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