The Montecristo War
From the Print Edition:
cigar case, Summer 93
Members of Spain's political elite might be in for a surprise the next time they ask for the humidor at one of their preferred Madrid restaurants such as the Paradis, just around the corner from the Spanish Parliament. Montecristo, one of politicians' favorite smokes and the largest selling Cuban cigar brand in Spain, may be removed from the market if relations between the Spanish tobacco monopoly and the Cuban cigar marketing organization deteriorate further.
As of mid-March, Spain's Tabacalera and Cuba's Cubatabaco were holding a series of confidential meetings to discuss the future of Montecristo and a slew of other brands, including H. Upmann, Por Larrañaga, Partagas, Ramon Allones and La Gloria Cubana. In September 1991 Tabacalera bought the world rights--excluding Cuba, the United States and the Dominican Republic--for $10 million from Cuban Cigar Brands, a partnership formed by American tobacco giant Consolidated Cigar and Spain's Internacional Cifuentes. Court cases in Spain and France have, in effect, supported Tabacalera's ownership of the brands, leaving its relationship with Cubatabaco tenuous at best.
It's become a battle for Montecristo. Both Cubatabaco and Tabacalera know that nothing else sells like the prestigious brand with its unique brown band and yellow, gold and red decorated box. The stakes are high. Montecristo is Cuba's largest selling export cigar, with annual sales of 30 to 35 million cigars, or about half of the total exports of Cuban cigars. European retail sales of Montecristo were over $200 million last year. In 1991, the Spanish smoked more than 20 million Montecristos, accounting for 70 percent of the Cuban cigar market in Spain. During the same year, Montecristo comprised about 50 percent of the French market, or nearly six million cigars. Meanwhile, the British puffed away on two million "Monties" during the same period, while the Swiss took another one million.
Many of the cigars in the Montecristo range are the benchmarks for their respective sizes and shapes. "Montecristo is considered a reference point for all Cuban cigars," says Bruno Vuaille, a director with the French tobacco monopoly SEITA. "For Frenchmen, it is the first Cuban cigar they ask for." For example, Montecristo No. 4, a petite corona that measures 5 inches long by 42 ring gauge or 42/64 of an inch thick, is the world's most popular Cuban cigar, with annual sales of about 20 million. Other textbook Montecristo vitolas, or shapes, include the No. 2, the thick pyramid-shaped 6 inch by 52 cigar; the No. 1, the 6 1/2 inch by 42 lonsdale; and the No. 5, a short 4 inch by 42 cigar. (See accompanying story for production information.)
Although it has won court cases in Switzerland and Portugal, Cubatabaco is incensed over losing control of Montecristo in its two key markets, especially with financial damages now being accessed in both; in France alone they could total well above $100 million. To make things worse, last year's French court of appeals decision also banned the sale of Montecristos in France, sending Frenchmen across the border to Belgium, Switzerland, Spain and Britain in search of their favorite cigar. The sales of Cuban cigars in France have been cut in half. Moreover, the decision prohibits the French monopoly from producing its 100 percent Havana leaf cigarillo, the Mini-Montecristo, which had annual sales of more than 15 million.
"We can replace the sales of Montecristo with other brands, but it won't happen overnight," notes Vuaille of SEITA, who is now promoting its Mini-Quai d'Orsay cigarillo to replace the Mini-Montecristo. "For another two or three years, we are going to miss a lot in the Cuban cigar business. We can only hope that there is a solution to this whole thing."
What that solution will be remains to be seen, and Cubatabaco now refuses to comment on the situation. However, sources close to the upper echelon of Cubatabaco say the negotiations have been in a stalemate. "It was always understood that Tabacalera would sell the brands to Cubatabaco after it took control of them," confides one source. "Cubatabaco was happy to pay the same price for the brands. However, after gaining the ownership of the brands, Tabacalera wanted to become the European distributor for them. The Cubans are very upset."
Alfonso Gota Losada, Secretary to the board of Tabacalera, explains that when the company's board of directors approved the trademark purchase, it did not specify any future sale. He says that one of the main reasons for buying the brand was to avoid getting into a jam like their French counterparts. If Tabacalera was not the brand owner today, Montecristo probably would have been removed from the market by now, unless Cuban Cigar Brands had agreed otherwise. Now with the brands firmly in hand and the court decisions in Spain and France assuring its ownership in those markets, Tabacalera believes that it can come to an agreement with the Cubans. "We have the trademarks, but we don't have the cigars," Gota clarifies. "They have the cigars but can't sell them because we have the trademarks. We're condemned to understand each other. Tabacalera does not want a confrontation with Cubatabaco. We want them to recognize that we're the owners of the trademark. We're aware that they have the labor, the raw materials and the [cigar making] tradition."
The Cubans are not going to be easily won over. "We are dealing with the problem at the moment," maintained Francisco Padron, Director of Cubatabaco, during an interview last November. "Some things are more complicated than they seem .... If we cannot solve our problem with Tabacalera, we are going to launch a new brand name as a substitute for Montecristo. We would then withdraw the brand [Montecristo] from Spain. No problem."
Cubatabaco had been considering two replacement brands for Montecristo, Behike and Cubatabaco, but its agents vetoed the names during meetings in February. "These were ridiculous names," said one agent. "How could they think that these names could replace Montecristo?"
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