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Swisher International Group Inc. Switches Gears

With three factories in two countries and a growing roster of brands, Swisher's investment in handmade cigars definitely isn't too little. But is it too late?
Brendan Vaughan
From the Print Edition:
Gina Gershon, Sep/Oct 98

On August 27, 1996, Manuel Quesada, owner of the Dominican cigar company MATASA, visited the headquarters of Swisher International Group Inc. in Jacksonville, Florida. Quesada, the highly regarded maker of Romeo y Julieta, Fonseca and other cigar brands, had come to discuss a partnership with Swisher: a jointly financed, state-of-the-art cigar making factory in the Dominican Republic, to be run by Quesada. This, after all, was the height of the cigar boom and Swisher, America's dominant machine-made cigar company, had yet to make a single premium smoke. It owned and distributed several brands, including flagship Bering, but was at the mercy of its suppliers. Cigars were scarce. The Swisher executives in the room--Tim Mann, president; Tom Ryan, executive vice president of sales and marketing; and Nick Cevera, executive vice president of operations--were eager for more control of their company's destiny.

About two hours into the meeting, Mann's secretary delivered a fax. In New York, General Cigar Holdings Inc., the maker of Macanudo and Partagas, had just announced plans to acquire Villazon & Co., owner of the non-Cuban Punch and Hoyo de Monterrey brands. General, already a powerhouse, would now boast a dazzling roster of premium brands. At a moment in industry history that didn't want for signs of the times, this news resonated. General paid an estimated $70 million in cash and stock.

Though Mann and Ryan say the announcement didn't affect their plans, it must have been a bittersweet reminder of just how hot the premium market was--and that they hadn't taken full advantage. "We already had a pretty strong sense of urgency about getting into the premium market," Ryan recalls. "Like everyone at the time, we were struggling to get more cigars. The Villazon deal was just another indication of the size and strength of the market."

A few months after the talks began, Quesada and a Swisher contingent flew to the Canary Islands for a meeting with representatives of Central Industrial de Tabaqueros Associados Tabacos de Canarios S.A. (CITA), the manufacturer of Casa Buena, which Swisher distributes, and Swisher's machine-made King Edward brand for Europe. Would CITA be interested in becoming a third partner in the joint venture? It would. Construction of the factory, called Compañia Tabacos de Exportación S.A. (COTABEX), began in February 1997. The first cigar was rolled there in October.

For Swisher, Cotabex was just one element of a three-part campaign to become a major premium cigarmaker. At about the same time that Cotabex started rolling cigars, Swisher cut the ribbon on a wholly owned, 78,000-square-foot factory in El Paraiso, Honduras. A few months later, it purchased 50 percent of Puros de Villa González, a tobacco processing and cigar-rolling plant in Villa González, Dominican Republic. As of September 1997, Swisher had zero capacity for premium cigar making. Today, with all three factories combined, it can make as many as 50 million premium cigars a year.

That's a lot of hand-rolled smokes for a 137-year-old company whose name conjures up images of mass-produced Swisher Sweets, not of verdant tobacco fields and bustling rolling rooms. Led by its Swisher Sweets and King Edward brands, Swisher has a 26 percent share of America's "large" (premium-sized) machine-made cigar market and a 46 percent share of the "little" (cigarette-sized) machine-made segment. A public company since December 1996, it earned $39.3 million on sales of $275.6 million in 1997. Though cigars represented 74 percent of total sales--the rest came from smokeless tobacco brands such as Silver Creek and Chattanooga Chew--premium cigars represented just 13 percent of total cigar sales. The meat of Swisher's business comes out of its Jacksonville factory, the largest in the world. It churns out about 7.6 million machine-made cigars a day.

With its emphasis on machine production and mass marketing, Swisher had been ill-positioned for the premium cigar boom--and slow to respond. Even now, though its commitment can't be questioned, some in the industry still believe Swisher just doesn't "get" the premium side of the business.

Swisher executives hear the whispers. "We're viewed as an old-line cigar company, if you will," concedes Mann, a blunt, affable 56 year old who favors Swisher Sweets little cigars. "In a lot of ways a 'fine old company.' But what we want to be known as is the most innovative cigar company in the United States."

T he gold rush atmosphere that infused the grimy Dominican city of Santiago and its environs in 1996 and 1997 is fading, but signs linger. Driving down Salvador Estrella Sahdalla, a major thoroughfare, we pass a used car lot. No one's shopping for wheels, but a group of men appear to be haggling over something. "Look closely," urges the driver, Marco José Antuña, general manager of Puros de Villa González. "That's tobacco." Sure enough, large green tobacco leaves hang from the rafters of an empty pavilion near the back of the lot.

It's a few minutes past 8 on a balmy Thursday morning in late March, and Antuña is taking the 20-minute drive from Santiago proper to Villa González, an adjacent town of about 36,000. Like virtually all Dominican cigarmakers, Antuña owns a four-wheel drive, in this case a brown-and-white 1998 Mitsubishi Montero. After a few miles of dense traffic on Salvador Estrella Sahdalla, he veers to the north onto a small road that winds through lush Caribbean countryside and tiny villages of abject poverty. This is the heart of the Cibao Valley, Dominican tobacco country. The Septemtrional Mountains rise up softly to the immediate north; the Central Mountains are distant but visible to the south. Tobacco plants are ubiquitous, but the harvest is nearly over. A few sorry little leaves remain on some plants, but most are picked clean and the curing barns that dot the fields are abundant with filler leaves just beginning to dry and brown.

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