The Two Billion Cigar Baron
Altadis U.S.A. Chief Theo Folz celebrates a unique perspective developed over four decades in the cigar business.
From the Print Edition:
Tyson vs. King, Jan/Feb 04
Forty years ago,Theo W. Folz had a vision. Only 20 at the time, he was in Marked Tree, Arkansas, pitching a 17-year-old girl on Wearever cookware. "I'll never forget it," he says. "It was a farmer's house, he was in bib overalls, her mother was nursing her newborn. They had tar paper walls. And I was sitting there convincing her to buy a $500 set of pots and pans. And I drove back to Memphis that night, and I said to myself, 'What am I doing here? Those people need $500 to eat.' So that was my last day selling pots and pans."
Instead of selling pots and pans, Folz headed back home to work with his father, a longtime cigar man. Those humble beginnings, however, didn't portend Folz's rise to become one of the most powerful men in the industry, the chief executive officer of the largest cigar company in the United States, Altadis U.S.A. Inc. The Fort Lauderdale, Florida, company, a unit of Europe's Altadis S.A., makes more than 2 billion cigars a year, from tiny machine-made Dutch Treats that sell for less than a dime all the way up to $20 handmade Montecristos.
Folz has played a central role in the sea change in the cigar business as it has consolidated globally over the past four decades. He has bought and sold companies with billionaire Ronald O. Perelman, dealt with European tobacco monopolies and helped establish the U.S. rights to many Cuban cigar brand names. Altadis U.S.A. has 6,500 employees spread across the United States, the Dominican Republic, Honduras and Puerto Rico. Annual revenues are close to $600 million.
But to hear him tell it, Folz wasn't the man one would expect to climb to the top of the cigar world. "I'm just really a country boy from Memphis that sold cigars all his life," says Folz, a tall, large man with a thick head of hair and the build of a football player. With his deep, baritone voice, he pronounces the word cigar with the emphasis on the first half of the word, old-school style. "I'm not well educated and I'm not a fancy guy. I've just been very lucky that I've had some good bosses, and I've had great people working with me."
To be sure, his early days were unremarkable. "I went to the University of Tennessee in 1961, and I still have an educational record there that's unsurpassed -- I had the lowest quality point average ever at the university, 11 Fs and a D," says Folz in his typical self-deprecating style.
His father, however, was an overachiever, a cigar industry superstar. A specialist in the shoe leather express, Monte Folz covered an immense territory, 19 states at one point. "My father -- not 'cause he's my father -- was the greatest salesman I've ever known," says Folz. After abandoning his job with the pots and pans, Theo took a part-time job on February 1, 1964, with Bayuk Cigar Co., his father's employer and the maker of Phillies. The cigar industry would soon soar on the heels of the first surgeon general's report on smoking, which had smokers across America swapping cigarettes for cigars, tipped ones in particular. Theo was hired to do the grunt work for a venture that would put Phillies in 59 A&P supermarkets in the South.
On a Sunday, Folz drove 400 miles to begin the job. He was supposed to fill the display racks with the cigars that had been shipped to the stores. But there was a problem. "I went out to three A&P stores, and none of them had the cigars," he says. "The stores didn't know a thing about it." The deal had been killed. "So my first day in the cigar business I'm in Mobile, Alabama, with nothing to do. It was not an auspicious beginning."
Folz thought his budding career was over, but the next week his father took him under his wing. Theo worked at Monte's side, sometimes clashing with his father. "Of course, I was 20 years old and I knew everything, and I said, 'Dad, you're absolutely wrong about that. We have brands to sell,'" recalls Folz. "And he said to me something I never forgot. He said, 'Those brands don't mean anything. They might not be around all your life. You've only got one thing to sell, son, and that's yourself.'"
The boom of '64 was short-lived, to be followed by a period of continual decline, which the industry countered with cost-cutting moves. Cigar consumption had soared from 7.2 billion units to 9 billion in 1964. "Then from 1964, that artificial high, to 1993, the overall units in the industry declined 5 percent a year compounded. Some years were better than others, but annual cigar consumption went from 9 billion to 2.1 billion," says Folz. Until the mid-1990s, less than 5 percent, or about 100 million cigars, were handmade. All the rest were made by machine.
Companies were loath to raise prices, fearing consumer backlash. When Folz entered the business, most of Bayuk's cigars sold for 5 to 15 cents. "They used to say in this business, you raise the price of a cigar a penny, you close a factory," says Folz. Companies changed the product to hold the line on prices. Long filler became cheaper short filler, and natural tobacco wrappers and binders were replaced in many instances by a new creation called homogenized tobacco, which is made by mixing ground tobacco with proprietary additives and extruding it from a machine in a sheet, similar to a piece of paper. The companies also made their cigars smaller, trimming a unit of ring gauge here, a sixteenth of an inch off the foot there, to save even more money. "The industry as a group, as the unit sales went down, did cost savings in order to try to maintain profits," says Folz. "So the quality of the products went down systematically."
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