoy Cuban cigars?
Padron: Of course. This is our hope. We want to increase our production without losing quality.

CA: What kind of growth? If you are at 60 million cigars exported today, do you have some sort of plan? A five-year plan? Where do you see exports going?
Padron: Without the U.S. market, we think that we can easily sell between 80 or 90 million--maybe even 100 million cigars. We would like to be between 90 and 100 million.

CA: Is it a production question? A labor question? A capital investment question? The government is going to have to agree to take money away from some other industry and give it to you.
Padron: Our government already agreed to increase the tobacco leaf production, and there is a direct instruction from Fidel that the first priority is quality.

CA: Are there certain brands that you consider priority brands in terms of the future for your portfolio?
Padron: We are focusing on this in a different way. We already have a parameter for this. At the top section, there are Cohiba and Montecristo. In the middle, there are Partagas, Romeo y Julieta, Hoyo de Monterrey and the others. At the lower level, we have Los Statos Deluxe, Quintero and all those [machine-made] brands.

CA: Cohiba is described in tobacco terms as "the selection of the selection" and is the leading marque in your portfolio. We now see the Cohiba family growing from six to eleven sizes. What was the reason for the increase in the number of Cohiba sizes?
Padron: I would rather not answer this question. (Editor's Note: It was clear from talking to members of the trade while in Cuba that the new Cohiba sizes were introduced to replace the lost production of the chateau series produced earlier under the Davidoff brand name.)

CA: How big is Cohiba today?
Padron: It depends on the crop. It had been about 3.4 million cigars. It will be more in 1993. That was another reason for the launch of the new line. Production was just too small.

CA: Do you see Cohiba having additional sizes as time goes on?
Padron: No, I don't think so.

CA: There obviously is a significant demand for Cuban cigars in the United States. No doubt you hope that one day the embargo is lifted. But doesn't that create problems between your agents and tobacconists from England, Switzerland, Mexico and Canada in that a lot of them compete for the same customer in America? When America opens up, won't many of these businesses lose their sales when Americans won't need to shop in foreign markets to buy Cuban cigars?
Padron: They [the agents] don't have a problem with it. They don't even mention it.

CA: Many American cigar smokers don't realize that there are two brands of Partagas, a Partagas in America from the Dominican Republic and a Partagas sold around the world from Cuba. Assuming that tomorrow the embargo is lifted, how would it work? What would happen?
Padron: We are not going to have two brands over there. Not even in Europe. We decided to break our deal with Davidoff because of that. So what would happen is that we would launch new things for the North American market, new brands. Or we could make an arrangement with the brand owners over there.

CA: General Cigar, as an example, owns the brand names Partagas, Ramon Allones and Cohiba for the U.S. market, and it has tremendous distribution in the United States. I would imagine that they would love to sit down with you and work it out to represent those brands of Cuban cigars in America. Is this possible or is it a problem? You are shaking your head no.
Padron: The first condition is that they must pass the brand name to us. This is the first condition. Immediately. If not, forget about it. Second condition, they must be our partner. The same way that we have it in the rest of the world. There is no other way to make a deal with us. If not, forget about it.

CA: But having said that, would you be willing to create a new brand for the American market that General Cigar could have if you worked out a partnership agreement?
Padron: We would have to analyze the relationship of the commercial end of the American market, but we are prohibited from doing this today.

CA: I understand what you are saying and it seems consistent in terms of your practices around the world. The only thing that I question is that America is such a big market and companies like General Cigar, Consolidated Cigar and Villazon already have the distribution, salesmen, accounts...it would be easy for you and for them to get together for distribution. If you had to start a new company and create distribution and a sales force, it would be very expensive to duplicate what they already have. That is the only reason I mentioned this.
Padron: Marvin, I don't believe you. I just have to go to the United States and sit down in a hotel room and say that I am here and who wants to buy these brands? You? Okay. Here are the conditions.

CA: Have you ever smoked cigars from a different country...the Dominican Republic, Honduras? When people ask you what is the difference between a good Cuban cigar and a good Dominican, how do you respond?
Padron: Whenever I smoke a cigar, for instance a Macanudo....I tried a Macanudo earlier today, I was not thinking of a Cuban cigar when I smoked it. I was thinking of a different thing. It is like if you are going to drink a Bordeaux, and then a wine from a different place. If you are looking to find the same thing in the Macanudo as a Cuban cigar you are not going to find it. It's a different thing. Don't think about Cuban cigars. Macanudo has a certain blend because they know how to make a cigar. It is not a Cuban cigar but it is very good for what it is. They know how to make cigars. Some cigars are not well-blended. They are just leaves and taste like straw.

CA: Cuban cigars are a great topic of conversation in America because they are forbidden fruit. People dream about them. They read about them. Some people like to say that ten years ago Cuban quality went down. In your opinion, has there been a change in quality in the last ten years?
Padron: Let me tell you something. Maybe people were right. There was a reason. When we produce cigars, we use three years of different crops in our blend. So, we lost two crops in a row in 1980 and 1981. That was a very strong blow to our production. So, when that happens, you have to change the blend, and you cannot use what you normally use. You reduce your range of combinations of different tobaccos. You must realize that. And for another two or three years more you are not doing things like you were. For a few years in the early '80s, the cigars were not the same but they were still good cigars. That was a problem. In order to maintain our taste or flavor in cigars, we have to blend different harvests.

CA: I remember in the early and mid-1980s when I would buy a box of Cuban cigars in Europe, upon inspection I would remove maybe five, six, seven cigars because they were clearly in bad condition. Now I rarely experience a bad box.
Padron: Let me tell you something. We committed an error at that point. We were too flexible with our quality control.

CA: This was in the early '80s?
Padron: Yes. We did it in order to maintain our sales. I was not in the tobacco business then. It was not a good decision. Right now we have a very, very clear instruction from Fidel. Nobody can do something like that. That is finished.

CA: The other thing that people are saying today is that Cuba cannot maintain its quality because it has no fertilizer, no fumigation. You don't have the supplies you need to produce the quantity you need at the quality level you want. Is this true?
Padron: No. No. We reduced our production because of this. We are not trying to increase production at any cost.

CA: Today, are you able to get the necessary fertilizers and other chemicals you need?
Padron: Today, we have top priority in Cuba. We are getting it.

CA: --to produce the 60 to 70 million export quality cigars?
Padron: We are not getting all that we need, but there is going to be a very good crop if the weather is okay.

CA: So what is the limiting condition to produce more quality cigars? The weather, finances, fertilizers, what?
Padron: In normal conditions, it is a question of climate. But right now, it is a question of finances.

CA: What do you need the money for? The agricultural aspect? Inventory? Labor?
Padron: No, agriculture.

CA: When did you peak? What was the maximum you had for export? How large did your cigar shipments get at their peak?
Padron: We used to produce 120 million cigars for export.

CA: How long ago was that?
Padron: A couple of years ago.

CA: Aficionados say if you want to buy the best quality Cuban cigars, like Punch Punch, Hoyo Double Coronas, Montecristo No. 2, Cohiba Robusto and Esplendido, that you must go to England or Switzerland to buy them. Are there certain markets that get the best quality and the other markets that get the second quality?
Padron: No. No. That is not true. The only difference in the past was the former socialist countries. We were delivering to them machine-made cigars by the millions.


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