Richard L. DiMeola
Executive Vice President, Chief Operating Officer, Consolidated Cigar Corporation
From the Print Edition:
Arnold Schwarzenegger, Summer 96
Richard DiMeola, 61, has witnessed firsthand some of the most dramatic changes in the cigar industry. He was working for the largest importer of Cuban cigars to the United States when the Cuban trade embargo was imposed. He oversaw the growth of what became the top selling pipe tobacco in America in a stint at Lane Limited. And he helped rebuild the reputation of Dominican cigars, starting in 1984 after he joined Consolidated Cigar Corp., which today manufactures or imports to the United States Montecristo, H. Upmann, Don Diego, Royal Jamaica, Montecruz, Primo del Rey, Te-Amo, Las Cabrillas and a variety of bundle cigars. DiMeola also has spent as much time on the road as any executive in the industry, talking with people at cigar dinners and cigar stores. His perspective spans nearly 40 years, from the glory days of Cuban and clear Havana cigars in the 1950s to the unprecedented boom in cigar sales in the 1990s. This past January in New York, Marvin R. Shanken, editor and publisher of Cigar Aficionado magazine, explored with DiMeola the complexities of the cigar industry.
Cigar Aficionado: Can you recall Consolidated Cigar Corp.'s annual sales and the number of premium cigars it produced when you joined the company in January 1985?
DiMeola: The company produced 13 million premium cigars in 1984. I remember that because I had researched it before going to see Ronald Perelman, the owner of the company, for what was really my job interview. I remember he asked me, "How many cigars do you think we sell?" I said, "Well, Ronald, I already know you sell 13 million." He said, "Oh, I wish you didn't know that." I know now that he was trying to test me to see my knowledge of the industry. I guess he wished that I hadn't done the research. That's how I remember the number--but it wasn't all sales; some of it represented shipments.
The previous management--just to go back briefly--was Gulf & Western, which had owned Consolidated for years and wanted to divest it. Mr. Perelman wanted to buy it. The deal fell through. Five managers then bought it. They started fighting among themselves--went to court. It was a mess. The court said that three of them could buy out the other two, but then they couldn't raise the financing. Then Mr. Perelman stepped in and bought it, but prior to that, when the five managers were running the company, they were doing things that weren't necessarily good for the long-range benefit of the company, in my opinion. For example, they fired all the premium salespeople in the United States. They turned the distribution over to about 24 so-called importers. This happened in 1983. These importers saw dollar signs in front of their eyes, and bought a lot of cigars in order to handle their newfound distribution. So there was a lot of pipelining going on. Therefore the business was propped up by their pipelining. Then in 1984, they put in two dealer incentive programs to keep that business propped up. So the 13 million done in '84 were not [all] real sales; they were shipments, and a lot of that was pipelining.
CA: What were the real sales?
DiMeola: I don't know. I can tell you that in '85, the business dropped to $7 million. We were probably selling cigars in those days for around 75 cents wholesale.
CA: So it went from $10 million down to $7 million--something like that.
DiMeola: Something like that.
CA: In terms of the brands that made up the 13 million premium cigars--what brands were part of that group in 1984?
DiMeola: Montecruz, Don Diego, Primo del Rey, H. Upmann. There may have been a couple of other smaller ones. Prior to Theo Folz [Consoldiated's CEO] coming on board and my joining, the five managers of the company wanted to make as many cigars as they could using machine bunches.
CA: Were they using the same tobacco?
DiMeola: Yes, it was the same tobacco except that they were mixing in some short tobacco. About 12 percent short tobacco was going into the cigars at that time.
CA: Was the short filler tobacco used as a cost-saving thing?
DiMeola: It was their program to improve the profitability of the company. In my view that was short-sighted.
CA: Can you next tell us highlights of what happened in the business between 1984 and 1996, such as brand acquisitions or other significant events?
DiMeola: Well, the most significant thing that happened was in 1985--two of the three managers who were left from the previous management also left the company. [The third,] George Gershel, who is today our senior vice president in charge of all tobacco leaf, is a key person on our management team, and he is still with us. In October 1985, when those two guys left, one of them had charge of manufacturing. Theo told me that he wanted me to assume responsibility for premium production as well as premium marketing and sales. I went to the factory, and with the brief supported by Mr. Perelman, I began trying to make the best premium cigar the world has ever seen--certainly as far as construction is concerned. He was willing to invest the money required to meet that goal. So I met with José Seijas, who is still with us, and David Lacey. David Lacey was the general manager of the factory in the Dominican Republic at that time. David has since died, and Jose is now our general manager, but the three of us sat down and discussed how we were going to accomplish our brief. David said the best way to make good cigars is by hand.
Up to that time, we were making a lot of cigars by machine bunching, and we weren't making very many cigars at all over 46 ring--a 46 ring was the biggest bunch we could get off of the machines. So in October 1985 we began a program to convert that factory to a handmade factory, and began taking all the production off of machines. That took us two years to accomplish, and meanwhile, the machine-bunched cigars had to be sold out in the market. We converted that factory to total handmade, although we didn't throw the machines away. We still use the machines for some production. And we still machine-bunch some Primo del Reys--not all, but some--some bundles and some other cigars, but most of the production from that factory today is all handmade.
We started fresh at the time, and we asked--how are we going to do it? The traditional Cuban method for making cigars was to have one person roll the cigar from beginning to end. The traditional Dominican method for rolling a handmade cigar was to use a Temsco aid [a large rolling device] for hand-bunching, and then hand-roll it using teams of three. One buncher services two rollers. Well, I said that I didn't want to do that--that team program. I had asked the questions: "How do we know that the ratio is two to one? How do we know that one size is not made faster than another? What happens when one part of the team is sick? Does it destroy the cadence of the team?" We decided to focus on bunching and rolling as separate operations. We put all the bunchers on one side of the room and all the rollers on the other side of the room. That enabled us to build expertise in bunching and, we think, build expertise in rolling. It also enabled us to begin the quality control system from the very beginning in order to attempt to catch a cigar that is not going to be rolled well or draw well before it becomes an actual cigar. We're still doing that to this day--only we've refined it a great deal. We no longer have all the bunchers on one side of the room and all the rollers on the other. The factory is set up in quadrants, like four factories in one.
CA: Was it at [the Dominican town of] La Romana at this point?
DiMeola: Yes. The company started operating in La Romana in 1969.
CA: When I visited your factory a few years ago, you showed me a suction-testing method for cigars. When was that testing process implemented, and is that still the primary method of quality control?
DiMeola: The suction quality control was implemented in October '85 as we converted the factory back to a handmade operation. I knew we had the machines that were doing spot checking of suction, because as you know, the biggest complaint among premium cigar smokers has to do with the draw. But I asked, "What if we tested every cigar we made? Can we do it?" They said yes. I said OK, let's do it. And we constructed the machinery so that we test every cigar we make by hand for draw before it becomes a cigar.
CA: Are there any other cigar companies that use such a suction tester?
DiMeola: The machines are common.
CA: Most of the factories that I've been to test by weight. They take bundles, usually of 50 cigars, and weigh it for a difference of so many ounces above or below the norm. That's the way they determine if some of the cigars are too heavy, and therefore won't draw well. Isn't that the standard testing procedure with only spot suction tests?
DiMeola: I don't think anybody else tests every one. We used to do that, too, by weight--bundles of 50, but then we asked the question, How do you know the variance among the individual cigars? When we started our suction program, we were reworking 35 percent of our bunches. Today we're reworking about 9 percent.
CA: How many people were involved in cigar production at La Romana in 1985 versus today?
DiMeola: I have to estimate, because I don't remember exactly. I can tell you this. We had under 400 people in the whole factory in 1985. Today we have 1,650. We have about 650 people who are focused on the hand-rolling/bunching operation. We're growing all the time. We have a second shift building now, so that we'll go to maybe 800.
CA: What were the business highlights between 1985 and 1996?
DiMeola: When I joined, I found that the situation was worse than I thought. Montecruz business had dwindled from the days when they were making Montecruz in the Canary Islands. It used to be a much bigger brand.
CA: Let me just stop you for a second there. Was Montecruz a knockoff name of Montecristo?
DiMeola: Montecristo was made by Alonzo Menendez and Pepe Garcia in Cuba, and they got out of Cuba. Pepe Garcia went to Spain. He was actually Spanish. He bought the Menendez interest out, and started a company in the Canary Islands called CIT-- Compania Insular Tabacalera. He started making Montecruz--which was a copy of Montecristo--Don Diego, Flamenco and Don Marcos in the Canary Islands. Consolidated then bought CIT in 1972, and started to take over some of that distribution. In 1982-83, Consolidated moved from the Canary Islands to the Dominican Republic at the behest of [parent company] Gulf & Western, because they owned the land in La Romana. The company was also operating a tobacco processing operation in La Romana, because at one time Consolidated had their own fields in Connecticut. They were growing 2,000 acres. Sixteen hundred acres they owned or leased, and 400 acres were grown for them.
CA: How long ago was that?
DiMeola: Until 1981 or so.
CA: Who did they sell that land to?
DiMeola: I don't know who they sold it to. When I joined the company, Theo was still trying to sell off some of the old cheesecloth, because Gulf & Western also had begun requiring that the company use sheet [fabricated] wrappers on the mass-market cigars. So when they converted to sheet, it obviated the need for all that Connecticut wrapper leaf. So La Romana was originally used for tobacco processing. Consolidated actually got into the premium cigar business when they bought the Moro Cigar Co. in 1966. That was the producer of Primo del Rey. The Junco family came out of Cuba. They were growers in Cuba until 1961, when they left the country. They used to supply Consolidated with a lot of filler tobacco, because in those days, the domestic brands made in Puerto Rico used 35 percent Cuban tobacco and 65 percent Puerto Rican tobacco.
CA: It was really grown in Puerto Rico?
DiMeola: Some tobacco was grown in Puerto Rico then. So Consolidated helped the Junco family get started in Miami and they started making Primo del Reys. That was in 1961-62. In '66 they bought the company, and they moved the production in '69 or '70 to the Dominican Republic. So those were the first cigars that they started making in the Dominican Republic--Primo del Reys. It was folded into the tobacco operation, and as a result Consolidated had a cigar operation in La Romana, and then in '82 when the labor costs went up in the Canary Islands, [Consolidated was] told by G&W to move all of those brands out of the Canary Islands and into the Dominican Republic. José Seijas, in fact, worked for the company in the Canary Islands. He and his colleagues wanted to take five years to make that move, but the company required them to do it in 18 months, and that's when they contracted with some other manufacturers in the Dominican Republic to make Montecruz. They lost a little bit of control there. The move caused the quality to decline. The business started to decline. The competition got more active, and by the time I joined them they had gone through this change with the product of the previous management; distribution problems and so forth. When I got there, I had no sales organization and poor quality to deal with. There was a slowdown.
CA: What brands have been added since you joined the company?
DiMeola: When I joined, we didn't have a single powerhouse brand. When I joined the company, we asked: Which one should we focus on? Should we try to take H. Upmann and make it a powerhouse going against competition that was firmly ensconced, just taking the gamble that it would work, or should we go with Don Diego? Or should we create something new? What we did was sort of a shotgun effect. We threw the mud against the wall to see what would stick. We started to introduce new sizes within each of the brands. We developed a new range within Montecruz. We created the Montecruz natural claro. As soon as I got over to Consolidated, I started to pitch Dunhill--to make a Dunhill cigar, because having been with the Dunhill organization that owned Lane, I knew they were interested in a Dunhill cigar. They brought one in from the Canary Islands, and I told them I would still be interested in making a Dominican Dunhill for them.
They agreed finally, and we came in with the Dunhill cigar for them. Then in 1986, Theo engineered the purchase of the American Cigar Co. That's when--in addition to Antonio y Cleopatra, which was the biggest brand--we also acquired the rights to the old Cuban trademarks that they owned. American Tobacco Co. had a subsidiary in Cuba prior to the embargo, called Tabacalera Cubana, that made La Coronas, Cabanas, La Meridiana and Santa Damiana. At the same time, they were also making La Corona Clear Havana in Trenton, New Jersey. They still held those trademarks, so that's when we got the rights to those brands, and some other clear Havana brands as well, such as Henry Clay.
CA: What does clear Havana mean?
DiMeola: It means made in the United States of Cuban tobacco.
CA: So, it's an American-made, 100 percent Cuban tobacco product?
CA: How big was the U.S. market in the years prior to the Cuban embargo?
DiMeola: The total U.S. market for premium cigars [prior to 1962] averaged 185 million. Of the total premium cigar market, about 14.6 million were Cuban cigars, or about 8 percent. And the rest were all clear Havana.
CA: Where were the bulk of the cigars manufactured?
DiMeola: There were cigars made in Tampa, Trenton, Miami, Key West and Pennsylvania, using 100 percent Havana tobacco. Those were the ones designated clear Havana cigars, and they comprised the bulk of the U.S. market.
CA: That means that all 185 million cigars used Cuban tobacco?
CA: Were cigars imported from other islands at this time?
DiMeola: Perhaps. But it was a minuscule amount.
CA: What were the major brands produced at that time?
DiMeola:. The major brands were Bering, Gold Label, La Corona and many others. The Bering Plaza was 26 cents. The Corona Corona was 35 cents. The biggest selling Cuban cigars of the day were the H. Upmann Majestic and the Ramon Allones Ramondo. [Consolidated] sold 1.2 million cigars of each size a year--100,000 cigars a month at 35 cents retail.
CA: After the acquisition of the American Cigar Co. in 1986, what was next for Consolidated?
DiMeola: We got the American Cigar Co. brands and we started to introduce the Henry Clay. We started to sell a few Cabanas. We played with La Corona, but we never really did very much with it.
CA: In terms of highlights, I assume Te-Amo is one of the bigger acquisitions?
DiMeola: Yes, but the next big thing that happened in the company was that Mr. Perelman wanted to sell it, and so six of us did [a leveraged buyout] and bought it. That was in 1988-89. And immediately after that we bought Royal Jamaica. In 1988, Hurricane Gilbert tore the roof off the Royal Jamaica factory in Kingston, Jamaica, and through my previous distribution association with Royal Jamaica [starting in 1983], I got to know the Gore brothers who owned it, and they called me and asked if I would make some Royal Jamaica cigars for them until they could repair the roof. We started to make cigars for them, but before we made the first shipment we bought the trademark.
CA: At its peak, how big did Royal Jamaica ever get?
DiMeola: It was about where it is today. It does a little over 3 million. I think it got up to about three and a half million. It went down and it's coming back up.
CA: How low did it get?
DiMeola: I don't know. Maybe about 2 million. It would be bigger now if we could have shipped all that we had on order. I think we have 650,000 of those things on back order.
CA: At the time, since you were a principal in the company that bought it back, what was the rationale that Ron Perelman gave as to why he'd want to sell it, inasmuch as he loved cigars?
DiMeola: Mr. Perelman loved cigars, that's true. He's very interested in the business, but he's also, as you know, a genius of a financial man, and it was a financial move.
CA: Did he lose confidence in the future of cigars?
DiMeola: I don't know. I can only tell you that I think it was a financial move. I know he didn't lose confidence in the management. I think he believes that Theo Folz is one of the best managers he has in all his empire, and my personal belief is that's one of the reasons why he bought us back.
DiMeola: We acquired Te-Amo in 1989 as well, after we did the LBO.
CA: How big was Te-Amo in 1989?
DiMeola: It was about a 4 million-cigar brand then, but they also did a lot of other cigars, like bundles. The brand itself might have been 4 million or so.
CA: What's it today?
DiMeola: Right now it's around five.
CA: Why did the owners of Te-Amo sell the brand in 1989?
DiMeola: I think they wanted to cash out.
CA: Are there any other major acquisitions before we talk about today?
DiMeola: We acquired two pipe tobacco companies--small ones. We acquired Century and we acquired Milton Sherman's business and we folded it into our pipe tobacco company in Richmond, Virginia. And, of course, there's the factory that we bought in Honduras. It was originally established by the Te-Amo people, and Pepe Gutierrez, who now works for us, was president of Te-Amo in the U.S. That was his factory. They make bundles there. Primarily, it was designed then to utilize some of the tobacco being grown in Mexico. We established Las Cabrillas, which is a very good value brand, and which is doing quite well both in the U.S. and internationally.
CA: When you say a value brand...
DiMeola: Well-priced, well-made.
CA: What's the approximate size of that?
DiMeola: Today? I don't know; about 2 million--in that neighborhood. When we bought that factory four and a half years ago, we were producing 2.2 million cigars. Today, it's producing 12 million. We could have taken it to 15 million but we didn't want to use junk tobacco.
CA: How big is Consolidated's production?
DiMeola: In premium cigars, in 1995, we produced 45 million from the Dominican Republic, Honduras and Mexico.
CA: Could you break that out by country?
DiMeola: Twenty-five million from the D.R., 12 million from Honduras and eight million from Mexico.
CA: Can you tell us in terms of the machine-made cigars?
DiMeola: About 4 million machine-made in the Dominican Republic, and that's all the [premium] machine-made we do.
CA: So, of the 45 million produced outside the United States, 41 million are handmade and four million are machine-made. Just as an overview number, could you tell us the total quantity of cigars from the company?
DiMeola: I don't remember. It's big--a billion. We used to say a billion. It fell off a billion, but we're climbing back. It's probably approaching a billion when you get back to putting the little cigars in.
CA: Can you tell us a little about the partnership you had with a company that had the worldwide rights to some Cuban cigar brands? What eventually happened to it?
DiMeola: I think I mentioned earlier that we bought controlling interest of CIT, and we got into partnership with Pepe Garcia, who was the original manufacturer of Montecristos with his partners, the Menendezes, in Cuba. Pepe was in litigation in the U.S. to get the rights to his trademark, and in the mid-'70s, the U.S. government decided he was, indeed, the rightful owner of H. Upmann, Montecristo, and Por Larrañaga, which were the ones that Menendez and Garcia had.
CA: So Garcia became the rightful owner around the world?
DiMeola: The U.S. government adjudicated that he was the rightful owner of his trademarks in the United States. The same thing happened to the Cifuentes brands with other companies, and so CCB--Cuban Cigar Brands--was formed as a partnership between Consolidated Cigar and Pepe Garcia, where Consolidated had a controlling interest. And the purpose of CCB was simply to hold those trademarks. Then, we started to market H. Upmann in the United States in 1975.
CA: If Garcia owned the brands, how did you end up getting the controlling interest? Was it that there was a bigger deal through a separate division that was set up, and he was allowed to keep a significant equity even though you bought the brands?
DiMeola: That's correct. And so we started to produce H. Upmann for the United States in 1975, and those sales paid royalties to CCB in which Pepe shared, and his heirs still do today. There was also a separate situation with those brands on a worldwide basis. At the same time as the litigation in the States, there was litigation in other countries as well--France and Spain in particular. The Cifuentes brands--Partagas, Ramon Allones and La Gloria Cubana--were involved in a legal dispute in Spain as well. Their case was heard first, and we had a parallel case going of Montecristo and H. Upmann. Now, Montecristo accounted for 75 percent of the premium cigar business in Spain. So when the Cifuentes people got their win, we started talking and they said, "Look, we have a win here, and you have a brand that accounts for 75 percent of the market. You have the power. It's going to take you maybe years for your case to go through the Spanish courts. Why don't we form a partnership, and see what we can do?" And that's what was done. We, over a period of time, negotiated with Tabacalera.
CA: Who else was involved?
DiMeola: The Leopoldo Cifuentes family.
CA: So it wasn't Ramon Cifuentes?
DiMeola: No, Leopoldo is a nephew of Ramon Cifuentes and he held the world rights to the trademarks outside the United States. Whatever those world rights are. So the partnership was formed and a sale was negotiated of the trademarks to Tabacalera, the Spanish monopoly, and once the Supreme Court in Spain agreed with the lower court's decision, the world rights to those trademarks were transferred to Tabacalera, except, of course, for the United States and the Dominican Republic.
CA: And that partnership was shared 50-50?
DiMeola: No. There was a formula that was used.
CA: We heard that those rights sold for $10 million. So you got your portion, they got their portion, and today you own the Upmann's brand rights, as an example, for the Dominican Republic and the United States, and that's it.
DiMeola: Well, we also maintain that we have the rights in Cuba. And there's a litigation still going in France which we also retain, although Tabacalera holds the rights to the trademarks in France. We retain the litigation and any results of it. And that's still going through the French courts.
CA: No doubt you have internally discussed the possible scenarios of what will happen once the embargo is over, and how this will affect your business and how you will participate or not participate in the renewed market of Cuban cigars in the United States.
DiMeola: Sure. I mean it's a very interesting subject if you're a brand owner.
CA: Do you have any point of view on when you think the embargo will end? And what do you think will happen, and how will that affect the market and your company?
DiMeola: I don't know when the embargo will end. It certainly looks like we're moving in that direction. But after all, I heard people say the same thing in 1989 when the Berlin wall came down, and we still have an embargo.
CA: There is a lot of speculation that if Clinton is reelected, that in the first quarter of '97 the embargo will likely be ended. [Editor's note: The interview took place before Cuba downed, in late February, two small airplanes flown by Brothers to the Rescue, a Miami-based Cuban exile organization.]
DiMeola: Maybe it will. Maybe it won't. We don't know. I subscribe to the industry position that we would like to see the government end the embargo when they decide to do it, in an orderly fashion when it pertains to cigars and tobacco. We would like to see the U.S. industry be able to obtain Cuban tobacco first, before Cuban cigars are allowed in the market, in order to allow us to use Cuban tobacco and say that we are using it; so that the mysticism surrounding Cuba does not give anyone bringing in Cuban cigars an unfair advantage.
CA: OK. You own the U.S. rights to H. Upmann and Montecristo. Take those as obvious examples.
DiMeola: And, of course, Por Larrañaga, La Corona, Henry Clay, Cabanas and a couple of others.
CA: Do you see the case of Montecristo and H. Upmann and others that you would then produce one brand, or a parallel brand? Would you continue to produce a Montecristo in the Dominican Republic and have a sister brand with maybe a different color band from Cuba? How do you see this unfolding, especially since you have a huge investment and a very sophisticated operation in the Dominican Republic?
DiMeola: First of all, we're not going to abandon our investments in the Dominican Republic, Honduras or Mexico. Secondly, I have to give you a non-specific answer because I don't know. We're playing it by ear, because neither we nor anyone else knows what they are going to find when they get to Cuba. I will say that, in my opinion, 10 years after the embargo is lifted on tobacco products and cigars--after the necessary capital investment is made in Cuba, and the crops are delivering sufficient supply--and after the trademark issues are settled, we will find Cuban cigars on the U.S. market again. They will co-exist with all the other cigars.
Here's a scenario for you--a theory that may or may not come to pass. Go back to what we were talking about earlier. The total market in the United States [of pre-embargo, hand-rolled premium cigars] was 185 million, but only 8 percent came from Cuba. What's likely to happen in the future? Can we say that the clear Havana market that existed prior to 1961 has now been replaced by the Caribbean and Central American product? And that Cuban cigars, when they come back into the United States, will co-exist at the same levels that they existed before? Maybe. Don't forget--we didn't have the tobacco that we're getting now from places like the Dominican Republic in 1960.
CA: Let's say you are able to go out and buy large quantities of high-quality Cuban tobacco, which can either be shipped to the United States to be made as it was 40 years ago, or, more than likely, you would ship it to the Dominican Republic where you already have the rollers. You already buy tobacco from all over the world for that plant, and then the rollers there would be producing either clear Havana cigars made in the Dominican Republic or a blend. After all, you use blends of different tobaccos, so the new product might be a cigar that has tobaccos from two or more countries, including Cuba. Isn't that possible?
DiMeola: I would guess we would want to experiment with Havana tobacco to see what it does to our blends, and we would want to test cigars made with Havana tobacco and blended with Havana tobacco to see what the American public at large thinks of them. Bear in mind the American consumer has always been different from the world consumer. Even when the market was 185 million, 90 percent of the Cuban cigars coming into this country and 90 percent of the clear Havana cigars sold in the United States were candela wrapped--green. Today, candela's nothing in the market, but it was 90 percent then, and only in the United States. That's where the term English market selection came from, because English market selection cigars were made with natural [brown] wrapper.
CA: I guess it is likely that there will be a lot of new brands, which might be frightening to the trade, but it should be very exciting to the consumer.
DiMeola: Very exciting. I think that, in fact, it's going to focus people on cigars in general, and that will take the cigar industry to another plateau.
DiMeola: I'm very excited about it, and I think that all of the above can happen. However, I think that you have to put it in a time frame as well. I'm not an agronomist, but I've been told by people who know that it would take three to five years to bring the crops in Cuba back to where they were before. And then how much can the production be expanded, and how fast can that be done? Three to five years, if Mother Nature cooperates.
CA: They're trying right now, and they're having problems that aren't even financial, that have to do with weather and storms, even though there are conflicting reports about the extent of damage right now.
DiMeola: Look at the U.S. [premium cigar] market right now--it's where? Where did it come in last year? One hundred and sixty, 165 million cigars? I haven't seen the final numbers. [Editor's note: Estimates this March place 1995 U.S. premium cigar sales at 176 million.] It's still not back to where it was prior to the Revolution, right? We still have a long way to go. I'm beginning to believe what you said last year, Marvin, in that we've only scratched the surface.
CA: But there is a difference. You said that the average pre-embargo cigars cost three for a dollar. I mean, you know the premium price level is going up. Isn't everybody raising their prices?
DiMeola: I bought one of my own cigars in a hotel last year for $15. Last night I would have to have paid $23.
CA: That's ridiculous. Let's move on. The topic of wrappers is controversial and, frankly, quite interesting to cigar smokers, because we're beginning to learn much more about them. You are faced as a producer with political and availability issues. In your opinion, is there a country which produces the best wrapper, and if so, what country is it?
DiMeola: The United States.
CA: Connecticut wrapper?
DiMeola: Connecticut wrapper.
CA: You believe the Connecticut wrapper is the best wrapper in the world? OK. Why then, do you not use the Connecticut on all of your cigars?
DiMeola: It's a matter of producing variances in taste. We have another wonderful wrapper that we use from Indonesia. I classify Connecticut as number one because of its color and because of its burning characteristics, as well as the taste and its workability.
CA: Can we talk a little bit about the various sources of tobacco--of wrapper tobacco for your brands and what has changed as a result of the difficult harvests in the Cameroon. First of all, let me just go down a list: H. Upmann? Where's the wrapper from?
CA: Primo del Rey?
DiMeola: Indonesia. I had to think. It used to be Brazil.
CA: Don Diego?
DiMeola: There are two different types of cigars in the Montecruz brand. One is Connecticut and the other is Indonesia.
CA: Royal Jamaica?
DiMeola: Royal Jamaica is Indonesian.
DiMeola: Te-Amo's Mexican.
CA: How long have you been using Indonesian wrapper? You apparently used Cameroon at one time, but you no longer do. Can you explain how the switch occurred?
DiMeola: We were a big user of Cameroon. It was used on Antonio y Cleopatra, but when we converted A&C, which was as big as the whole premium market combined, we began using it on H. Upmann, Montecruz, Royal Jamaica and some others...
CA: Say that again. After A&C, you said you used it on H. Upmann?
DiMeola: H. Upmann. Royal Jamaica. Montecruz. There may have been some others.
CA: Primo del Rey?
DiMeola: Not Primo del Rey. In 1988, George Gershel saw the handwriting on the wall. Even then, he saw that the quality of Cameroon was starting to deteriorate. And also, he had the feeling that maybe the supply would also dwindle. So, in 1988, he started playing with Indonesian wrapper. Up to that point Indonesian wrapper was used primarily in Europe on machine-made cigars--and it still is today. But by 1990, George, in cooperation with the suppliers in Indonesia, felt that we had developed wrapper that was good enough for Antonio y Cleopatra, and so we converted the whole of the A&C brand from Cameroon to Indonesia. Very successfully.
CA: That's a machine-made cigar?
DiMeola: That's right. Without a peep from the market--we haven't had a single complaint in five years on A&C. We said nothing. The tobacco looks the same. You can't tell the difference. We continued to work with it, because they had to change the way it was processed. Change the fermentation. Put a little more fermentation on it, handle it differently. Once we learned how to work it, in '92, we converted Royal Jamaica from Cameroon to Indonesia. That was a "no-brainer" actually, because Royal Jamaica always had a Cameroon wrapper and an Indonesian binder. So all we did was reverse it. We used Cameroon binder and Indonesian wrapper. That was quite successful. No problems. A year and a half or so later, we converted Montecruz from Cameroon, and a little more than one year ago we converted H. Upmann, very successfully, to a wrapper from Indonesia referred to as TBN, which stands for Tabakau Bawah Nuangan, which means, 'tobacco under a tent.'
CA: What happened in Cameroon that caused George to become suspicious, and what actually happened that made it necessary to switch?
DiMeola: I'm not a leaf man, but as I understand it, I believe that the French financial supporters in Cameroon and the Central African Republic pulled their money out.
CA: How did that affect production?
DiMeola: Well, I think they're still growing tobacco, but the amount of tobacco that they're getting is much smaller, and the quality has been much lower. Fortunately for us, we were able to make a change.
CA: Was there any difference in price between Indonesia and Cameroon?
DiMeola: I think it's about the same. So today, they're growing 600 acres for us in Indonesia.
CA: Can you, for the benefit of our readers, put into words--your words--what you see as the taste characteristic of the Connecticut wrapper, the Cameroon wrapper, the Indonesian wrapper--so when they're smoking, they know what they're looking for?
DiMeola: We use Connecticut for eye appeal, because people smoke with their eyes, just like we eat with our eyes, and the taste characteristic is neutral, in my opinion, allowing the blend to take over a little bit more. I think Cameroon has less eye appeal, but it is sweeter and adds more to the flavor and aroma than does Connecticut. Indonesian is less sweet than Cameroon--more neutral and therefore similar to Connecticut wrapper, but it has the same color characteristics as Cameroon.
CA: So what I'm hearing is that the Indonesian wrapper is somewhere between Cameroon and Connecticut?
DiMeola: That's a good way to describe it, but then again, that's my taste. You might think differently.
CA: In your Dominican factory, you use tobaccos in the blending process from various countries. Which tobaccos are more important to you?
DiMeola: Dominican. Dominican filler of all kinds and Dominican binder.
CA: So in the case of the Don Diego, which has a Connecticut wrapper, the binder and the filler is all Dominican Republic.
DiMeola: There's a little bit of Brazil in the filler.
CA: In the case of H. Upmann, which is an Indonesian wrapper, is it 100 percent Dominican binder and filler?
DiMeola: No. It's not 100 percent. There are some other things in it.
CA: What else besides Brazilian tobacco--other than Dominican--do you use for binder?
DiMeola: We use Mexican and Indonesian.
DiMeola: No. We experimented with Nicaraguan, Ecuadorian, and we're not now using any of them. We're still using some Cameroon, but not for wrapper.
CA: Do you see the quality of the crops for binder and filler in the Dominican Republic changing, or has it basically been consistent in quality for the last 10 or 15 years? Is it in any way changing?
DiMeola: It's been more or less consistent. Last year's crop was good and I'm told this year's crop is looking excellent. I'm not a leaf man. I'm only telling you what I hear.
CA: Do you have any plans for using or experimenting with Dominican wrapper?
DiMeola: We don't own any farms in the Dominican Republic. If somebody can produce good Dominican wrapper tobacco and it becomes available in sufficient quantity, we would certainly be interested in it, yes. We'd be interested in anything that's going to help our blends.
CA: But you have no plans to vertically integrate, to become a farmer?
DiMeola: No, we do not.
CA: And you don't own any land, per se, anywhere in the world to grow tobacco.
DiMeola: Not any longer. We feel this gives us more versatility.
CA: Do you see anything new on the horizon that will affect the taste or the quality of any of your brands in the next three or five years?
DiMeola: Nothing new in the way of new tobaccos. We're always experimenting with blends and things. We're trying to keep our fingers on the pulse of the market to see what the consumer wants. We try to produce blends that we think will appeal to masses of consumers. For example, the European trade has been conditioned for years by the heavier Cuban-type cigar. So in order to accommodate them, we have produced blends with more kick. That doesn't necessarily mean that the European consumer, in general, is married to it. My personal belief is that this tactic on the part of European trade distributors and retailers has limited the market. We find that some mild Dominican cigars indeed have an acceptance by some people and do not affect Havana sales at all. So Dominican cigars are becoming more and more popular. There are some markets--one market, anyway--in Europe where Dominican cigars outsell Cuban: That's Germany. But Germany is not a typical Cuban market.
CA: Given the dramatic increase in your production in recent years and given what appears to be increasing demand for cigars in the foreseeable future, do you see the availability of high-quality tobacco to continue to grow at significant levels? And do you see companies being able to hire, train and develop the necessary skilled people to produce a high-quality cigar?
DiMeola: The reports are that the farmers are growing more acreage. The labor problem is one that takes time. No one in the premium cigar industry has been able to keep up with the rate of increase in demand, and I see that continuing. I don't think that we can train the workers fast enough.
CA: With specific regards to Mexico, is that pretty much a self-contained unit of operation?
DiMeola: Our operation in Mexico is entirely vertically integrated. We use only Mexican tobacco there and it is all grown by the same person.
CA: But you don't own any assets?
DiMeola: We don't own any assets in Mexico. We own the trademark, Te-Amo, for the United States, and we have a contractual arrangement with people in Mexico.
CA: Someone owns the entire operation, and you have an agreement to purchase all of their production?
DiMeola: That's correct. Well, we don't purchase all of their production. They have some business in Mexico and they're doing some little business in Europe.
CA: But Te-Amo is their only consumer brand?
DiMeola: That's correct.
CA: What is the situation with the cigars that are produced by you in Honduras?
DiMeola: The purpose of the factory originally, before we owned it, was to utilize Mexican tobacco, and we are continuing to use Mexican tobacco heavily. We also have introduced a Connecticut-wrapped brand, Las Cabrillas. We also have introduced other tobaccos for blending purposes there, from Honduras, the Dominican Republic and Mexico, as well as from some other countries.
CA: But the main brand there is Las Cabrillas?
DiMeola: Yes. The primary production there is still bundles and private labels.
CA: Which brings me to one of the great success stories in the cigar business--bundles. Very little is known about the world of bundles. There are a lot of people who buy bundles believing that they are getting the same cigar as some major brands, but at half the price. Can you give us the background on bundles and exactly what kinds of cigars are used?
DiMeola: I can't speak for the other companies. In our company, we originally produced bundles from our seconds, the rejects. We would accumulate rejected cigars, which were rejected for one reason or another after they were made--usually a tear in the wrapper, maybe too much vein or for whatever reason. And we then packed them up in bundles and sold them off.
CA: I assume they were no-name brands?
DiMeola: That's correct. So therefore, the consumer was getting an H. Upmann or a Don Diego or any of our brands in a bundle.
CA: But the consumer didn't know if he was getting an H. Upmann second?
CA: When did this begin, the bundle business?
DiMeola: We were doing it when I joined the company. Probably at the very beginning of production.
CA: Doing it then and doing it on the scale that it's done today is quite different.
DiMeola: Things have evolved to where [the business] is today. In our case, as I told you earlier, we had a factory there that was half-empty and we wanted to build the production--build the business.
CA: You're talking about the Dominican Republic?
DiMeola: Yes. In our case we wanted to build the production, and as I said, we were throwing the mud against the wall to see what would stick. And one way to build production was to put the company into the bundle business; it served another purpose as well, which was training.
CA: Of your 41 million handmade cigars today, how many are bundles?
DiMeola: Fifteen million that go to smoke shops.
CA: Fifteen million cigars are bundles with non-brand names.
DiMeola: Don't say they're non-branded.
DiMeola: The business has evolved into bundles that are generic, branded bundles and private-label bundles.
CA: Generic, which is non-branded, branded and private label. Describe a private-label brand to me.
DiMeola: Private label is a brand that might go to Wal-Mart.
CA: Of the branded bundles, what names would be the ones that people would know in the United States?
DiMeola: The Republica Dominicana. That's available at cigar stores across America. Matacan. Riata.
CA: Where are they made?
DiMeola: Matacan in Mexico. Riata in Honduras. Republica Dominicana, Dominican Republic.
CA: And private label simply means that there's a chain of drug stores or department stores that buys the entire lot and they own the name or you own the name?
DiMeola: We put many smoke shops in the private-label business. We maintain a stock of labels. We bring in unbranded bundles. We maintain a stock of them. We slap their label on it and ship it to them.
CA: I mean, other than a retail store that is also in the catalogue business, does an individual store have enough volume to justify being in the private-label bundle business?
DiMeola: No. We bring in generic stock which is maintained in our humidors in Richmond, Virginia, which is our distribution point, and we'll stock labels for an individual retailer. He'll call up and say he wants 500 cigars or 1,000 cigars over three or four different shapes. We'll take his label out of stock, affix it to that generic bundle and ship it to him. That becomes his private label.
CA: How much lower in price is a bundle of handmade cigars? Let's take H. Upmann, for instance. It sells for about $90 for a box of 25 cigars. What would the same cigar as a second cost in a store?
CA: Half? So there's a 50 percent discount. Is it to the consumer's benefit to try and ferret out which brand it was that went into the bundle? Or is there no way he's going to find out?
DiMeola: He's not going to find out, because these are no longer seconds. It's a different cigar now. Now we produce bundles.
CA: Cigars specifically for bundles?
DiMeola: That's right--which we now want to move.
CA: Move in what way?
DiMeola: Look--if the demand is so high for Montecristos, Upmanns, Por Larrañagas, Primo del Reys, Don Diegos or whatever, and our labor is a major problem in making enough cigars, it's to the retailers' benefit, and to our benefit, to make the Montecristos, the Larrañagas, the Upmanns and the Don Diegos. So we would like to move that labor making bundles now, to the premium cigars.
CA: So you want to raise your total production and reduce the volume of bundles.
DiMeola: Either that or make them someplace else.
CA: But you did say something about you're now making them different from the premium cigars.
DiMeola: Originally, they were true seconds--they're no longer true seconds. They're being made as bundles.
CA: So they actually don't have defects necessarily?
DiMeola: That's correct. It's just not the same quality tobacco. It's not the meticulous production, and the packaging is not there, but we're making bundles for bundles. We are still packaging rejects, but the number of rejects we're getting has been reduced considerably on a percentage basis. Yet because production has increased so much, we still get a significant quantity of seconds for bundles. So now what we do is we accumulate a half million of them and then we pack them up and we sell them in units of 1,000. We will not allow any customer to, as we say, cherry-pick the range for shapes. We sell the units of 1,000 proportionately and they move out like that.
CA: In 1990, when the market for handmade cigars was roughly 100 million, what would you estimate was the market share for bundles?
DiMeola: I honestly don't have that number.
CA: Well then, let me reverse it. If, in 1995, it turns out that the handmade cigar category was 170 million, which seems to be where it's headed, what percentage of the market today is bundles?
DiMeola: I don't know that. I just don't know it. I would guess it's smaller than it was in 1990 as a percentage basis because there has been so much increased interest in brands and higher-priced products.
CA: But today you're doing 15 million--five years ago was it...
DiMeola: Well, before we had the Honduran factory, I would guess the proportion of bundles coming out of our Dominican factory was about the same as it is now.
CA: But your production is so much greater today; a lot greater. Today, you're producing 25 million cigars in the Dominican Republic. Five years ago it probably was 12. Something like that, right? Where do most of your bundles come from? Do they come from Honduras or the Dominican Republic?
DiMeola: Honduras and Mexico.
CA: So the Dominican Republic factory produces a small portion of your bundle business?
DiMeola: That's correct. And we would like to produce an even smaller amount there.
CA: Jamaica. You've said to me that you are either planning to, or are in the process of, reopening or opening a factory in Jamaica for the production of Royal Jamaica. Can you talk a little bit about that project?
DiMeola: We're in the process of that project now. We would like to open a factory in Jamaica. We would like to move the production of Royal Jamaica to Jamaica for a number of reasons. One important reason is we then relieve La Romana. Another reason is that we think the story that can be told about bringing Royal Jamaica back to Jamaica is an interesting one--the fact that Jamaican authorities are looking on this as if they have found a long-lost national treasure.
CA: Is there any Jamaican tobacco that goes into it?
DiMeola: Absolutely. There always has been.
CA: In the filler? The binder?
CA: What percentage of it might be...
DiMeola: The vast majority. It's a majority.
CA: Is it a fact that it's going to happen?
DiMeola: It's not a fact. It's still in negotiations.
CA: And you hope to resolve that negotiation in the coming months?
DiMeola: We hope to resolve it in the coming weeks. It won't be totally resolved, but we're getting close. [Weeks after the interview, DiMeola informed Cigar Aficionado that the first cigars would come out of Consolidated's Jamaican plant in June.]
CA: Assuming it is, is there a factory that is already built?
DiMeola: There are buildings.
CA: There are buildings? The original buildings?
CA: What about the workers?
DiMeola: We would have to hire workers.
CA: And train them?
DiMeola: We think that we can attract a small core of trained workers who, perhaps at one time, worked in the old Royal Jamaica factory. So from that we would have to build. It would be a slow building process.
CA: Could you compare the new smoker in the market today with the consumer of five years ago?
DiMeola: He's younger. The average age of entry into smoking cigars used to be 35. Today it's lower. I don't know what it is; we haven't done the research. That smoker today is smoking better and fewer. I mean, I don't want to use a cliché, but I think that's a fact. The younger smoker is smoking fewer cigars, but he's smoking better cigars. There are consumers now who won't buy a cigar unless it costs them more than $5. I speak at some of these dinners and the subject of price comes up and I tell that to the audience: There are people among you who won't buy a cigar unless it costs you more than $5.
DiMeola: Image. So we need to bring $5 cigars to them.
CA: Are the questions that they're asking changing?
DiMeola: Yeah, sure. They're becoming more sophisticated. They're being educated by Cigar Aficionado . They are being educated at these dinners. You no longer get the questions, "How do you cut a cigar?" "How do you light a cigar?" They want to know how it's made. They want to know where the tobacco comes from. They want to know the same questions you're asking about Cuba. They want to know about Cuban cigars--"Are Cuban cigars really the best in the world?" You get stories from them about "I went out and tried a Cuban cigar, and I didn't like it." And the answer to that is that everybody has their own taste and everybody has their own preferences. Try the Cuban cigar, see if you like it. Even though--remember it's illegal--except [outside the United States].
CA: Do you think that all the recent publicity regarding women cigar smokers is hype and P.R., or do you really see a significant market evolving?
DiMeola: If you asked me that question two years ago, I would have said there's absolutely no way that anybody can build a market in cigars selling to women. And now, here I am creating a couple of new shapes we're calling Cleopatra, designed for women.
CA: Tell me about Cleopatra.
DiMeola: Well, I don't want to tell you what it is because it's not on the market yet, and I don't want to educate anybody to that extent.
CA: Well, is it going to be on the market soon?
DiMeola: I hope so.
CA: You don't want to tell me what the blend is?
DiMeola: I don't want to tell you what the shape is.
CA: OK. All right, let me ask you a specific question. Is it true that you're coming out with a new brand, called Cleopatra, that is designed for the female market?
DiMeola: You know what a corona is?
DiMeola: And you know what a Churchill is?
DiMeola: Well, these are Cleopatras. It's a shape.
CA: In other words, you're coming out with a unique shape and size for the female market?
CA: And when is this happening?
DiMeola: Within 90 days.
CA: So this is a great opportunity to tell the world, because this issue is published in June.
DiMeola: I'll tell you this much. We see the increased interest among women in cigars. And we also see the increase in publicity surrounding women smoking. It's a natural. So when we talk to women, we find that they like small cigars and they like big cigars. Well, we already make small cigars and big cigars; so there is nothing to talk about. We said, why not create a cigar specifically designed for women? Now we have something to talk about, and look at all the publicity we're going to get. So we're going to take it and put it in one of our brands, Don Diego, and we're going to have the Cleopatra shape in the Don Diego brand; and it's going to be specifically pointed at women. You're going to see more and more publicity surrounding women smoking. Whether or not a real business can be built catering to women, I don't know. I believe that women are more occasional users of cigars than the young men today.
CA: The question is whether or not they want to be separated out, having their own cigar, versus smoking what everyone else does.
DiMeola: Whether they do or whether they don't, it doesn't matter to me. What matters to me is--I'm not interested in the business that I can get in Cleopatra shapes, per se. I'm interested more in the publicity we can get from it. I was talking to a reporter about the cigar business once and they asked me the same question about women, and I told them that I was creating the Cleopatra shapes and it appeared in an article--some obscure article somewhere--and we're already getting calls about it.
CA: So this will be sold through normal channels?
CA: Last question before we wrap up. Montecristo--the largest-selling Cuban brand in the world. You have the rights to it. In the last few years you have introduced a Dominican version of it. One could argue that you're increasing your production radically, but in fact it's only available at a limited number of outlets. One could claim that you aren't making it available to the total market. A lot of people would like to try it. What plans do you have to accelerate the production and the distribution of the cigar--to be as widely available as a major national brand?
DiMeola: One of the problems, as you know, is making enough cigars. Our traditional brands that have been in the market for years have been increasing in volume tremendously. We have an enormous amount of cigars on back order right now, and the problem has been that once you increase production somewhere you decrease production somewhere else on specific brands. Our program is to try to increase the inventory levels of Montecristo and then to expand the distribution. We do not want to open new outlets for Montecristo without having an assurance that we can keep those new outlets supplied.
CA: When do you see that day coming?
DiMeola: I think that this year we can begin to expand it slowly.
CA: Are you talking about two or three years before it's available to tobacconists across America?
DiMeola: Availability like any major brand? I don't see it ever becoming available like any major brand. I think it's going to be an exclusive brand...but it will sell a substantial number of cigars.
CA: In 1995, how many Montecristos were sold to the consumer?
DiMeola: Under a half a million.
CA: For 1996, what are you budgeted?
DiMeola: Maybe a million.
CA: In 1997?
DiMeola: I haven't gone that far.
CA: You've been in the business for 40 years. You have lived in an industry which has gone through, in totality, enormous decline. You have been an executive in an industry which has been publicly denounced and beat up, and challenged on many social levels; and that has witnessed the cultural removal of cigar enjoyment--certainly when compared to 30, 40 or 50 years ago, when everybody who I ever meet, their father and grandfather smoked cigars. And now, of course, in California and New York you can't even have a nice meal and finish that evening smoking a cigar with your friend. It's pretty frustrating to the consumer--and to some of us, despicable. Where do you see the cigar market today from a social point of view, and what do you see happening in the next five or 10 years? Do you see more states like New York and California outlawing us--sending us into the streets? Do you see the pendulum coming back, where there's more reason and acceptance of cigar smoking? From your point of view, what do you see as the future for all of us?
DiMeola: I think there are more places where you can smoke a cigar publicly today than there have been in many years. When I started in the business, it was even legal to smoke a cigar on an elevator. We always tried to teach cigar smoking etiquette. And we always tried to teach the smoker not to smoke in an elevator when it was full. And to use common sense--and we're still preaching that in the cigar industry today.
In the '50s and the '60s, we all had restaurant programs to try to get humidors in restaurants, because we felt there were captive consumers there; if they forgot their cigars, they had to buy them at the restaurant, because everyone smoked after a meal. That's the best time to enjoy a good cigar. And we felt that it was brand-building when you had to buy from the restaurant, even if you were paying more money. It was your brand you wanted them to smoke as a sampling.
Then we saw this change to the point where every restaurant--and this is something I really didn't understand--most restaurants put it on their menus: No Cigar or Pipe Smoking Allowed. They were allowed to smoke a cigarette, but not a cigar. And it got to the point where--I mean this happened to me once--I was in a certain room of a restaurant, and I took out a cigar and I was just holding it. It wasn't lit, and some person in the other room complained that, "He has a cigar." But I'm not smoking it! "Well, he's going to smoke it," she said. That was the bottom.
Today, here we are in the city of New York, and it has a no smoking law in public places. I think of cigar bars--there are four or five of them in the city. As a result, the restaurateurs are suffering. Take a scenario where five or six people have a business meeting and then they want to go out to dinner. Well, if they're cigar smokers, they'll go to the cigar bar and they'll have a cocktail and smoke a cigar before dinner. Then they'll go have their dinner. Then they'll leave the restaurant and go back to the cigar bar for their coffee, Cognac and cigar; so a $600 bill becomes a $300 bill for the restaurant.
CA: When they can, a lot of restaurants, especially today, try to offer cigars. A lot of them can't.
DiMeola: Agreed. But now this is happening all over the country. In Fort Lauderdale, where our headquarters is located, there is a restaurant called Smoke that caters to cigar smoking. It's been so successful [the owner has] opened up his second floor, which he calls Up In Smoke, which is like a nightclub. Nick's Fish Market just opened an atrium in Boca Raton for cigar smoking. It's happening all over America. So there are more places to smoke a cigar today then ever before. And I think that that trend is definitely going to continue.
CA: So do you believe then that, in spite of a number of restrictions that cities and states are placing on smoking, because of consumer demand there are a number of outlets opening and that this will continue, bringing about a wider selection of locales for people to enjoy their pastime?
DiMeola: This is a government for the people, by the people. And as consumers become more and more interested in wanting to have a place to smoke, then governments are going to have to allow them to do it.
CA: 1990: 100 million premium handmade cigars; 1995, 170 million. The year 2000?
DiMeola: Well over 300 million--and climbing.
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