An Interview With Guillermo León
President, León Jimenes Cigars
(continued from page 2)
CA: Was this change in the number of factories as sudden as you describe it ?
León: It wasn't a surprise for us; we had talked about it in the company and we expected it, but it did cause harm. The newcomers damaged the big cigar companies because they would go to the tobacco growers and offer them double of what was stipulated in the contract. Naturally the tobacco growers would remove their better tobacco and hide it to sell to the newcomers. We had to go to the tobacco growers and look at the tobacco and tell them it wasn't good enough. We had so many legal problems, but we had to fight it. That same problem existed with the Dominican tobaccos: olor, piloto Cubana and [tobaccos] from San Vicente. It was all a headache. We ended up buying the tobacco, but we had financed it at about 1,400 pesos, which at the time was about $100 for 100 pounds, and we received it at 3,400 to 3,500 pesos.
CA: In 1996?
León: Yes, the same year the price increased nearly two and a half times, and in some cases, three times. Wrapper tobacco was even worse. Whatever arrived at the factory, that was the amount of wrapper you were going to find in the market unless you were a long-standing client of one of the big wrapper companies. We were fortunate because we had that kind of relationship, someone to sell to us, like Culbro in Connecticut. They never failed us. But I do know that many factories were affected by this because those little factories paid more for the tobacco and often got it at the expense of the big factories. The small guys could do it because they didn't have a lot of overhead expenses, just the tobacco rollers and the owner and that was it. That wasn't the only thing. The newcomers also robbed us of tobacco rollers. We had to start up a school in Aurora, and we ended up training 300 to 400 rollers in one year.
CA: And how many tobacco rollers did you lose in that time?
León: Three hundred fifty. But truthfully, I trained the rollers for the newcomers, so that they would leave my tobacco rollers alone.
CA: But you practically changed all the laborers in the factory.
León: No. The new factories didn't necessarily take the veteran rollers, although we did lose some. The new cigar rollers had inferior working conditions to the older ones. The older ones were permanent and had a lot of benefits. We would give them uniforms, we would give many more things to the ones that were permanent and who had a long time at the factory. The new guys would feel that they already knew how to roll tobacco, and deserved the same kind of treatment. So, the new factory owners would offer them better conditions, thinking that these recently trained people did indeed know how to roll tobacco, so they would take our newly trained rollers. That's what happened in many factories, not just ours. I would have to say to probably all of them. For that reason maybe the robbers did us a little less harm. But we still had quite a bit of turnover in personnel, which wasn't good for morale. That happened even though we would warn the rollers that once they left they couldn't come back, and they were heading into a situation that could only be temporary. But they would still leave. I have not changed my mind. The ones that left I will not take back. But I imagine that other factories are probably letting them back into their old jobs. At least some of them.
CA: How long did this situation last?
León: We had been anticipating since mid-1997 that things were going to change again, and a lot of the start-ups would begin closing. And the truth is that that is the way it went. It was as if there were suddenly many people that woke up from a dream. That is to say that many people finally realized that the business of making tobacco is not something that you can just start up from here to tomorrow if you don't have traditions, and so on. By August of 1997, factories started to disappear. There are quite a few factories that have closed but are filled with inventory.
CA: How many factories existed in July 1997? How many are still in operation today?
León: This is an informal estimate because those factories were often so small, they didn't pay taxes. But say there were about 130, and by January, according to my understanding, about 80 or so had stopped operating. Now, remember we are calling a factory a house with two rollers. What many brand owners did was they would buy from this one and that one, gather some inventory, slap on their label. But the cigars came from different manufacturers. So, I'd estimate that 80 have already closed, and more [closings] are still to come.
CA: Do you think that in the next year we are going to be at the point that we were in 1994, with eight to 12 cigar companies operating in the Dominican Republic?
León: Yes, I would say that is about right. There are some new companies that are going to stay in business, because they produce a quality product.
CA: Up to now, La Aurora maintained contracts with about 200 tobacco growers. Do you have any plans to change that system and become landowners?
León: We do not own land. We gave direct financial and technical assistance to our growers until last year. This year we are using a system that most manufacturers now employ. That is, we have a contract with a company that buys all the tobacco and it is responsible to deliver a certain amount of tobacco, and that all the tobacco that you, the cigar manufacturer, receive is in good condition. We do have our own personnel in the tobacco fields and at the tobacco warehouses. And, we are always going to have contact with the growers in the fields. There are other manufacturers that do not maintain contact with the fields, and they just wait to receive the tobacco. In that sense we have always been in the fields, and we've always had contact with the growers. You need to know the growers, and if you are going to give them support, you have to have people in the fields.
The reason we changed our process is more legal than anything else. We didn't want La Aurora getting into legal issues with each grower. In the past, we've lost a lot of money with the growers. We gave them equipment; in fact, we gave them everything necessary to grow tobacco. But if they break the contract, then you are in a legal fight directly with them. Even then, if we won, we used to leave them with everything. We have lived all our lives off the growers; we don't see ourselves bringing any harm to the growers, even if they cause us harm. For us, the growers have always been some of the most important people in this process.
CA: So you don't have any plans for a project like the Dominican wrapper project that the Arturo Fuente company has?
León: We are interested in everything. In the last year, we added seven new sizes to our brand portfolios. We always give the consumers what they want. If we see a market that we could explore, without a doubt we would do it. We have the financial and human resources to accomplish any goal. We are very prepared in that sense. Remember that we were the ones that developed blond tobacco, Virginia burley tobacco in the Dominican Republic. That was unknown territory; they didn't know that tobacco here. We imported it from the United States, and we created the department, we trained the technicians. At the time, there were only about 20 technicians in the fields here. And, we created about 400 to 500 growers. We have the resources to do about anything in regards to the growing of leaf. If it is needed for the market, we will be part of it.
CA: Let's talk about the two brands: Aurora and León Jimenes. You used to call the brand La Aurora, but you've changed it to just Aurora. Why?
León: Yes, it used to be called La Aurora. But people used the name for the cigar and for the factory where the cigar is made. According to our publicity and marketing people, this was creating confusion among consumers. So, we decided to change the brand name to just Aurora, and keep the factory named La Aurora.
CA: How many sizes are there in the Aurora brand?
León: We have more or less the same amount for Aurora as for León Jimenes, 13 sizes. We make all the traditional sizes and shapes.
CA: Are you going to introduce new shapes and sizes in '98?
León: If the market demands it, then we will be on top of everything that the market demands. If we were to launch a new brand, it would not be right now. We do have new brands in the planning. We even have a specific cigar that is the pride of Don Fernando León [Guillermo's father]. That is a cigar that is made specifically for him, and he gives it away as gifts. It is a cigar that is not commercially produced, but we expect to launch that cigar someday. For now, we don't think it's the right time. We also have anothernew project underway, but that we won't be bringing to market for a while. It will bring us back closer to our own tradition, the first sizes and shapes that we used to make at the original factory. But we don't think it is a good idea to launch a new brand right now, because the market is too confused at this time. There have been too many new brands in the last few years.
CA: Are the two brands you have doing well?
León: Yes. Things are going well. We've set some new objectives for León Jimenes in Europe. We are going to open up new markets there as well for Aurora. In 1997, we sold 1.7 million units total in Europe. In 1998, we expect more because we're opening more markets.
CA: Was the 1.7 million for both brands?
León: Basically that was for León Jimenes, but we have started distributing Aurora in Europe. We are very happy with work that has been developing in Europe. In America, we understand that there has been a slowdown in the retail market, and we understand that retailers are stocked up and are trying to move the cigars.
CA: Which is the largest market for León Jimenes outside the United States and the Dominican Republic?
León: Europe, primarily duty-free shops. We also have a tremendous image campaign there.
CA: Is it the same ad campaign as in the United States?
León: No, not the same one. Over there, we don't have the same concept in regard to the family. The same things don't work over there.
CA: You also have a relationship with other brands, such as Lone Wolf. How many other brands do you make?
León: Our number-one private brand is Savinelli Oro, made with a Sumatra wrapper.