It certainly comes as no surprise that cigar retailers across the United States are alarmed by the Food and Drug Administration's Final Rule, which was handed down in May, announcing tough regulations for the premium cigar industry. Concern about the FDA was one of the primary issues among retailers when they took Cigar Insider's 21st annual poll of U.S. cigar shops.
We surveyed 101 store owners and managers representing 141 brick-and-mortar cigar shops across the United States, from Alaska to Florida, from Maine to Arizona. This includes upscale cigar shops, smaller neighborhood tobacconists and large-scale cigar emporiums covering all major metropolitan areas of the United States as well as suburbs and smaller municipalities throughout the country. We wanted to know what was on their minds, what cigars were selling best and how sales were doing in 2016.
Although the retailers polled expressed a strong degree of uncertainty, business in the premium cigar world is good—surprisingly good. Most retailers who took our poll (more than 71 percent) reported that their sales had increased over last year.
In terms of volume, our poll indicates that the best-selling premium cigar brand in America is Arturo Fuente. More than 52 percent of retailers in the survey named Fuente as one of their highest selling brands, making it Cigar Insider's best-selling brand of 2016. This is not a surprising outcome. Last year Fuente came in at No. 2 (Padrón was No. 1), and the margin was less than 3 percent.
The Fuente family has been producing cigars for more than 100 years. Its marquis brand, the Fuente Fuente OpusX,
received Cigar Aficionado's Cigar of the Year accolade in 2005 and will be celebrating its 21st anniversary later this year. The family-owned company is run by Carlos "Carlito" Fuente Jr., who's become the face of the operation, his sister Cynthia Fuente and his daughter Liana. (Earlier this month, patriarch Carlos Fuente Sr. died at the age of 81.)
Padrón, another veritable pillar of the premium cigar sector, was named second-best selling brand of 2016. The company consistently ranks very high (if not on top) on any list of achievement or merit, whether it be Top 25 placement or Cigar Aficionado or Cigar Insider tastings. In either case, the key to the company's success has been consistency and excellence. Padrón's collection of accolades is beyond impressive, as Padrón cigars have scored within the top 10 of every Cigar Aficionado Top 25 list ever made. Most significant, however, is Padrón's winning the No. 1 Cigar of the Year three times, more than any other company. Padrón took the No. 2 spot in the best-selling category with 37.6 percent of retailers naming these Nicaraguan smokes as their biggest brand.
A notable change between this year and last is the margin of difference between Padrón and Fuente. In addition to the two companies switching positions on the list, the gap between the two is much larger. Last year, the difference was under 3 percent. This year, there is a wider 14.7 percent disparity.
Rocky Patel Cigars Inc. has soared in our poll, taking the No. 3 spot as 17.8 percent of retailers reported Rocky Patel cigars as a top-seller. This impressive placing bumps him up by four entire increments from last year's No. 7 spot, an enormous leap.
Brand owner Rocky Patel has been tireless in his commitment to brand-building, but he's been industrious as well in terms of production and distribution. On the one hand, Patel is a major client of the Plasencia family, who produce most of his cigars in Honduras. On the other hand, Patel opened up a factory of his own in Nicaragua where he takes a more hands-on approach to his cigars. Because he's successfully managed the two entities, Patel, along with his brother Nish and cousin Nimish, plays a significant role in the premium industry.
Two brands tied for No. 4—Ashton and Romeo y Julieta. While Ashton cigars moved down from last year's No. 3 spot, Romeo y Julieta moved up from the No. 5 spot in 2015. The survey shows that 16.8 percent of the retailers polled reported both brands as top sellers. Ashton has a strong portfolio of cigars, ranging from its core Ashton lines to its more expensive Ashton Virgin Sun Grown, Heritage and Symmetry brands, all of them rolled by the Fuentes.
Altadis U.S.A. Inc., owners, producers and distributors of the Romeo y Julieta trademark, have put a lot of effort into keeping this heritage brand in the consciousness of cigar consumers. Like most core lines, the primary Romeo y Julieta cigars are fairly mild, but brands like Romeo by Romeo y Julieta are bolder versions that have brought more awareness to the name.
Perdomo and My Father, both made in Nicaragua, tied for the No. 6 spot with 15.8 percent of shop owners naming
these brands as among their largest movers. Perdomo's position on the best-seller list remains the same as last year, but My Father climbed up three spots from the No. 9 position in 2015, making large strides in the industry. This large jump is likely due to the My Father 1922 Le Bijou Torpedo Box Pressed winning Cigar Aficionado's Cigar of the Year for 2015.
Davidoff remained on the top-10 list at the No. 8 spot, though dropped considerably from last year's No. 4 placement. Stalwart brands Oliva (a former Cigar of the Year) and Montecristo (from Altadis) rounded out our Best-Seller list, making the No. 9 and No. 10 spots, respectively.
Nine out of the 10 brands that appeared on our 2016 Best-Seller list were also on last year's list. Although the order has changed a bit, one thing is quite clear—the Dominican Republic and Nicaragua are nearly neck-and-neck in terms of premium cigar sales.
Cigar Insider's lineup of Hottest Cigar Brands is a different poll than the Best Sellers. Hottest brands do not necessarily represent what a cigar retailer sells the most of in terms of volume, but rather, the cigar that most people are requesting. In this case, however, Arturo Fuente's and Padrón's positions happen to be the same as they are in the Best Seller list: No. 1 and No. 2, respectively, with 28.7 percent of retailers naming Fuente as one of their hottest brands and 19.8 percent naming Padrón.
Always in demand, the Liga Privada brand from Drew Estate took the No. 3 spot while the Fuente Fuente OpusX occupied No. 5—neither cigars are strangers to our Hottest Brands category. My Father took No. 4. The brand was nowhere to be found in last year's Hottest Brands category and now enjoys an upper-echelon position.
Montecristo, Perdomo and Rocky Patel all tied for the No. 6 spot, leaving Ashton and Romeo y Julieta at 9 and 10. While some of these brands are more limited in production than others, all the cigars appearing on our Hottest Brands list come from producers that are fairly large, or very large, unlike previous years that saw a strong showing from smaller boutique brands.
Despite a seemingly upward cigar economy and an enthusiastic customer base, the FDA remains on the minds of retailers, especially concerns about FDA regulations putting small cigar manufacturers out of business.
"Sales for the next couple of years should skyrocket as customers load up on cigars they perceive will disappear," predicted Todd Dailey, owner of Good Karma Cigar in Amarillo, Texas. "Once regulation really takes hold on existing—but not grandfathered—blends...who knows what the law or rule will ultimately look like."
Craig Cass, owner of four Tinder Box stores in North Carolina, sees FDA regulation affecting both retailers and manufacturers.
"Retail is strong and most successful retailers have four to six turns per year on their cigar inventory," he explained. "That turn gives buyers plenty of time to buy product well ahead of knowing which brands will be covered by Substantial Equivalency filings [for the FDA] or grandfathered in. The biggest challenge for retail will be the lack of new product coming into the market place, which is typically the lifeblood of brick-and-mortar stores. Buyers still like to see new product."
And buyers still like to see robustos. Our poll indicates that 38.6 percent of retailers reported robustos as their best-selling size, making it the No. 1 cigar size in the United States. In a sign of how the fat cigar trend has become a mainstay, the grande (6 by 60 cigars) ranked No. 2, moving up a spot from No. 3 in last year's survey. The corona gorda/toro category ranked third, followed by Churchills and double coronas. Traditional sizes such as coronas and shapely cigars like figurados and torpedos did not make the list.
Many of the concerns shared by retailers year after year continue to recur. While government regulation and the FDA is on the forefront, shop owners still note a decrease in box sales, which they attribute directly to the Internet.
"Half of my customers buy half of the cigars they smoke off the Internet, which currently sell for 27 percent less than my brick-and-mortar prices," said Miles Johnson of Cliff's Smoke Shop in Lincoln, Nebraska.
Denis Reed, the owner of Pars and Cigars in West Des Moines, Iowa, would like to see Internet sales taxed equally with retail. "I can live with competition, but can't fight tax evasion," he said, adding that state and local government should collect taxes on Internet sales. Steve D'Avanzo of Treasure Valley Smoke Shop in Meridian, Idaho agrees: "Online sales allows the customer to skirt tax laws."
The FDA, of course, is still the proverbial 800-pound gorilla in the cigar room. It's unclear exactly how detrimental the new deeming regulations of the Final Rule will be on the industry, or how many small cigar manufacturers (if any) will be forced out of the market.
In the face of stricter regulation and the ensuing uncertainty, Cass is optimistic, though he stresses the importance of retailer participation and involvement.
"Retailer engagement in local and state politics is critical," he warned, and offered this analogy: "The sky is not falling. In the NFL, rules change year after year. Successful teams adapt and win year after year. Our industry needs to adapt to our new universe and play the game. The strong will survive and we will still be selling cigars many years from now."
This article first appeared in the August 2, 2016 issue of Cigar Insider.