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Cigar Industry

Normalcy in the Dominican Republic

The gold rush days of the cigar boom are gone, and so are most of the quick-buck artists who flocked to the Dominican Republic
By David Savona | From Susan Lucci, Sep/Oct 99

Manuel Quesada climbs up a small mountain of Indonesian tobacco packed in cardboard boxes. "I'm older than you, so if I can do this, so can you," he says, urging a visitor to climb with him. He stands 10 feet above the ground in his 35,000-square-foot warehouse in the Pisano free trade zone, just outside Santiago, Dominican Republic. Tobacco from around the world packed in 150-pound bales of various colors and designs lies beneath him, stretching out for what seems like a mile.   "The secret to this business is not making cigars; it's having the ingredients to make cigars," says Quesada. The 52-year-old owner of Manufactura de Tabacos S.A. (Matasa) has been making cigars in Santiago for 25 years. "We try to make the same, consistent blend and taste. And for that you need tobacco," says Quesada, whose brands include Fonseca and Cubita. "If you want to make 10-year-old tawny port, the first thing you need is 10 years. Today, you don't have it. And that's what happened to these newcomers--they wanted to make aged cigars with fresh, young tobacco."  

It seems like such a simple lesson, but few newcomers heeded it when they flocked to the Dominican Republic in droves in the mid-1990s. Throughout the decade, the Dominican Republic has supplied roughly half of the premium cigars smoked in America. In the early 1990s, the Dominican Republic shipped about 50 million annually to the United States. The number rose to 66.3 million in 1994, then to 81.1 million in '95 and 138.6 million in '96 before peaking at 268.4 million in 1997. Last year, the country shipped 200 million, or 25 percent fewer, premium cigars to the United States as the market struggled to digest an oversupply of cigars. The Dominican Republic's market share, however, increased slightly, from 51.7 percent to 52.9 percent.  

As cigar sales skyrocketed, newcomers flocked into the business. Some ended up in Central America, but most set up shop in the Dominican Republic. Today, most of them are gone, victims of choosy consumers and the effort of established cigarmakers to increase production of their best-selling brands.  

"There was a huge expansion of both tobacco growing and cigar making, which put a huge push on our relatively small industry. It's cooled off considerably," says Edgar M. Cullman Jr., the chief executive officer of General Cigar Holdings Inc., which makes Macanudo and Partagas cigars, among others, at its Santiago factory. Cullman welcomes the changing market, with some reservations. Having lost market share during the boom, General looks forward to reclaiming it now that the market is settling down.  

"There was a huge fight for experienced cigar rollers, and now you can get whatever you want," says Cullman. "There are many fewer manufacturers. We've tried to list all the cigar manufacturers that are no longer in business. It's tough. It's a huge list."  

It's hard to say for sure, but about 90 factories failed in the Dominican since 1997, perhaps 60 in the town of Tamboril alone.  

Quesada is driving around the Pisano free zone. Some of the inhabitants here are doing well, including Tabacalera El Credito S.A., where La Gloria Cubana cigars are made, and Tabacalera S.A., a factory run by Benjamin F. Menendez, Quesada's good friend and a regular adversary on the tennis court. Menendez recently began making Romeo y Julieta cigars here, a brand once made by Matasa.  

But Quesada's real reason for the drive is to point out the cigar casualties in this small area alone. Caribbean Cigar's factory is now a warehouse for Timberland boots. Professor Sila has shut its doors. V. M. Santana, says Quesada, is on its "last legs."   This scene is mirrored on a drive to Villa Gonzalez, another town outside Santiago. "There are no more cigar factories here," says Hendrik Kelner, the maker of Davidoff and Avo cigars. He estimates that seven or eight factories closed around this area.  

The 53-year-old Kelner more than survived the cigar boom--he prospered. The one-year-old, $1.7 million Cigars Davidoff factory, which he built with his partners at Davidoff of Geneva, could easily be mistaken for the corporate headquarters of an American Fortune 500 company. The building is sleek, polished and huge, and only resembles a cigar factory on the inside.   Kelner is sitting at a desk, squinting at a pile of graphs and arguing half-heartedly with one of his factory supervisors.   "I don't understand anything anymore," Kelner says with a smile. The Davidoff in his left hand is nearly a smoldering memory, two inches of cigar stub sticking out from between his thick fingers. "This new factory is a beautiful factory, but it's an efficient factory," says Kelner. Computers are everywhere--the production of each roller and each buncher is fed into the system, and with a press of a key supervisors can tell how many poor quality cigars a roller is creating. Kelner says the new setup is cutting down on rejects. The factory even has slots built into the rolling tables to collect different forms of tobacco scrap, and Kelner has a small army of women sorting out the leftover leaf in three separate piles, enabling him to charge $1 a pound for his scrap, more than other cigar factories.  

The Davidoff factory and the adjacent factory, OK Cigars, where Avos and other cigars are made, are busy, so there's plenty of scrap to sort. Piles of tobacco also age in his warehouses, as they do in many Dominican factories. Dominican tobacco farmers went into overdrive for the 1997-'98 growing season, planting 65,000 acres of premium cigar tobacco, nearly double that of the previous season. They cut back last season's crop to 28,500 acres, and plan to cut back again for the upcoming growing season, which begins in November.  

Even though Kelner is sitting on vast inventories of tobacco, he bought more tobacco from the 1998-'99 crop, and he says he paid his farmers the same price he paid the year before. "If they reduce the price, in the long term we are the victims," he says. "If you try to reduce the price, [a farmer] will try to reduce his cost--and in the long term, that reduces quality."   It's that type of commitment to quality that most newcomers didn't have, a long-term approach that many neglected to take. That's part of the reason why so many have left the Dominican Republic for good.   Litto Gomez sticks his head out the window of his pickup truck and motions to the man standing in front of a deserted building. "¿Que pasa a la fabrica?" he asks. What happened to the factory? The man tells him that it's closed. There's no name over the door, but this small building used to make cigars. Gomez has just crossed between Santiago and Tamboril, and this is the third shuttered factory he's passed in the past two minutes.  

"There used to be this packing office here," says Gomez, 45. "They would go to different little factories around Tamboril, take cigars from each place, and they would just put the same labels on them. So much for consistency." Gomez beeps his horn, and a worker opens the gate to Tabacalera La Flor S.A., the factory that makes La Flor Dominicana cigars. (A small fire in May destroyed 400,000 cigars in one of his aging rooms, but the damage was being repaired at press time, and Gomez said it wouldn't seriously affect the company's future.)   During the cigar boom, it seemed as if every inch of real estate in Tamboril became a cigar factory, from large warehouses to back rooms in people's homes. Gomez estimates that as many as 60 Tamboril factories went out of business between 1997 and 1999, and a person driving through the town can't help but notice a dozen empty shells of factories. Today, locals say only three export-quality factories remain: Gomez's Tabacalera La Flor, Tabacalera Real Felipe Gregorio S.A., where Petrus Dominicana and Felipe Dominicana cigars are made, and Tabacalera Palma S.A., run by José A. "Hochi" Blanco.  

The ride to Tabacalera Palma is a kidney-testing trek over a narrow country road. The drive past cows hardly makes one think about cigars, certainly not the possibility that a family would have been creating smokes here since 1942. Then the cigars were strictly for locals, rough cheroots made with all-Dominican tobacco.  

"In the 1960s, my father had 160 cigar rollers each making 500 to 600 cigars a day," says Blanco, who was born in the Dominican Republic. The 37-year-old, wearing a constant smile, sits in his cluttered office on the mezzanine level of his factory. "The 1980s, those were bad days," he says, remembering how tough the market was for cigars, "but in those days nobody used green tobacco like during the boom. The new people came into the business and they didn't know anything. Dozens of people came wanting me to make cigars."  

Blanco, who makes Cibao, La Diva and several private-label cigar brands, felt the sting of poaching when the newcomers flooded Tamboril. One day he walked into his factory and found only 17 rollers, half of his workforce.   "Seventy percent of the new factories were in Tamboril," says Blanco. "About nine or ten small factories in Tamboril are still open in people's houses, and most are making counterfeit cigars."  

Blanco says some of the counterfeiters produce what they call "Cohiba Crystals," a common counterfeit of Cuban Cohibas sold with a plexiglass or glass lid. Cuban cigar factories don't package any Cohibas in that way, yet people buy them regularly in the United States. Two counterfeiters even got into a fistfight one day over who had the right to make fake Davidoff cigars. (The real brand is made more than a half-hour's drive from here.)  

Blanco's family once grew tobacco; now he and Gomez have created a partnership to grow their own Dominican tobacco in La Canella, a region about 20 minutes northwest of Santiago known for its full-bodied tobacco. They've harvested two crops from the 110-acre farm, and the tobacco is now aging. They haven't used any yet; Gomez plans to begin rolling it into cigars in 2000. Today, it sleeps in perfectly proportioned bales in his cigar factory in Tamboril.   The Tamboril factory has lived up to Gomez's expectations. His rollers are busy and efficient, and capable of making even difficult sizes, such as his La Flor Dominicana El Jocko Perfectos, a stubby figurado. When Gomez told friends that he was moving from Villa Gonzalez to Tamboril in 1996, many tried to change his mind.  

"Ninety percent of my labor force lived in Tamboril, and I had to transport them to Villa Gonzalez," says Gomez. "A lot of people said, 'You're moving to Tamboril? You're crazy,' because of all the labor problems they had years ago."  

Tamboril has always been home to most Dominican cigar rollers, but when Cubans moved to the country in the 1970s and 1980s to make their cigars, they opened factories in Santiago.  

"In 1980, Tamboril was Vietnam," says Carlos Fuente Jr., the president of Tabacalera A. Fuente y Cia., maker of Arturo Fuente and Fuente Fuente OpusX cigars. "They were shooting machine guns in the streets." Fuente and his father, Carlos Sr., have made cigars in the Dominican Republic since 1980. "In 1984, it was a war zone," says Fuente Sr. "We came to Santiago because of the free zone, and there's tobacco here."  

Most of the factories that export cigars for the U.S. market clustered in Santiago, and they bussed in many workers from Tamboril. Everything changed with the cigar boom. Newcomers realized that they needed incentives to hire away experienced rollers from the old-time cigarmakers, and many set up shop in Tamboril. In addition to higher wages, they offered their workers the chance to work commute-free. Many obliged, and factories sprouted in Tamboril like mushrooms in the shade. The poaching began in earnest.  

"We woke up one January," says Quesada, "and between Fuente, Davidoff, ourselves and León Jimenes, we were missing 300 to 400 cigar-makers. That's a lot."  

The Eastern corner of the Dominican Republic, where Consolidated Cigar Corp. rolls such cigars as H. Upmanns and Montecristos, was sheltered from the roller wars that dominated Santiago. "I didn't have the same situation, because most people concentrated on Santiago," says José Seijas, general manager of Tabacalera de Garcia Ltd., Consolidated's La Romana, Dominican factory. "I think we fared better than most people."  

Consolidated was rocked by Hurricane Georges, a savage storm that hit La Romana head on in September 1998. The company itself was relatively unscathed--some tobacco and cigars were lost to water damage--but Georges wreaked havoc on the homes of Consolidated's workers, which were flimsy compared to the strong cigar factory. Seijas says Consolidated offered interest-free loans, payable at the low rate of five Dominican pesos a month (about 30 cents) to help workers rebuild their ruined homes. The company also donated building materials.  

Hurricane Georges spared Santiago, but the storm over rollers was nearly as fierce. The established cigarmakers called a meeting to combat the newcomers who were taking their rollers. They decided to fight them by setting up schools within their factories and work to train new rollers. Each went about it a little differently.  

Fuente Jr. embarked on one of the most radical methods. He decided if the other factories were going to poach his cigar rollers, he would train new workers in a way that would make them undesirable to anyone else. He trained workers in the entubar method of cigar production, a slow, painstaking process of making a cigar that cuts down the number of cigars a buncher can create in a day, but, in Fuente's opinion, improves quality.  

Inside one of his many tobacco warehouses, Fuente Jr. stops at a bale of maduro Dominican wrapper leaf. He has yet to use this on his cigars; the tobacco is grown in open sunlight, unlike his traditional Fuente Fuente OpusX wrappers, which are grown under shade. He spreads out a fat leaf between his fingers. Even in the dim light of the warehouse, the dark color of the leaf is evident. He takes the lit cigar from his mouth and wraps it with the maduro wrapper, which is still young. He takes a few puffs.  

"Try this," he says, clipping the end to give a visitor a fresh taste. "Get it into your nose, and taste it." The tobacco is powerful, stronger than his regular cigars, and bursting with rich flavors.  

More so than the other manufacturers, Fuente is isolating itself to become more self-sufficient. "We're still training rollers," says Fuente Sr. "I want to train about 150 more this year. And we're getting to the point where we're going to grow everything ourselves." He and his son made headlines in the mid-'90s when they grew the first successful Dominican-shade wrappers, which became the hallmark of the famous Fuente Fuente OpusX cigar. Now they are implementing more control over the farmers who grow their Dominican filler and binder tobacco, carefully monitoring the seed types that they grow and eliminating farmers who produce substandard tobacco. They're sitting atop massive stores of cigar tobacco, and they estimate that they have enough tobacco in their warehouses to last them five years at current production levels.   Prior to the cigar boom, "the Dominican Republic didn't have a consciousness of what a cigar was. They made cheroots," says Fuente Jr. He's driving his jet-black Lincoln Navigator SUV to his house, which has been under construction for years. He's not a native of the Dominican Republic, but the grandiose building and his family's wrapper tobacco farm show his commitment to the country.   The fallout from the cigar boom is allowing Fuente and other companies to demand much more from their cigar rollers. A few years ago, rollers frequently demanded higher wages from their employers. Today, many are being fired for substandard work.  

"We're demanding a lot more," says Fuente Jr., 44. "There're so many cigarmakers in the street, we're pushing our goals." Inside one of his factories, he's building rooms specifically for his most premier cigarmakers.  

As he unwraps a set of new cigar molds for an experimental shape that he's testing, Fuente Jr. looks as happy as a teenager who has just stumbled onto a secret trove of fireworks. "I've never been so excited about the cigar business in my life," he says, smiling.   Not all of the survivors are prospering. "I am selling the same quantity of cigars, but I'm making less money," says Blanco. Beneath him lies a mountain of tobacco bales. "I have expensive inventory, and the customers want better prices."  

UST Industries International Inc., a Dominican factory owned by smokeless tobacco giant UST Inc., is nearly deserted. Six cigarmakers--three bunchers and three rollers--are making cigars in a large rolling room filled with empty benches. Piles of wooden cigar molds are stacked in a corner, unused, and the aging room is full of Habano Primero cigars.  

"When we started this thing, there was the big boom and people were stealing cigarmakers, and the free zones were full. So we created our own free zone," says Bent Ahm, 49, the manager of the plant. He pours honey into his morning coffee as he sits at a desk covered with experimental cigars. "It's a little tough to have all that tobacco sitting around, but I think it will be an advantage soon."  

One of his company's most original ideas is Habano Primero 365, a cigar aged for one year. To prove to the world that the cigars truly have that much age, they have been packed in bundles and sealed in cheesecloth with notarized bands inside the company's aging room. They will be released beginning in August.  

Innovative ideas such as that help to make the Dominican Republic such a valued source of cigars for the U.S. market. Thanks to the slowdown, many Dominican cigarmakers believe that their best cigars are soon to come. General Cigar Dominicana is creating figurado shapes of its Macanudo and Partagas cigars. Gomez is starting to ship a Cabinet selection version of his La Flor Dominicana 2000 Series cigars. A row of cigarmakers makes the elaborate cuts on cigar wrappers needed to roll zeppelin-shaped Avo Domaine 20 cigars.  

"I'm positive that the quality of cigars is being improved a lot," says Guillermo León, the executive vice president of La Aurora S.A., the maker of Aurora and León Jimenes cigars. Many people call the 39-year-old the Prince of the Dominican Republic, a nod to L. León Jimenes CXA, the parent company of La Aurora and the largest company in the Dominican Republic: it brews Presidente and Heineken beers, and makes Marlboro cigarettes, Tang and, of course, cigars. The company's Santiago factory is immaculate and sprawling. Security guards wear crisp uniforms, the grass is as closely cropped as a marine's hair and every surface seems spit-shined. "It's Disneyland," says a friendly competitor. He's not joking.   Like several cigarmakers, León had to cut back on the number of cigar rollers he employed in early 1999 because he simply had too many cigars. By the summer, he began rehiring workers. "We have back orders again on a few shapes," he says. Sitting atop two to three years' inventory of tobacco, León is confident that the calmer market is allowing his company to make better cigars. He recently turned heads with the release of his Aurora 1903 Preferido, a classic perfecto cigar that looks like the cigars made popular 100 years ago.  

Of the current atmosphere León says, "It's better for everybody."   Back at Matasa, Quesada offers a prototype cigar to a visitor, who swears to keep mum on the project. The boom has turned Matasa into one of the more attractive cigar factories in the country. Marble floors, rich wooden walls and smartly decorated offices have replaced the beat-up furniture, stained floors and cheap wood paneling that once defined Matasa. Still, Quesada can't but help referring to his place as a dump...with a smile.  

"The emphasis has gone from supply to demand," says Quesada. His family has been in the tobacco business for more than 100 years, and 25 years ago he and his father became one of the first cigarmakers to set up shop in Santiago's first free trade zone. Today, Matasa is squeezed between a Fuente cigar factory and a plant that makes Levi's jeans. The Santiago free trade zone has never been busier, but Quesada is enjoying the relative calm.   "We used to sit here and field all types of people clamoring for cigars. And we didn't have time for anything else," he says. "Now it's back to what it used to be, where you dedicate yourself to preparing the tobacco, making the cigars and selling the cigars. So the atmosphere is a lot more relaxed."  

He can feel the change. He sits back in his chair and draws on a Fonseca Vintage, reflecting on the new atmosphere as a refreshing breeze blows through the open window. "For the first time in seven years, I was able to leave at five o'clock to play tennis," says Quesada. The ash on his cigar glows red for a moment, then slowly fades. "Things are much more relaxed now."   

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