Guillermo León brings a lifetime involvement to the cigar business. His family traces its tobacco industry roots back to León's great-grandfather, but family lore has it that León tobacco farming goes back several generations more. Today, the family has business interests in the Dominican Republic in everything from El Presidente beer to Marlboro cigarettes to Aurora and León Jimenes cigars.
In the early 1990s, cigars were a secondary business for the León family. With the beginning of the cigar boom in the United States, Guillermo León in 1993 was named executive vice president of La Aurora S.A., charged with developing the U.S. market for the brands. He became an avid booster of the Dominican Republic's cigars, and is a stalwart member of ProCigar, the Dominican cigar association.
Today, León divides his time between the company's factory in Santiago and his market in the United States. He is overseeing an expansion at the factory, and hopes to increase production once the current glut in the U.S. market has ended. León recently met with Gordon Mott, the managing editor of Cigar Aficionado, to talk about his family's businesses, León Jimenes cigars and his plans for the future.
CIGAR AFICIONADO: Guillermo, tell us about your family's history in the cigar business.
León: I have told this story so many times that I think I know it by heart. The factory was started in 1903. It was founded by my grandfather, Eduardo León Jimenes. He was a young man in his twenties.
CA: Was he a native of the Dominican Republic?
León: Yes, he was born in the Dominican Republic. He founded the cigar company because his father grew tobacco. My grandfather did the same work as his father, so he founded the cigar company with the family's own tobacco. We can't really tell you how many generations back the involvement with tobacco goes before my great-grandfather. But we know they were involved in the growing of tobacco. W e suppose that there have been more. We can't verify it.
CA: Were they landowners?
León: Yes, they harvested tobacco from their own land. They already had the tobacco, so my grandfather founded the cigar company with three rollers. That was in Guazumal, a small town between Tamboril and Santiago. It was a very small town. My grandfather started with the three rollers, and he started adding on. It began to grow. But he had problems supplying the product to other cities. To get to those markets, they had to carry the cigars on donkeys. So, he moved to the bigger city of Santiago in the 1930s, because it was simply more convenient. By then, the company was solvent and he was a cigar man.
CA: What was he producing at this time, was it cigarettes?
León: No, the cigarette operation began in 1963. From the 1930s when he moved to Santiago, he made cigars there, almost all for the Dominican market.
CA: What was the brand?
León: Aurora. Inside the factory of La Aurora we had various sizes and brands that today no longer exist. This is one of them. [He holds up a large perfecto cigar.] We also had various brand names. But I can't mention them because others might want to register them. We still have about 13 different sizes that are made in the factory.
In the 1960s, La Aurora began production of cigarettes. The project followed the death of [Dominican dictator Raphael] Trujillo. Trujillo had not allowed anyone else to start a cigarette factory because he was a partner in the only cigarette factory at the time in the Dominican Republic. The Compania Anonima Tabacalera also produced cigars, which they had started about the same time as our factory. But it was shortly after his death that we started producing cigarettes, including Marlboro and some local brands.
In 1983, we constructed a brewery called Bohemia. Then around 1987, we acquired the largest brewery in the Dominican Republic. That brewery produced the Presidente beer, which is the leading brand in the national Dominican market. In the early '90s we began to export that beer. We introduced it in Miami, New York, New Jersey and Puerto Rico. This has been a very successful brand for us and we are going to continue to expand the market. We are very pleased with it.
CA: Is there a member of the family that is in charge of the brewery?
León: Yes, my uncle. My uncle is León Jimenes, and he is in charge of E. León Jimenes CXA, the parent company of the Dominican National Brewery. The other parts of the company include the tobacco side, which is divided into cigarettes and cigars, the latter of which is called La Aurora. And, then we also have our food subsidiary, Indal, which is run by my brother, Franklin. It makes juices such as Tang and Kool-Aid and some candies.
CA: What are the total sales of the company?
León: It is in the neighborhood of $500 million a year.
CA: You have a business association with Philip Morris, the U.S.-based cigarette, beer and food conglomerate. Could you please explain?
León: We have been associated with Philip Morris since 1963.
CA: In the cigarette business?
León: In all parts. But they do not have a person here in our offices. We have managed the company the way it has always been managed--by my family. We have an excellent relationship with Philip Morris. They are people that have a great deal of trust in us, and they have a great deal of know-how in many things, especially on the manufacturing side. For instance, with cigarettes, they have so much experience in machinery and production, that we have been able to take advantage of it. In the area of distribution, we are able to distribute El Presidente in many areas through the Miller Brewing Co., and we reach duty free in Europe with our cigars through them. We also are exploring the possibility that Philip Morris could distribute our cigars throughout South America.
CA: Are they minority partners?
León: Yes. We don't talk about exact percentages of ownership, but they are minority partners. It is a very good relationship.
CA: How did you start with La Aurora, the cigar company?
León: I have been involved with the cigar industry since I was a small child. We used to go and play in the fields around the factory. There are seven kids in my family--two girls and five boys. We are all one year apart from each other in age. We were always involved with all that has to do with tobacco. We would be at the factory after school. I studied at the university in Santiago. I was the only one of the siblings that didn't study outside of the Dominican Republic. All of my brothers studied in the U.S.
CA: And why did you stay?
León: You ask me that question and I don't know the answer. I don't know the reason why. Perhaps not to leave my parents alone, since I was the youngest. So I stayed, and I'm glad I did. I studied business administration. When I graduated, I worked in my own company for a few years. In 1987, I joined the family company. I wasn't directly involved with La Aurora at that point, but I was with the holding company that ran the group of companies. From then they took me to La Aurora in 1994, and I have quite a bit of satisfaction from having seen it grow.
CA: I've been told that you had spent a few years as an actor; is that true or not?
León: No. [Laughter] No, no. I have never been inclined toward that, but many people have asked about that. I don't know why.
CA: So, when did you start at La Aurora?
León: I joined La Aurora in 1994. The brand sales were basically concentrated in the local market. We did export to the U.S. and Europe, but there wasn't anyone directly responsible for the Aurora brand 100 percent of the time. Still, Aurora has always been protected in the family because it was like the seed that bore all the fruitsfor the company. I remember that it had some very difficult years, economically speaking. But we still maintained production.
CA: How many cigars were being produced when you arrived in 1994?
León: When I arrived, we produced around three million.
CA: And how many were exported?
León: Of those three million we exported about one million between the United States and Europe. Most of the cigars were exported to Miami, so when I say the United States, I am really talking about Miami, because that is where that cigar was known.
CA: Did the León Jimenes brand exist at that time?
León: In 1994? Yes.
CA: When did it start?
León: León Jimenes started in 1987, and it had a Cameroon wrapper. We used to produce a cigar called Imperiales. I still have a box of those put away. But we changed the name from that to León Jimenes. At about that time, the Cameroon wrapper supply became very difficult and small. We needed to make a choice between León Jimenes and Aurora to put Connecticut-shade wrapper on one of the cigars, because we didn't have enough supply of Cameroon to do both. Since Aurora had always been part of the company's tradition, and the older of the two brands, we decided to change León Jimenes to put the Connecticut-shade wrapper on it. People complained. They had liked the cigar the way it was, but there was nothing else that could be done. We had to do it.
CA: When did you change the wrapper?
León: That was in the early 1990s. I wasn't at the company yet, so by the time I got there, the León Jimenes cigar already had a Connecticut-shade wrapper.
CA: León Jimenes was produced for export, or for the local market, too?
León: For both.
CA: What was the production of León Jimenes when you arrived?
León: Between both Aurora and León Jimenes, we produced three million. When I arrived, production was more or less divided 50-50 between the two. That is still maintained, even though in Europe, the brand Aurora doesn't exist. It doesn't exist because we haven't had the production to ship there and maintain our U.S. market. And Europe has always been more inclined toward the lighter Connecticut wrapper. We just recently introduced the Aurora in certain European markets. The response has been favorable.
CA: Let's go year by year. In 1995, how many units were produced?
León: In 1995, three million; 1996, we doubled to six million; 1997 we doubled again to 12 million.
CA: Still divided 50-50 between the two brands.
León: More or less, with some production going to private-label brands, and it also includes some cigars made by machine. For 1998, we had projections to get to 15 million, with the prospect of opening up some new markets, because we still have large new markets in Europe where we believe our cigars will go. But the way things are going, we are only rising at about an 18 percent annual rate, so we may not even reach 14 million.
CA: For the first three months of 1998, you have seen increases of about 18 percent?
CA: In the current climate in the U.S. market, that is actually quite good, don't you think?
León: Yes, I think that the way things are going with all the new manufacturers, 18 percent is quite healthy. It's just not up to our projections.
CA: How many factories do you have now producing for you?
León: For us? Just one.
CA: How many people work there?
León: We just recently reduced the workforce because we had too much inventory. We were negotiating for a new distribution deal in Europe, but the deal fell through. We had increased our inventory in anticipation of that deal.
CA: What's your inventory level right now?
León: We have about five million units in inventory. Up to a few months ago, we had been selling everything that we were producing. But we have decided that we need to move the build-up in inventory, because we didn't want the cigars sitting here getting old. We dismissed about 120 rollers; we still have 200 working in the factory. We have also been cleaning up our workforce, because now is a very good time to be focused on quality. It's easier when things are a little slow to tighten up and make more demands for quality on the individual rollers. The individual who doesn't give us top quality, we let go. It used to be a problem for us because there was a shortage of rollers. Nowadays there are 100 to 200 good rollers looking for work. So if some don't tighten up on their quality, unfortunately they have to go. But as a result of our efforts, I believe that today the consumer is receiving 100 percent better quality than six months ago.
CA: Is it just the rollers affected by this new focus on quality?
León: No, it affects everything. I am saying you can see improvements in the quality of the tobacco, the quality of the cigar, in manufacturing, in everything, at least on our part. But it seems that all the producers are like that. When I speak to the traditional manufacturers who were in business before the boom, they are cleaning up their factories as well. Today, they are always dismissing people. One takes out 30, the other takes out 40, but they are always dismissing people. They're doing the same kinds of things we're doing.
For instance, we have improved our quality so much inside the factory because we have put in quality stations; they are like inspection stations that we didn't have before, because we couldn't really take the time, nor did we have the manpower. It's like the saying you have to stand up to see what you have. You then prepare your land again, and keep moving forward, knowing what you have. Right now, today, we can make 35 million cigars without any problems, because we have been preparing for two years to do just that. And, I believe we will have the opportunity to do it someday.
CA: In your view, how has the business climate for cigars changed in the Dominican Republic during the past four years since you joined the company? Please tell us about all the difficulties you encountered.
León: There weren't any problems in the beginning. I met people from ProCigar, and they were all very helpful. Henke Kelner at Davidoff, Wayne Suarez at Arturo Fuente--they all helped me very much. Even through 1995 and the beginning of 1996, everythingwas fine. We were producing and selling everything we could make.
CA: Were there plenty of raw materials at that point?
León: Absolutely. In 1995, I remember that there weren't really any problems. A lot of people rushed out to try to buy tobacco before it was ready, but I would say that the big companies did not. The harm didn't start until '96. I am going to tell you that all the factory owners that financed tobacco, which means they gave technical and financial assistance to the farmers who grow tobacco, got burned in 1996. The idea in the Dominican Republic had been that I give you, the farmer, the money, and I send a technician to supervise the crop, and when the crop is harvested, I get it from you at a prearranged price. The tobacco is mine. We expect things to go well in these situations and they normally do.
CA: How many tobacco growers do you have?
León: We had, in those days, about 200 tobacco growers. And, in 1995, the old system worked fine. But in 1996, suddenly, there were factories everywhere. Far too many small factories.
CA: Was this change in the number of factories as sudden as you describe it ?
León: It wasn't a surprise for us; we had talked about it in the company and we expected it, but it did cause harm. The newcomers damaged the big cigar companies because they would go to the tobacco growers and offer them double of what was stipulated in the contract. Naturally the tobacco growers would remove their better tobacco and hide it to sell to the newcomers. We had to go to the tobacco growers and look at the tobacco and tell them it wasn't good enough. We had so many legal problems, but we had to fight it. That same problem existed with the Dominican tobaccos: olor, piloto Cubana and [tobaccos] from San Vicente. It was all a headache. We ended up buying the tobacco, but we had financed it at about 1,400 pesos, which at the time was about $100 for 100 pounds, and we received it at 3,400 to 3,500 pesos.
CA: In 1996?
León: Yes, the same year the price increased nearly two and a half times, and in some cases, three times. Wrapper tobacco was even worse. Whatever arrived at the factory, that was the amount of wrapper you were going to find in the market unless you were a long-standing client of one of the big wrapper companies. We were fortunate because we had that kind of relationship, someone to sell to us, like Culbro in Connecticut. They never failed us. But I do know that many factories were affected by this because those little factories paid more for the tobacco and often got it at the expense of the big factories. The small guys could do it because they didn't have a lot of overhead expenses, just the tobacco rollers and the owner and that was it. That wasn't the only thing. The newcomers also robbed us of tobacco rollers. We had to start up a school in Aurora, and we ended up training 300 to 400 rollers in one year.
CA: And how many tobacco rollers did you lose in that time?
León: Three hundred fifty. But truthfully, I trained the rollers for the newcomers, so that they would leave my tobacco rollers alone.
CA: But you practically changed all the laborers in the factory.
León: No. The new factories didn't necessarily take the veteran rollers, although we did lose some. The new cigar rollers had inferior working conditions to the older ones. The older ones were permanent and had a lot of benefits. We would give them uniforms, we would give many more things to the ones that were permanent and who had a long time at the factory. The new guys would feel that they already knew how to roll tobacco, and deserved the same kind of treatment. So, the new factory owners would offer them better conditions, thinking that these recently trained people did indeed know how to roll tobacco, so they would take our newly trained rollers. That's what happened in many factories, not just ours. I would have to say to probably all of them. For that reason maybe the robbers did us a little less harm. But we still had quite a bit of turnover in personnel, which wasn't good for morale. That happened even though we would warn the rollers that once they left they couldn't come back, and they were heading into a situation that could only be temporary. But they would still leave. I have not changed my mind. The ones that left I will not take back. But I imagine that other factories are probably letting them back into their old jobs. At least some of them.
CA: How long did this situation last?
León: We had been anticipating since mid-1997 that things were going to change again, and a lot of the start-ups would begin closing. And the truth is that that is the way it went. It was as if there were suddenly many people that woke up from a dream. That is to say that many people finally realized that the business of making tobacco is not something that you can just start up from here to tomorrow if you don't have traditions, and so on. By August of 1997, factories started to disappear. There are quite a few factories that have closed but are filled with inventory.
CA: How many factories existed in July 1997? How many are still in operation today?
León: This is an informal estimate because those factories were often so small, they didn't pay taxes. But say there were about 130, and by January, according to my understanding, about 80 or so had stopped operating. Now, remember we are calling a factory a house with two rollers. What many brand owners did was they would buy from this one and that one, gather some inventory, slap on their label. But the cigars came from different manufacturers. So, I'd estimate that 80 have already closed, and more [closings] are still to come.
CA: Do you think that in the next year we are going to be at the point that we were in 1994, with eight to 12 cigar companies operating in the Dominican Republic?
León: Yes, I would say that is about right. There are some new companies that are going to stay in business, because they produce a quality product.
CA: Up to now, La Aurora maintained contracts with about 200 tobacco growers. Do you have any plans to change that system and become landowners?
León: We do not own land. We gave direct financial and technical assistance to our growers until last year. This year we are using a system that most manufacturers now employ. That is, we have a contract with a company that buys all the tobacco and it is responsible to deliver a certain amount of tobacco, and that all the tobacco that you, the cigar manufacturer, receive is in good condition. We do have our own personnel in the tobacco fields and at the tobacco warehouses. And, we are always going to have contact with the growers in the fields. There are other manufacturers that do not maintain contact with the fields, and they just wait to receive the tobacco. In that sense we have always been in the fields, and we've always had contact with the growers. You need to know the growers, and if you are going to give them support, you have to have people in the fields.
The reason we changed our process is more legal than anything else. We didn't want La Aurora getting into legal issues with each grower. In the past, we've lost a lot of money with the growers. We gave them equipment; in fact, we gave them everything necessary to grow tobacco. But if they break the contract, then you are in a legal fight directly with them. Even then, if we won, we used to leave them with everything. We have lived all our lives off the growers; we don't see ourselves bringing any harm to the growers, even if they cause us harm. For us, the growers have always been some of the most important people in this process.
CA: So you don't have any plans for a project like the Dominican wrapper project that the Arturo Fuente company has?
León: We are interested in everything. In the last year, we added seven new sizes to our brand portfolios. We always give the consumers what they want. If we see a market that we could explore, without a doubt we would do it. We have the financial and human resources to accomplish any goal. We are very prepared in that sense. Remember that we were the ones that developed blond tobacco, Virginia burley tobacco in the Dominican Republic. That was unknown territory; they didn't know that tobacco here. We imported it from the United States, and we created the department, we trained the technicians. At the time, there were only about 20 technicians in the fields here. And, we created about 400 to 500 growers. We have the resources to do about anything in regards to the growing of leaf. If it is needed for the market, we will be part of it.
CA: Let's talk about the two brands: Aurora and León Jimenes. You used to call the brand La Aurora, but you've changed it to just Aurora. Why?
León: Yes, it used to be called La Aurora. But people used the name for the cigar and for the factory where the cigar is made. According to our publicity and marketing people, this was creating confusion among consumers. So, we decided to change the brand name to just Aurora, and keep the factory named La Aurora.
CA: How many sizes are there in the Aurora brand?
León: We have more or less the same amount for Aurora as for León Jimenes, 13 sizes. We make all the traditional sizes and shapes.
CA: Are you going to introduce new shapes and sizes in '98?
León: If the market demands it, then we will be on top of everything that the market demands. If we were to launch a new brand, it would not be right now. We do have new brands in the planning. We even have a specific cigar that is the pride of Don Fernando León [Guillermo's father]. That is a cigar that is made specifically for him, and he gives it away as gifts. It is a cigar that is not commercially produced, but we expect to launch that cigar someday. For now, we don't think it's the right time. We also have anothernew project underway, but that we won't be bringing to market for a while. It will bring us back closer to our own tradition, the first sizes and shapes that we used to make at the original factory. But we don't think it is a good idea to launch a new brand right now, because the market is too confused at this time. There have been too many new brands in the last few years.
CA: Are the two brands you have doing well?
León: Yes. Things are going well. We've set some new objectives for León Jimenes in Europe. We are going to open up new markets there as well for Aurora. In 1997, we sold 1.7 million units total in Europe. In 1998, we expect more because we're opening more markets.
CA: Was the 1.7 million for both brands?
León: Basically that was for León Jimenes, but we have started distributing Aurora in Europe. We are very happy with work that has been developing in Europe. In America, we understand that there has been a slowdown in the retail market, and we understand that retailers are stocked up and are trying to move the cigars.
CA: Which is the largest market for León Jimenes outside the United States and the Dominican Republic?
León: Europe, primarily duty-free shops. We also have a tremendous image campaign there.
CA: Is it the same ad campaign as in the United States?
León: No, not the same one. Over there, we don't have the same concept in regard to the family. The same things don't work over there.
CA: You also have a relationship with other brands, such as Lone Wolf. How many other brands do you make?
León: Our number-one private brand is Savinelli Oro, made with a Sumatra wrapper.
CA: Is it made in the same factory?
León: Yes, it is. We have had a very favorable customer response.
CA: What's the production level on Savinelli Oro? How much did you produce in '97?
León: In 1997, we made about 600,000. In 1998, we are projecting about one million. It was a project that started recently, and the start-up coincided with the collapse of the market. So, we don't have projections for beyond 1998, but they are working hard on the brand.
CA: Does that mean you are not producing it now?
León: No, because we have some in inventory. There is no problem when they ask for more product. We ship it immediately. We still plan on meeting our target for 1998.
CA: Are there others?
León: Yes. We make a cigar for Lone Wolf. We made about 175,000 in 1997 and we expect to do about the same amount in 1998. MATASA makes one of their other labels.
CA: Do you make other private brands?
León: We make cigars for Daniel Marshall. It is not a large quantity. The brand is working well for Daniel.
CA: How much did you produce in '97?
León: Not much at all. Remember that he dedicates himself more to his humidors, so what it seems like he did was keep his humidors full of his product. We made about 175,000 units, and we'll make about 150,000 in 1998.
CA: So you are going to stay at about the same level, maybe a little less?
León: Yes. Based on my conversations in the last few weeks, I think we will maintain that level.
CA: Are those the major brands you produce?
León: I would say those are the largest. We also produce Maxius, which we made about 75,000 in 1997, and we'll make 50,000 in 1998. We also have just started making Don Lino cigars, which used to be made in Nicaragua; we plan to make about 750,000 of them. And, we make a private-label brand for Europe called Chambrair; we produced about 75,000 in 1997 and we'll push that up to 100,000 this year.
CA: So, out of the 12 million to 13 million cigars produced in 1997 in your factory, about 9.5 million of them were for León Jimenes and Aurora. Is that right?
León: Yes. It ends up being about a 50-50 split, because in the U.S. we sell more of one brand and here we sell more of the other.
CA: You joined the Dominican Republic cigar association in 1994. After several years of being very inactive, I hear it is beginning to step up its activities again. Can you tell us about what's going on?
León: We worked very hard in the beginning to raise the reputation of the Dominican Republic. I think that objective was accomplished. We always had the traditional manufacturers as part of the original group. And yes, we had some misunderstandings in the group. But when we got together, we'd always talk about the market, and the meetings would last three to four hours. We never wanted it to end. We have all always worked with the same mission in mind: to improve the image of Dominican cigars. We have never changed that goal, nor do I think it will ever change. Now, I don't know if you noticed recently that the boxes have started coming with the organization's seal; we always wanted to do that. There were some reasons that have stopped us in the past. When all the other factories were started, there was a competing association, but we didn't want to create any problems. We waited for all that to pass. As I just said, we were all concentrating on producing the best quality.
CA: Do you think that the image of the Dominican cigar has changed since you got involved in the business?
León: Before the boom? I think that when people speak of premium cigars today, what they think of is the Dominican Republic. They don't think first of Cuba, Nicaragua or Honduras. It's not that those places don't have quality cigars, but the Dominican Republic comes to mind first. We are number one in volume. That shows the consumer has faith in our cigars. It's because we have worked on the quality of our cigars. Our tobacco is as good or better than any in the world today. The growers now receive so many incentives that the quality of the tobacco can't really be improved. In fact, all the tobacco of today can't be compared to what was harvested in the past.
That is what has been the most favorable development for the Dominican cigar. For that same reason tourists go and buy cigars now in the Dominican Republic. I would have to say that it is as big an attraction as the beaches. The Dominican Republic gets a lot of tourism, but we have been receiving a lot more tourists who specifically want to have a look at the process of making a cigar and at tobacco. I can document that increase because of how many more people come visit our factory.
CA: You have one of the largest visitor operations in the Dominican Republic, don't you?
León: That is correct. Last year around 60,000 tourists came to our factory, and we welcome people almost every day. Our factory is something special. We've brought back the tradition of reading aloud in the factory to the workers. The reader recites the news, sports and horoscopes, for example. We've been doing that for a year. That is one of the things that my father always wanted brought back. Excuse me if I go on about this subject, but since almost no one else has it, it's very interesting. The reader is one of the rollers who is elected by the workers, and they pay him. It's great to see, and as a result, we really welcome [tourists] into our factory. When they arrive, we give them refreshments, perhaps coffee, juice, even beer--whatever they like. All that is free and whoever is interested in taking a tour, we are happy to comply.
We also have a store for accessories for cigars.
CA: In the history of your company, cigars went through a period when they were less important to the bottom line. But it seems you are returning to the roots of the company.
León: Yes, that is true. The importance has always been there. The cigar company did operate with losses for a couple of years. But the thought of closing it never crossed our minds. It would have been absurd. But for us, Aurora is our pretty girl. It is a tradition that runs through our veins. It is what has taken us to where we are today. It is the soul of the company, whether or not it was lucrative.
CA: If the embargo on Cuba is lifted someday, do you plan to use Cuban tobacco, perhaps open a factory there? Do you have any plans concerning that?
León: That's not in our league. People already prefer our cigars the way they are. The brands are already established. I can't say that using Cuban tobacco or whatever would never happen. I think Cuba has good tobacco. If some day that is what the consumer asks for, why not? There are people that like tobacco from Nicaragua, Honduras or Indonesia. Cuba is a good producer of tobacco, so why not contemplate all the possibilities. To speculate about whether we would create a factory in Cuba, I doubt it. First of all, our roots aren't Cuban; we are very traditional and very Dominican, and we have defended our national pride to the end. When the Dominican market was not appealing to anyone, we maintained it. Even when we had the chance to increase our profit margin by moving the production to somewhere else, we maintained our tradition here, which is to give the people the cigars they wanted. We have good relationships with people from Havana. They have visited us at La Aurora. But that's it.