Taxes, the Internet and regulation by the Food & Drug Administration. These are the three major issues plaguing cigar retailers across the United States, and who can blame them? While state and tobacco taxes eat away at the bottom line, Internet vendors undercut retail prices. Meanwhile, the full impact of the FDA's deeming regulations (though still unknown) is a major concern.
These were the overwhelming sentiments communicated to Cigar Aficionado when retailers and tobacconists answered our 22nd annual poll of cigar shops across the United States.
We surveyed 129 store owners and managers representing 225 brick-and-mortar cigar shops across the country. The survey spanned the four corners of the United States to include shops in major cities, small towns and everything in between.
Despite major concerns of increased taxation and more regulation, business seems to be good. Most retailers who took our survey (more than 65 percent) reported that their sales had increased over the last year.
In terms of volume, our poll showed that the best-selling premium cigar brand in America is Arturo Fuente. More than 52 percent of retailers named Fuente as one of their highest-selling brands. These results are nearly identical to last year's, as Fuente was 2016's best-selling brand at about the same percentage.
Arturo Fuente is the largest family-owned premium cigar company in the business. The Fuentes have been producing cigars for more than 100 years and you'd be hard-pressed to find a good tobacconist that does not carry Fuente cigars. While the core Arturo Fuente line is the company's workhorse, Fuente also has a large portfolio of marquee brands like the Don Carlos and the Fuente Fuente OpusX.
The operation is headed by Carlos "Carlito" Fuente Jr., now the family patriarch since his father passed away last year. Fuente runs the company with his sister Cynthia and his daughter Liana, both very active in the family business.
Padrón Cigars is another major player in the world of premium cigars, and like Fuente, it is also a patriarchal family business. Padróns are made in Nicaragua and took the No. 2 spot in the category with 32.6 percent of retailers naming Padróns as a top seller. The company has a long list of accolades and has won Cigar Aficionado's Cigar of the Year award three times—more than any other company. Padróns were the No. 2 best seller last year as well.
The margin between Fuente and Padrón has grown a bit from last year. In 2016, the difference was 14.7 percent. This year, the disparity is wider at 20.1 percent.
Davidoff and Romeo y Julieta have risen from last year in our poll, as they tied for the No. 3 best-selling brand of 2017. While Romeo moved up from the No. 4 position in 2016 to No. 3 this year, Davidoff improved precipitously, rising 5 spots from No. 8 to No. 3.
Both Davidoff and Altadis U.S.A. (owners of Romeo y Julieta) have spent the last few years innovating their respective lines to make them as attractive and relevant to the modern smoker as possible. Not only does Davidoff have a dedicated following with its classic white label cigars (also known as Signature), it has made strides expanding into Nicaraguan tobacco, a previously unexplored realm for the company. Its Discovery Pillar series is a three-tiered line aimed at getting more market share. Davidoff Nicaragua, Davidoff Escurio and Davidoff Yamasá all bring new experiences to Davidoff's conservative portfolio.
In the same spirit, Altadis took one of its largest heritage brands and created experimental, full-bodied offshoots like Romeo by Romeo y Julieta and Romeo Añejo by Romeo y Julieta. The efforts paid off for both companies, as 19.4 percent of retailers named them as a top performer.
The Rocky Patel brand dropped from last year's No. 3 spot to No. 5 with 17.1 percent of retailers naming Rocky as their best seller. Patel remains tireless in his commitment to creating and building brands, but also maintains a physical presence across the country. There's no shop he won't visit, and no customer he won't talk to. Being the face of the brand has benefitted the company, but he also enlists his family members to spread the word. His brother Nish, and cousin Nimish take on many of the company's responsibilities. The bulk of Patel's cigars are produced in Honduras by Nestor Plasencia or in Nicaragua at a factory that Patel co-owns with Amilcar Perez-Castro.
Ashton took the No. 6 spot, named by 14 percent of retailers who answered our survey. Owned by the Levin family of Philadelphia, the venerable brand has a wide range of styles and strength profiles. Its portfolio ranges from the fairly mild core lines to the full-bodied Ashton Virgin Sun Grown series and other expressions like Ashton Symmetry. All are produced by the Fuentes in the Dominican Republic.
Both the My Father and Perdomo brands tied last year for the No. 6 spot. Interestingly, the two brands are still neck and neck, tying this year for the No. 7 spot. Both are made in Nicaragua and 12.4 percent of retailers pointed to these brands as top movers.
Like Romeo y Julieta, Altadis has also put forth great effort to reinvent Montecristo, its other major heritage brand. It rose a spot from last year's No. 10 position, to No. 9, named by 10.1 percent of tobacconists as a top seller. Everything from the full-bodied Monte by Montecristo to Nestor Plasencia's Espada by Montecristo helped to keep Montecristo interesting and in demand.
While La Flor Dominicana did not make the top 10 last year, it's back on the list at No. 10. Still a relatively small manufacturer, La Flor has gained a strong following among fans of strong cigars, but brand owner Litto Gomez stated that having his Andalusian Bull named the 2016 Cigar of the Year by Cigar Aficionado has undoubtedly raised brand awareness and interest.
Drew Estate's Liga Privada followed at No. 4. Drew Estate released Liga in 2007 as one of its few handmade, premiums—and it's been in high demand ever since. Made in very limited quantities in Nicaragua, the broadleaf-wrapped cigar is usually back-ordered.
Most of the cigar brands that appear on the best seller list also recur as a hottest brand. Padrón's 1964 Anniversary Series is a top-tier smoke in its portfolio. Bold and balanced, it appeared as the No. 5 hottest brand with My Father at No. 6. La Flor Dominicana was absent on last year's list of hottest brands as well, but it took the No. 7 slot this year. Rocky Patel and Romeo y Julieta tied for No. 8 and Montecristo is the No. 10 hottest cigar brand of the year.
Even with a humidor full of high-performing brands, FDA regulations are still unsettling to retailers, especially when it comes to the possible constraints on new releases.
"New products fuel sales," said Jeff Steinbock, president of Uhle Tobacco Co. in Milwaukee, Wisconsin. "With the FDA regulation, we'll eventually have no new products and nothing to excite the consumer, so our industry will stagnate."
Rev Davenport of the Perfecto Lounge in Roseville, California agrees. "Without the introduction of new products, the whole market will stagnate," he insists. "We specialize in boutique brands. Nearly 80 percent of our humidor would be negatively impacted by the proposed FDA guidelines."
But Kevin Levi doesn't see it that way. He's the vice president of Iwan Ries & Co., one of Chicago's most respected tobacconists. "New cigars are outpacing new cigar smokers," he observed. "Not enough time is devoted to bringing new smokers into the fold, developing a dedicated following for core brands or nurturing relationships with small mom-and-pop shops. Selling cigars is not the same as selling soda, chips or toothpaste."
Curt Diebel, of Diebel's Sportsmens Gallery in Kansas City, thinks along similar lines: "The tremendous flow of new product is too much for the consumer. When we tell them about six new brands introduced in the last month, they might get one or two, but often walk away to grab something familiar."
Another issue among retailers is the Internet. Most shop owners agree that they can't compete on a level playing field with online cigar vendors.
"State taxes and local regulations are strangling our business and forcing consumers to purchase online instead of from a brick-and-mortar like ours," said Joshua Child, manager of Tobacco Barn in Lake Forest, California.
Not much has changed from last year in the way of cigar size preferences. Retailers (35.6 percent) still say robustos are their best-selling size. The fat cigar trend continues with the grande category at No. 2. Grandes typically consist of cigars measuring 6 inches by 60 ring gauge or fatter. Corona gordas/toros ranked third followed by the miscellaneous/odd category and then coronas.
Despite industry efforts to fight FDA regulations, some tobacconists feel that the industry isn't doing enough. "There are only a few manufacturers who get it and are fighting for their survival with the federal government," said Kurt Wilson, owner of Trully Cigars in Florence, Alabama. "Most of them are so shortsighted that they believe nothing is going to dramatically affect their business, so they stand on the sidelines."
Although President Trump recently tightened some of Obama's relaxed policies on Cuba, retailers report that Cuba is still on the minds of their customers. "The most asked question we get is ‘Have you got the Cubans yet?' " said Jason Cannata of Havana Connections, which has five retail locations in Virginia.
Despite all the challenges, taxation issues and FDA uncertainty, Ryan Leeds of Prime Cigar & Wine Bar in Florida remains optimistic: "We're blessed to be in an industry where people purchase your product, set it on fire, say thank you and then buy another."
This article first appeared in the July 11, 2017 issue of Cigar Insider.