Executive Vice President, Chief Operating Officer, Consolidated Cigar Corporation
Cigar Aficionado: Can you recall Consolidated Cigar Corp.'s annual sales and the number of premium cigars it produced when you joined the company in January 1985?
DiMeola: The company produced 13 million premium cigars in 1984. I remember that because I had researched it before going to see Ronald Perelman, the owner of the company, for what was really my job interview. I remember he asked me, "How many cigars do you think we sell?" I said, "Well, Ronald, I already know you sell 13 million." He said, "Oh, I wish you didn't know that." I know now that he was trying to test me to see my knowledge of the industry. I guess he wished that I hadn't done the research. That's how I remember the number--but it wasn't all sales; some of it represented shipments.
The previous management--just to go back briefly--was Gulf & Western, which had owned Consolidated for years and wanted to divest it. Mr. Perelman wanted to buy it. The deal fell through. Five managers then bought it. They started fighting among themselves--went to court. It was a mess. The court said that three of them could buy out the other two, but then they couldn't raise the financing. Then Mr. Perelman stepped in and bought it, but prior to that, when the five managers were running the company, they were doing things that weren't necessarily good for the long-range benefit of the company, in my opinion. For example, they fired all the premium salespeople in the United States. They turned the distribution over to about 24 so-called importers. This happened in 1983. These importers saw dollar signs in front of their eyes, and bought a lot of cigars in order to handle their newfound distribution. So there was a lot of pipelining going on. Therefore the business was propped up by their pipelining. Then in 1984, they put in two dealer incentive programs to keep that business propped up. So the 13 million done in '84 were not [all] real sales; they were shipments, and a lot of that was pipelining.
CA: What were the real sales?
DiMeola: I don't know. I can tell you that in '85, the business dropped to $7 million. We were probably selling cigars in those days for around 75 cents wholesale.
CA: So it went from $10 million down to $7 million--something like that.
DiMeola: Something like that.
CA: In terms of the brands that made up the 13 million premium cigars--what brands were part of that group in 1984?
DiMeola: Montecruz, Don Diego, Primo del Rey, H. Upmann. There may have been a couple of other smaller ones. Prior to Theo Folz [Consoldiated's CEO] coming on board and my joining, the five managers of the company wanted to make as many cigars as they could using machine bunches.
CA: Were they using the same tobacco?
DiMeola: Yes, it was the same tobacco except that they were mixing in some short tobacco. About 12 percent short tobacco was going into the cigars at that time.
CA: Was the short filler tobacco used as a cost-saving thing?
DiMeola: It was their program to improve the profitability of the company. In my view that was short-sighted.
CA: Can you next tell us highlights of what happened in the business between 1984 and 1996, such as brand acquisitions or other significant events?
DiMeola: Well, the most significant thing that happened was in 1985--two of the three managers who were left from the previous management also left the company. [The third,] George Gershel, who is today our senior vice president in charge of all tobacco leaf, is a key person on our management team, and he is still with us. In October 1985, when those two guys left, one of them had charge of manufacturing. Theo told me that he wanted me to assume responsibility for premium production as well as premium marketing and sales. I went to the factory, and with the brief supported by Mr. Perelman, I began trying to make the best premium cigar the world has ever seen--certainly as far as construction is concerned. He was willing to invest the money required to meet that goal. So I met with José Seijas, who is still with us, and David Lacey. David Lacey was the general manager of the factory in the Dominican Republic at that time. David has since died, and Jose is now our general manager, but the three of us sat down and discussed how we were going to accomplish our brief. David said the best way to make good cigars is by hand.
Up to that time, we were making a lot of cigars by machine bunching, and we weren't making very many cigars at all over 46 ring--a 46 ring was the biggest bunch we could get off of the machines. So in October 1985 we began a program to convert that factory to a handmade factory, and began taking all the production off of machines. That took us two years to accomplish, and meanwhile, the machine-bunched cigars had to be sold out in the market. We converted that factory to total handmade, although we didn't throw the machines away. We still use the machines for some production. And we still machine-bunch some Primo del Reys--not all, but some--some bundles and some other cigars, but most of the production from that factory today is all handmade.
We started fresh at the time, and we asked--how are we going to do it? The traditional Cuban method for making cigars was to have one person roll the cigar from beginning to end. The traditional Dominican method for rolling a handmade cigar was to use a Temsco aid [a large rolling device] for hand-bunching, and then hand-roll it using teams of three. One buncher services two rollers. Well, I said that I didn't want to do that--that team program. I had asked the questions: "How do we know that the ratio is two to one? How do we know that one size is not made faster than another? What happens when one part of the team is sick? Does it destroy the cadence of the team?" We decided to focus on bunching and rolling as separate operations. We put all the bunchers on one side of the room and all the rollers on the other side of the room. That enabled us to build expertise in bunching and, we think, build expertise in rolling. It also enabled us to begin the quality control system from the very beginning in order to attempt to catch a cigar that is not going to be rolled well or draw well before it becomes an actual cigar. We're still doing that to this day--only we've refined it a great deal. We no longer have all the bunchers on one side of the room and all the rollers on the other. The factory is set up in quadrants, like four factories in one.
CA: Was it at [the Dominican town of] La Romana at this point?
DiMeola: Yes. The company started operating in La Romana in 1969.
CA: When I visited your factory a few years ago, you showed me a suction-testing method for cigars. When was that testing process implemented, and is that still the primary method of quality control?
DiMeola: The suction quality control was implemented in October '85 as we converted the factory back to a handmade operation. I knew we had the machines that were doing spot checking of suction, because as you know, the biggest complaint among premium cigar smokers has to do with the draw. But I asked, "What if we tested every cigar we made? Can we do it?" They said yes. I said OK, let's do it. And we constructed the machinery so that we test every cigar we make by hand for draw before it becomes a cigar.
CA: Are there any other cigar companies that use such a suction tester?
DiMeola: The machines are common.
CA: Most of the factories that I've been to test by weight. They take bundles, usually of 50 cigars, and weigh it for a difference of so many ounces above or below the norm. That's the way they determine if some of the cigars are too heavy, and therefore won't draw well. Isn't that the standard testing procedure with only spot suction tests?
DiMeola: I don't think anybody else tests every one. We used to do that, too, by weight--bundles of 50, but then we asked the question, How do you know the variance among the individual cigars? When we started our suction program, we were reworking 35 percent of our bunches. Today we're reworking about 9 percent.
CA: How many people were involved in cigar production at La Romana in 1985 versus today?
DiMeola: I have to estimate, because I don't remember exactly. I can tell you this. We had under 400 people in the whole factory in 1985. Today we have 1,650. We have about 650 people who are focused on the hand-rolling/bunching operation. We're growing all the time. We have a second shift building now, so that we'll go to maybe 800.
CA: What were the business highlights between 1985 and 1996?
DiMeola: When I joined, I found that the situation was worse than I thought. Montecruz business had dwindled from the days when they were making Montecruz in the Canary Islands. It used to be a much bigger brand.
CA: Let me just stop you for a second there. Was Montecruz a knockoff name of Montecristo?
DiMeola: Montecristo was made by Alonzo Menendez and Pepe Garcia in Cuba, and they got out of Cuba. Pepe Garcia went to Spain. He was actually Spanish. He bought the Menendez interest out, and started a company in the Canary Islands called CIT-- Compania Insular Tabacalera. He started making Montecruz--which was a copy of Montecristo--Don Diego, Flamenco and Don Marcos in the Canary Islands. Consolidated then bought CIT in 1972, and started to take over some of that distribution. In 1982-83, Consolidated moved from the Canary Islands to the Dominican Republic at the behest of [parent company] Gulf & Western, because they owned the land in La Romana. The company was also operating a tobacco processing operation in La Romana, because at one time Consolidated had their own fields in Connecticut. They were growing 2,000 acres. Sixteen hundred acres they owned or leased, and 400 acres were grown for them.
CA: How long ago was that?
DiMeola: Until 1981 or so.
CA: Who did they sell that land to?
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