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Let the Good Times Roll

Cigar Sales are Going Through the Roof as Premium Cigars Become Increasingly Difficult to Find
By Gordon Mott | From Bill Cosby, Autumn 94
Let the Good Times Roll

How many times in the past six months have you walked into your favorite tobacconist, hankering after your favorite smoke, only to find that the brand is out of stock? The retailer throws up his hands and says, "try me again next week. I'm expecting a shipment." You are lucky if this scene hasn't been repeated every time you've been out on a cigar-buying trip. The truth is that unless there's a dramatic downturn in demand, it's going to happen again and again for at least the next couple of years.

The old-timers in the cigar business are unanimous: they've never seen anything like the recent boom in cigar sales. Sales of premium, handmade cigars are up, not just 1 or 2 or 3 percent, but 20 percent or more in the first four months of this year versus 1993--and that's after some retailers experienced sales increases of 50 percent or more in 1993 over 1992.

It would be nice if there were a way to make the reason sound less self-serving. But here it is. The sales boom coincides with the debut of Cigar Aficionado. If you really investigate, you can find retailers and manufacturers searching for other explanations, but they all agree on one thing: the magazine has forever changed the way they do business.

But how exactly has the market changed? In the past, good retailers counted their blessings if they had a 3 percent sales increase each year. Manufacturers could predict sales trends for years in advance. And it wasn't hard to guess how much tobacco needed to be planted because the year-to-year changes in demand were minimal. Now retailers are witnessing huge percentage sales increases. Manufacturers are having to increase production as much as 20 percent. And tobacco growers are under extreme pressure to increase production.

Austin McNamara, president and CEO of General Cigar, the makers of Macanudo and Partagas, says that the company's inventories are based on crop decisions made up to three years ago, before the boom in cigar sales. "Demand is higher than expectations," says McNamara. "The tobacco in the pipeline is less than the demand." He says that even though its vast inventories offer some flexibility in stepping up production, the company's strict quality standards, especially for brands like the Partagas Limited Reserve, prohibit meeting demand. "There's always a tension between standards and demands."

Back orders have become a fact of life for cigar manufacturers. ProCigar, the association of cigar makers in the Dominican Republic, estimates that as of last January, there were more than 8 million cigars on back order. By May, some companies had begun to catch up. Consolidated Cigar Corp. reported that its back orders had decreased significantly, but H. Upmann was still behind by 125,000 cigars and Don Diego by 80,000. Ashton (made by Arturo Fuente Inc. in the Dominican Republic), however, had back orders of 200,000 cigars, and the total was rising. At Matasa in the Dominican Republic, three brands it makes also have significant back orders: Fonseca, 100,000; Romeo and Julieta, 225,000; Licenciados, 125,000. And factories in Honduras were also reporting back orders, especially on large cigars.

Total exports of cigars to the United States rose about 11 percent last year to 109 million, according to statistics provided by the Cigar Association of America. That follows an approximate 5 percent increase in 1992. However, Dominican cigar exports to the United States rose by about 18 percent last year to more than 55 million. Demand continues to climb this year, too. "It's not going to get any better for some time," says McNamara. And Robert Levin, of Holt's Cigars in Philadelphia, who markets Ashton cigars, says simply, "every factory in the Dominican Republic is maxed out." If there is no letup in demand, some experts estimate the total increase in cigar exports from the Dominican Republic alone could climb 20 percent this year.

Richard DiMeola, CEO of Consolidated Cigar, the makers of H. Upmann, Montecruz, Dunhill Dominican, Royal Jamaica and others, says that his daily reorder sheets are often as long as three pages, up from just a page a couple of years ago. "We've done a great job catching up, but we're not out of the woods yet," says DiMeola, who estimates his factory was nearly 3 million cigars behind at one point. He notes that H. Upmann sales were ahead 45 percent in the first four months of this year over 1993 and Henry Clay was showing an 80 percent increase.

Catch-up is not easy. Manuel Quesada, the owner of Matasa, says that it takes time to train new rollers and make them productive enough to increase output. Unusually shaped cigars--pyramids and torpedos--are especially difficult to produce because the shapes require unique skills and a long apprenticeship. And Quesada says he keeps running out of those shapes.

The other major problem, according to Carlos Fuente Jr., the president of Arturo Fuente, also the maker of Ashton, Cuesta-Rey and others, is that oversized wrapper leaves for big cigars are in short supply, especially Cameroon wrappers. (It's not just Cameroon wrappers either; one non-Dominican producer says he has 4,000 boxes of large Connecticut-shade-wrapped cigars on back order.) So even though Fuente is about to open a third factory in the Dominican Republic this year and increase total exports to nearly 23 million cigars, he says there still won't be enough tobacco to make all the cigars people want to smoke.

Of course, the manufacturers' problem is a problem that any producer of a luxury good wants to have--more demand than product. But the producers are one step removed from the consumer. Retailers are out front every day, opening the locks on their stores and awaiting customers who always seem to want what isn't on the shelves. Oscar Boruchin of Mike's Cigars in Miami can't keep up. "We were here until 11 o'clock last night filling UPS orders, and we didn't catch up. We didn't even do half of what we have on order."

"They've been blaming me," says Bruce Goldstein, the owner of Arnold's, a retail shop in midtown Manhattan. "I can't do anything about it. [The consumer] still doesn't understand that cigars are a handmade product and they take time to make. They just think I'm not doing my job." Goldstein says that even when an order arrives from a manufacturer or distributor, it is usually incomplete. In any given brand with 15 different sizes, even for a big company like General Cigar, there will be four or five sizes on back order, Goldstein says.

Trendy cigars, such as La Gloria Cubana, are almost impossible to find, even in stores like Goldstein's that get some deliveries. "They are simply not for sale to anyone but my regular customers," says Goldstein. In a recent development over the past two years, Goldstein even has waiting lists for Wavell and Torpedo sizes of La Gloria Cubana. "There are hundreds of customers' names on those lists," says Goldstein.

The quick rise in popularity of some cigars is also laid at the feet of Cigar Aficionado. DiMeola says cigar brands used to be built by "wearing out shoe leather," but now, he says, a peripheral brand can get a write-up in the magazine and everybody wants to try it.

A brand's sudden popularity represents a different challenge for retailers. Joe Howe of Jack Schwartz Importers in Chicago says he used to carry about 40 cigar brands. "I could more or less dictate to customers. If I wanted to pick three Dominican Republic, Connecticut-shade-wrapper cigars, I could do it and decide for my customers what was worthy of smoking. Today I have to carry everything. They want to experiment and they want it now. I don't even know how many brands I'm carrying today. I added three last week alone."

Last May, standing in an inch of water from an early-morning pipe rupture, Howe was outwardly calm about having at least 3,000 damaged cigars in his display cases. "I'm not worried about the money. There's insurance. But at least 25 percent of these cigars I won't be able to replace right away because they are not available." It's a day-to-day problem for him now. "It used to be I had six-to-eight items on back order, and now it's a rotating list with over 40 items on it." Howe says he not only keeps a waiting list for scarce brands, but if "I get 10 boxes of La Gloria Cubana in, I have 20 people waiting. At no time in the 17 years I've been in the business have I broken open boxes and allocated cigars to people. But that's what I do now, so everybody gets some cigars."

Another factor is affecting the marketplace, too. For the first time in nearly 20 years, there are new cigar markets overseas for non-Cuban-produced cigars and new cigar outlets opening up in the United States. These both put increased pressure on the production pipeline. Lew Rothman, the owner of J.R. Tobacco, which sells more than 40 million cigars a year, says he is shipping 600,000 cigars to Europe this year--the number was zero less than two years ago. In addition, Rothman says, "there are nontraditional outlets that are calling up asking for premium cigars." Instead of selling a box or two, Rothman says, "you have new vendors ordering thousands of cigars."

One of those new vendors is the Gold Standard liquor-store chain in Chicago owned by Harold Binstein. Binstein sold cigars more than 30 years ago but had abandoned the business to concentrate on his wine and liquor trade. After Cigar Aficionado began publishing in September 1992, Binstein decided to get back into the business. He expects to do more than $1 million in sales this year. Mike Trella, Gold Standard's cigar buyer, says the bulk is in cigars costing $3 and more, usually bought by people "who haven't normally smoked cigars in the past." As Binstein says, "We made a huge commitment and it wasn't big enough."

The combined stresses on manufacturers and retailers only reflect what's happening on the street--there are new cigar smokers joining the ranks. That's right, there are more people competing for the output. The entrance of younger smokers into the market is the most likely explanation, but there's also been a change in the way regular smokers are buying. According to most people, older smokers had a brand, they'd buy a box weekly or every two weeks or whatever and that was that. Now they walk in and buy some of their favorite cigars, but then they also will want a half dozen brands to experiment with.

Sherwin Seltzer, vice president of marketing and sales for Villazon, the makers of Honduran Hoyo de Monterrey Excalibur, Punch, Bances and other brands, says the real reason for the surge is new, younger smokers. "The crowd at a smoker dinner is much younger than I ever remember," says Seltzer. He says that Villazon's cigars are generally perceived as stronger and "we didn't get guys smoking our brands until they were older. Not now." Retailer Goldstein agrees and notes that if he were to guess the average age of cigar buyers, he would venture that it has dropped by 10 years, below the fortysomethings into the thirtysomething group.

Lionel Melendi, the owner of De La Concha cigar store in Manhattan, says the younger smokers are ready to try anything. "They come in here and they want suggestions. It's easy to introduce a new brand to them," says Melendi. The crush of younger smokers has Melendi's business up in the double digits this year after setting records in 1993. "It's been like Christmastime in April and May," says Melendi, noting that in his 31 years in the business, he's never seen anything like it.

Levin of Holt's Cigars says that he has seen an upsurge in cigars on college campuses in the Philadelphia area and has watched a cigar club get its start at the University of Pennsylvania. In addition, he says there are more and more women trying and enjoying cigars. "With this number of new smokers, the only thing holding us back is not enough places to smoke." But he's even seeing a change in restaurateurs' attitudes. "I'm getting more and more calls from restaurants and a lot more are allowing cigar smoking. If that happens and we get more places to smoke, the roof will really blow off sales."

Of course, the critics are already beginning to look for the end to the boom. It will happen. That's the nature of booms and cycles. But for the time being, there's no end in sight. Factories don't have enough capacity to make the cigars that are in demand. And even if the number of smokers levels out soon, it will still take up to three years to have enough tobacco to meet their needs. So when you see cigars you like in the store, buy as many as you can. There's no telling when you might see them again.