A Conversation With Fernando Domínguez
Fernando Domínguez, 57, is the premium cigar director of Imperial Brands, a Bristol, United Kingdom, company that is one of the world's largest tobacco concerns. Domínguez has been part of the company for more than three decades, joining Spain's Tabacalera S.A. in 1985, which later merged with France's SEITA to create Altadis, now part of Imperial. Among Imperial's holdings is a 50 percent ownership in Habanos S.A., Cuba's worldwide distributor of Cuban cigars and the company that oversees the creation of all of Cuba's cigar brands. The Madrid-born Domínguez, who lived in Cuba for nearly six years while he served as a copresident of Habanos, oversees all of Imperial's premium cigar brands—from its vast non-Cuban portfolio to the Cuban cigars themselves.
This summer Domínguez sat down with Cigar Aficionado executive editor David Savona at the new Montecristo Cigar Bar at Caesars Palace in Las Vegas for a lengthy discussion about Cuban cigar trends, how Cuba is dealing with poor crop years and the plans that are in place for the day when the U.S. embargo against Cuba is dropped.
Savona: You've been a part of Imperial Tobacco since 1985. What were you doing before 1985?
Domínguez: I joined in 1985, so it's 31 years working in the tobacco business. I worked for other companies before joining Tabacalera, an electrical company in Spain, but that was a few months. I'm an engineer.
Q: You were trained as an engineer?
A: Yes, building factories. I was promoted to the new division in Tabacalera, taking care of all the new businesses in our diversification process. We acquired some food companies, becoming the largest food company in Spain. After that I was promoted to a new position in the international division, to develop our international presence, and in 1996, I joined, with Antonio Vázquez, who was the general manager of the cigar division. I worked for him, just building what the cigar business became later on—absolute leaders in the cigar business, both handmade and machine made.
Q: Were you a cigar smoker before joining Tabacalera 31 years ago?
A: No, I started to smoke cigars when we set up the cigar division. I was part of the founding of the cigar division in Tabacalera, so I started smoking cigars then. But particularly when I moved to Cuba, when we acquired 50 percent of the Habanos business, with the joint venture. In 2000 I moved to Cuba, so I continued enjoying cigars, because we don't consume cigars, we enjoy cigars.
Q: I like that.
A: The terminology is different.
Q: And tell me about living in Cuba. How long did you live there?
A: Almost six years. I moved in early 2000 until 2005, when Antonio Vásquez was promoted to the CEO of Altadis—we were Altadis at the time—and I was promoted to manage all the cigar business worldwide for Altadis. I enjoyed very much smoking cigars in Cuba, it's the paradise for cigar smokers. I used to go there very often, and even when I go to Cuba now, I usually smoke seven, eight, nine cigars per day. It's absolutely a paradise.
Q: In Cuba smoking cigars seems very natural—one follows the other.
A: It's part of the Cuban culture, it's very normal. And also the conditions. It's a natural humidor for cigars. It attracts you to smoke and enjoy cigars.
Q: You're so in touch with Cuba and Cuban cigars. Let's talk about the most important countries in the world in terms of Cuban cigars and their sales. What are the top markets?
A: The top markets are Spain, tobacco was introduced, entered into the Old World through Spain, Seville in fact. The first factory for handmade cigars was built in Seville. After Spain, you can find France, China. China is amazing, and it's growing every year. Germany, Switzerland, Cuba, Lebanon, [the United Arab] Emirates, U.K. and Canada.
Q: Of those ones you mentioned, which has climbed the most?
A: China, it has grown dramatically over the past few years, even this year it can have a higher ranking than France. It's growing very fast. The driver in our growth is mainly coming from emerging markets, in line with increasing demand for luxury products, also in these territories—China, Russia, the Middle East, Brazil. I remember 10 years ago in our sales emerging markets represented around 30, 35 percent of our sales, now emerging markets represent almost 50 percent of our sales.
Q: Are we talking dollar volume or units?
A: Both, in units and in value terms. We try to measure our business more in dollar terms—this is a high-value-oriented product. A good way to measure our performance is in dollar terms rather than units.
Q: What are the best-selling Cuban cigar brands?
A: Our global brands are six brands, and that represents about 80 percent of our sales. Our focus is really on the development and the growing of these global brands. They are Cohiba, Montecristo, Romeo y Julieta, Partagás, Hoyo de Monterrey and H. Upmann. The rest are more local oriented. The main three brands for us, both in terms of units and in value, are Cohiba, Montecristo and Romeo y Julieta. The best-selling brand in dollar terms is Cohiba and the best-selling brand in units is Romeo.
Q: Was another cigar brand No. 1 at some point before Cohiba?
A: Montecristo was traditionally the best-selling brand, but some three, four years ago Cohiba jumped over it and became our best-selling brand in dollar terms. This is because of all the initiatives and activities we have carried out to upgrade the Cohiba brand—this is the most prestigious brand worldwide. One example of that is the cigar we have this year to celebrate the 50th anniversary of Cohiba.
Q: What has driven the growth of your most successful brands?
A: One of the things we have done, in our portfolio, is to upgrade the brands. Particularly in Romeo, we have added new lines and new products that have upgraded the brand, not only in units, but in dollar terms.
Q: I have heard the Partagás Serie D No. 4 is the best-selling single cigar in Cuba. Is that true?
A: Yes. The Montecristo No. 4, a mareva, was the best-selling format in our portfolio some years ago. Now the robusto size is the best-selling format. This is in relation to the trend we have in the U.S., the trend is toward fatter formats. This trend is also reaching the rest of the world, but at a slower pace.
Q: Does that mean that the coronas, the petit coronas are selling less and the fatter cigars are selling more?
A: The best-selling cigar formats now are robustos—a Romeo y Julieta Wide Churchill, for example—but also we have classic sizes, like marevas [coronas] and corona gordas [also called toros]. There are consumers that like to smoke the classic sizes.
Q: What sizes are slower sellers?
A: The Montecristo "A" [a 9-inch-long cigar] for instance. They are not trendy. You need time, the space to enjoy them. They are less consumed. But the Montecristo "A" is part of the portfolio. It's iconic. Sales have declined in this format. But we keep it, and we want to keep it.
Q: I see them in Havana sometimes. Are they actively produced?
Q: Talking more about fat cigars, we saw the first 60-ring-gauge parejo from Cuba this year, which is a big deal.
A: The Cohiba Grandiosos, is the name of the format.
Q: That's a limited-edition cigar. Are we maybe on the verge of seeing a regular-production, 60-ring-gauge cigar from Cuba?
A: Absolutely. Many years ago our fattest cigar was around 52, with the Cohiba Siglo VI. Since then, most of our new products we have introduced have been in the range from 52 to 58, following the trend. Now, we know that 60 is also becoming more and more popular, so we have introduced this new ring gauge for the first time in the Cohiba brand. We'll see, very likely in the marketplace, more cigars with a 60-ring gauge in the future in our standard portfolio.
Q: Let's talk about Cohiba Behike. I couldn't find any on the last trip to Cuba. Are they back? Are they off the market? What's going on with the supply of Behike?
A: I was in Cuba two weeks ago, I was visiting the Laguito Factory, where Behikes are made, so we will see Cohiba Behikes in the marketplace very soon. (Ed. Note: Behikes have indeed returned to cigar shop shelves.)
Q: Was there a gap in production?
A: It's about the crop. Tobacco, at the end of the day, is an agricultural product. It's subject to the weather. The weather conditions—the climate—has not been very good over the past few years. But this has happened in other Caribbean areas. The Cuban industry, our partner, they are developing a very serious plan in order to expand capacities both in farming and in manufacturing, in order to meet the increasing demand we are feeling worldwide, and also what will happen when the embargo is lifted. The Cuban agro-industry has been able to mitigate this impact on the crop. But it is true—we have had some delays. The situation has been addressed, and the situation is improving. The situation is coming back to normality. They will be on the marketplace again, very soon.
Q: Months? Weeks?
A: I think they will be delivered in the coming weeks.
Q: Was it one part of the blend that was more troublesome than the other? Wrapper? Filler?
A: One of the characteristics of Behike is a new leaf that we added, medio tiempo. It comes from the two top leaves of the plant, that are more difficult to get. That's the reason that explains the flavor, the taste and the scarcity in the raw material. That explains the limited quantities.
Q: Has there ever been thought to expand the Behike line? You have three sizes, a 52, 54 and 56. It's a hit product—any thoughts?
A: We don't have any plans. Premium cigar consumers are eager to see new products in the marketplace.
Q: Let's talk about the Regional Edition and Edición Limitada programs that Habanos has. Are there any plans to expand?
A: The Regional Edition program is a way to reward our distributors around the world with a special cigar, with new formats under one of the non-global brands. Each year depends on the market demand, year to year. But this is growing every year. For example, this year, there will be around 19 or 20 Regional Editions. This is a powerful concept that is working very well.
Q: There have been three Edición Limitadas released each year. Are you sticking with that number or expanding?
A: No, we don't want to expand more. We have to consider the capacity for consumers to absorb these exclusive concepts—at the end of the day, exclusive and limited needs to be limited. We don't want to extend more.
Q: When will this year's ELs come out?
A: Not yet. Typically it's the second half of the year. We depend on the supply chain.
Q: Is Cuba operating with the same number of factories now as it has in the recent past?
A: More or less the same number of factories.
Q: Factories have been moved—Partagás moved, Upmann moved. Are any more in line for that kind of shift?
Q: The new Añejados. How are they doing?
A: We noticed many years ago, a growing consumer interest in vintage, or aged, cigars. Cigars that were aged by retailers or by distributors. We thought it was good to put into the market a new line of cigars that were aged in our warehouses for a number of years. These have been aged for five years. I think we have introduced four, and there is another we will introduce this year. I can't announce what it is going to be, but there will be another Añejados this year.
Q: Cigars get better with age. Some don't believe in it as much, but some of the highest ratings we have ever given were to older cigars.
A: It's just like wine. Cigars are an organic product. It is good to age cigars.
Q: There was always a rumor that you had a big warehouse of cigars waiting for the U.S. market.
A: Only rumors. That's not true. We don't have any specific warehouse for the U.S. market.
Q: The tobacco situation in Cuba, you said there were some bad crops. Have recent crops been better?
A: Yes, and we are coming back to normality regarding the supply and the deliveries. Also, we are creating the conditions in order to expand capacities, both in farming and in industry in order to meet increasing demand when it happens particularly in the U.S. We don't know when the opportunity is going to come, but we need to be prepared. Expanding the land to cultivate more tobacco of the highest quality, particularly in Pinar del Río, but also using other areas in Central Cuba, and also investing in the farming in order to increase efficiencies. This is what our Cuban partners are doing. But this is a gradual process—we depend also on the climate.
Q: Was El Niño tough?
A: Last year the weather was horrible, but thanks to this plan that was put in place, we could mitigate the impact of the bad weather.
Q: So where are we? We are closer than we have ever been, but the embargo is still there. You still can't sell Cuban cigars in the United States.
A: I think it's getting closer, the normalization process, from my point of view, is an irreversible one. But we don't want to speculate on things that are out of our control. The only thing we can do as a business is just be prepared.
Q: With all the increased tourism in Cuba, have you noticed increased purchases in Cuba?
A: Yes. We have noticed a parallel increase in our cigar sales in Cuba. Very proportional to the increase in tourism. Cuban tobacco and Cuban cigars are part of the culture.
Q: Any thought on expanding the number of Cuban cigar shops in Havana?
A: I think we have opened some recently in Cuba, now we have around 18 across Cuba. I think it's a good number. This is an ongoing business. We have around 140 worldwide, and it's part of our strategy to expand the number of these boutiques and very specialized retailers across the world, particularly in emerging markets.
Q: What do you think the demand is like in the United States for Cuban cigars right now?
A: The U.S. market is a very competitive one, and the level of competition is increasing year to year. The U.S. consumer is a very knowledgeable one, and they know Cuban cigars. They are very familiar with Cuban cigars. We enjoy about 70 percent market share outside the U.S. It's a big market share. Some can think we can achieve the same market share in the U.S., but it's very difficult because of the high level of competition. But we estimate that in a number of years, once the embargo is lifted, I think Cuban cigars can grab a substantial market share of the U.S. market. So in the first five years our best estimation is that we can take about 20 to 30 percent of the U.S. market. The U.S. is the world's largest cigar market. This market share would be a good challenge.
Q: Are there brands that are better poised than others?
A: The global brands are the brands that would have the opportunity to be better sold here in the U.S.
Q: Most non-Cuban brands are blends, made from tobaccos from various countries. Cuban cigars are made from tobacco from one country, Cuba. Do you ever see the day when Cuban cigars will be made with a blend of tobaccos from a variety of countries?
A: I don't think the situation is coming. We have a strong origin of denomination (D.O.P.) with the Cuban cigar. I don't think that's in the best interests of the Cuban industry to mix these tobacco origins. We like to defend, to protect, this origin and denomination.