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The Two Billion Cigar Baron

Altadis U.S.A. Chief Theo Folz celebrates a unique perspective developed over four decades in the cigar business.
David Savona
From the Print Edition:
Tyson vs. King, Jan/Feb 04

(continued from page 4)

The cigar boom of the mid-1990s was unlike anything that Folz had seen before. The mid-'60s boom had been short, and the cigars that were sold were among the least expensive in the industry. The boom that began in 1993 had legs, lasting until 1997, and the cigars that were in greatest demand were expensive. Folz, like other established cigarmakers, found himself unable to supply the market.

"One of the things I said at the time that worried me was that we had the opportunity of a lifetime as an industry to get trial, people trying cigars that never smoked them before. It was unaffordable to generate this type of trial through advertising and promotion. And I was worried that the quality of some of the cigars that people were smoking then would turn them off from being lifetime cigar smokers," says Folz. "I think it definitely happened. And I'll also tell you in hindsight -- maybe I was too stupid at the time -- but in hindsight I'm not proud of every cigar that Consolidated Cigar made during that time."

Tabacalera de Garcia Ltd., the handmade cigar factory in La Romana, Dominican Republic, where H. Upmanns and Montecristos are rolled, ran virtually nonstop in the boom. "At one time we had our factory in La Romana working two shifts with 5,400 employees, and they were rolling handmade cigars at an annualized rate of 85 million cigars," says Folz. (The factory never worked a full year at that rate.) "We were working back-to-back ten-hour shifts, which is unprecedented in the handmade business. Which was probably another mistake, 'cause we didn't get as good a quality on the second shift as we got on the first shift. But we don't do any of that anymore."

Investors pressured his company to fill orders, but there were limits on tobacco, on craftsmanship. "It was just brutal," says Folz. "At one point we had 37 million handmade cigars on back order."

The boom increased the cost of tobacco, and Consolidated had to buy enormous amounts of leaf to keep working. "A few years ago, we had well over $100 million in tobacco inventory," says Folz. "If you want to make quality cigars, you gotta carry inventory." The company is still using tobacco from that period.

In 1997, premium cigar imports to the United States exceeded more than 500 million cigars. Even as the imports climbed, however, cigar companies missed the signs that supply was outstripping demand. Folz, still more focused on mass-market cigars, also missed the end. "I was looking at our financials, and I saw that we had huge returns of premium cigars in January [1998]," he says. "Then I went back and looked at all our financials through '97, our monthly reports, and I had missed it, and Dick DiMeola had missed it, and everybody that worked here missed it. The returns had started in June, July of '97. So the bottom fell out, and boy, we all struggled."

Cigar sales were slowing. Later, Folz had to combine two similar companies as part of the creation of Altadis. Spain's Tabacalera owned Havatampa Inc., France's SEITA had Consolidated. Each had premium cigar factories that weren't operating at full capacity.

"We closed five factories on that deal: Jamaica, the Consolidated factory in Danlí [Honduras], the Tabacalera factory in Danlí, the Tabacalera factory in Nicaragua, and the Tabacalera factory in Santiago, Dominican Republic," says Folz. "I've closed more cigar factories than any man walking the face of the earth. I'm not proud of it."

The cuts were painful, but necessary. Folz compares them to a patient given a choice by his doctor of losing his leg or eventually dying.

Consolidated has roared back and is now thriving. "2000 was the best year in the history of the company. 2001 was better than 2000. 2002 was better than 2001. And unless the end of the world comes in the next three months," Folz said in September, "2003 is going to be significantly better than 2002. So I think that's a testimony to our people."

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