Executive Vice President, Chief Operating Officer, Consolidated Cigar Corporation
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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.
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