A New Boom?
Despite a slumping economy and an anemic stock market, cigar sales in the United States are showing signs of revival
From the Print Edition:
Edgar Bronfman Jr., Mar/Apr 03
It's not the type of lesson one would learn in Business 101. Combine a bullet-ridden economy with a flu-sick stock market. Add a series of draconian antismoking laws that take away most of the venues for smoking a cigar indoors, save for, perhaps, the driver's seat of your car. Sprinkle in job layoffs and rising unemployment just for good measure. Does that sound like a fine time to launch a $40 cigar?
If you're Davidoff of Geneva and the Arnell Group, the answer is yes. In November, as part of a joint venture, the companies released one of the most expensive cigar brands ever made, the Zino Platinum Crown Series. Packed three to a container in shiny mega matchboxes, these ultra- posh smokes sell for $29 each -- and up. The priciest of the trio, dubbed the Stretch, costs $39, making it easily one of the most expensive non-Cuban cigars ever sold. The price is hardly impeding its debut. "I've sold $50,000 worth of them," says David Kitchens, the dapper manager of Manhattan's Davidoff cigar shop, home to some of the priciest goods in the cigar world. Kitchens's results with the Zino Platinum are hardly an anomaly -- he reports impressive sales of many expensive cigars. His No. 1 seller is the Davidoff Double R, which he sells in cabinets of 50 at $1,335 a box.
The Zino launch is but one example of the revived interest in the American cigar market. Unit sales are up for the first time in several years, and shipments of handmade cigars are growing at their fastest pace since 1997, the last year of the cigar boom. While no one is predicting increases in the magnitude of those boom years, a mini boom of sorts is clearly in the making.
The nation's cigarmakers, big and small, are certainly happy. "We had a great 2002, and we're really optimistic about 2003," says Jim Colucci, senior vice president of sales and marketing for Altadis U.S.A., the maker of such blockbuster brands as Montecristo, H. Upmann and Onyx Reserve. "I think sales are doing well," says David M. Danziger, executive vice president of marketing and sales for General Cigar Holdings, the owner of the Macanudo brand. "It was a great year, it was a fantastic year," says La Flor Dominicana maker Litto Gomez. And Jon Huber of C.A.O. International says, "Last year was our best year."
Some accessory makers are celebrating 2002 as well. "We did better in 2002 than we did in 1997, in the boom times," says Leslie B. Mann, executive vice president of S.T. Dupont, the maker of high-end lighters sold at an average price of about $600. "If you take out the Statue of Liberty and the Taj Mahal [his big product launches in 2002], we still beat 2001."
"I think the industry's real healthy," says Curt Diebel, owner of Diebel's Sportsmen's Gallery in Kansas City, Missouri. "I was at an Irish pub recently, and everyone was smoking there." Adds Gomez: "When you talk to retailers, they're happy. They like the numbers. The market is very alive, and it's probably growing."
The American cigar market had been sluggish since 1997. That year, the cigarmakers of the Caribbean and Central America caught up with demand -- and then passed it by. The market shifted; where once there were back orders, suddenly there was a glut of cigars on the market, well more than 100 million too many. Shipments fell steadily in 1998, 1999 and 2000, and were flat in 2001.
Last year was different. The market was up throughout the year, occasionally flirting with double-digit growth. For the first 10 months of 2002, imports of handmade cigars rose by 9.3 percent, from 179 million to 195 million units.
Breaking down the import numbers, it's easy to peg where the strongest growth is occurring -- Nicaragua. The country became the third largest exporter of handmade cigars to America in 1996, and its shipments were up by more than 50 percent in the first 10 months of last year, to 32 million cigars. The biggest producers, the Dominican Republic and Honduras, had less impressive growth, 8 and 2.4 percent, respectively, ending the 10-month period with shipments of 102 and 56 million cigars.
The minor cigar-producing countries had far poorer results. Jamaica, which now has little in the way of a cigar industry, burped out only 10,000 cigars in the first 10 months of 2002, compared with 4.7 million in 2000. Mexican shipments were down 35 percent compared with the first 10 months of 2001, to 2.1 million units, and Canary Island shipments all but disappeared, shrinking from 2.1 million units to 121,000.
Imports are only one part of the revival trend. Cigars are once again in vogue in pop culture, from postcards advertising hip Web sites to album covers, such as Jay-Z's. Cigars have popped up again on popular television shows, even getting a mention on the animated comedy "The Simpsons," when bumbling father-figure Homer tries to prove his love to daughter Lisa by picking her favorite cigar size. (He claims it's the robusto.)
Cigar Aficionado's Big Smokes are another telltale sign of the resurgent interest in cigar smoking. In November, the magazine held its largest-ever Big Smoke, with nearly 6,000 people attending the two-session Las Vegas event, to beat the previous record by nearly 1,000.
So what's driving the new interest in cigars? The industry insiders are a bit puzzled.
"I can't put my finger on it," says Danziger. "Cigars are an affordable luxury. Maybe this is the sort of thing that you're less likely to give up."
General is experiencing strong sales of its bargain products, such as the Punch Rare Corojo brand (which ranges in price from $3 to $4), but expensive offerings such as the Cohiba Extra Vigoroso brand (which retails for $8 to $12) are also doing well.
Pricey cigars are also selling strongly for Altadis U.S.A., based in Fort Lauderdale, Florida. Some of its newest cigars are among its most expensive, such as Montecristo Platinum (which has suggested retail prices of as high as $10) and Trinidad (up to $12).
Altadis is doing so well that company executives are using a term that has been rarely heard since the days of the cigar boom: back orders. On some of its brands, demand is repeatedly outpacing supply. "In 2002, we consistently couldn't fill the back orders on Montecristo, Romeo y Julieta and Onyx Reserve," says Colucci. The company's core factory, in La Romana, Dominican Republic, is busy on Saturdays again. "We expanded the place," says Colucci. "We knocked down some walls and added rolling tables."
Altadis, like many successful cigar companies, continues to create brands and line extensions, offering new flavor, strength and price profiles for curious consumers. At press time, it was readying to launch the maduro version -- to be called the Reserve Maduro -- of one of its core brands, Romeo y Julieta.
"The coup de grâce, as far as we're concerned, is launching the new Romeo y Julieta maduro," says Colucci. The seven-size brand retails for as high as $7 a cigar. It's more than a year late in the launch, as the company has waited to build inventory of the Connecticut-broadleaf wrapper before sending the cigars to retailers.
That move by Altadis is, in a nutshell, one of the major reasons behind the cigar revival. The quality of the typical product on store shelves is superb, a radical reversal from the days of the cigar boom, when cigarmakers scurried through factories rushing product to market, especially fly-by-night organizations seeking to make a quick buck on the demand. New smokers typically paid through the nose for young, low-quality cigars, causing many to abandon the new hobby in frustration. Most of the "Don Nobodies" are gone, the 1997 and 1998 bundles of unknown cigar brands that were dumped at fire-sale prices and were of dubious quality.
"I think a lot of brands have been weeded out," says Colucci. "The people who are smoking are getting quality cigars, and the people coming in are enjoying it. And there's something good for them to try."
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