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February 1999
Volume 26
Number 1

RETAILER & TOBACCO INDUSTRY NEWS (cont.)

Web Sitings - www.rjrt.com
In addition to smoker's rights links, tobacco settlement news, and accommodation programs, the RJ Reynolds Tobacco Co. Web site has one of the most extensive search functions for state and Federal legislators, government offices, and committee members. From the homepage, select the "Legislator/Tax Information" icon. Simply enter your Zip code to identify your representatives and phone number, email or postal address for any other state or Federal legislator you desire. Daily Congressional schedules are also available. Bookmark your state's page and check frequently. Visit Smokeshop Online at www.smokeshopmag.com for an extensive list of links to online resources like this one.


Clinton's Threatens Tobacco Industry With Lawsuit
President Clinton surprised the tobacco industry and Congress in January by announcing that the Justice Department would file its own action seeking the recovery of Federal money, from Medicare and other programs, spent on smoking-related illnesses. He said the money would be used to strengthen Medicare.

A spokesman for the cigarette industry, Scott Williams, said the President's comments were "blatantly political," demonizing the tobacco companies because they were an easy target. Federal officials may seek to use the threat of a lawsuit to force concessions from the industry not won in the state round of settlements, like Federal regulation of nicotine.

In November, the four major cigarette makers agreed to pay 46 states and 5 territories $206 billion over the next 25 years to settle the state suits.

Federal Board Classifies Second-Hand Smoke as Carcinogen
A scientific advisory panel voted unanimously that secondhand smoke can cause cancer, casting aside tobacco industry arguments that research about the risks of environmental tobacco smoke is flawed.

The subcommittee of the National Toxicology Program's Board of Scientific Counselors affirmed the recommendations of two groups of government scientists that secondhand smoke should be labeled a carcinogen.

The panel made its findings in preparation for the ninth edition of the Report on Carcinogens, the federal government's official list of carcinogenic agents. The findings, which must be reviewed by the U.S. Secretary of Health and Human Services, could support efforts by Congress and federal agencies to battle smoking.

The decision frustrated members of the tobacco industry, who found no evidence in the studies cited by panel members supporting an increased risk from secondhand smoke.

A North Carolina federal judge ruled in July that a 1993 Environmental Protection Agency (EPA) study overstated the proven link between secondhand smoke and cancer, a decision that has been appealed by the EPA. The listing could aid the EPA in its court battle with tobacco companies over the effects of environmental smoke. Secondhand smoke contains about 4,000 chemicals, 250 of which are designated as toxic or carcinogenic, panelists said.

Old Cuban Cigar Factory Sets the Theme for Cigarz at CityWalk
Orlando, Florida - Cigarz at CityWalk, Orlando, Fla., is faithfully recreating a 1920s Havana cigar factory for its interior theme. A rusted corrugated metal ceiling, an authentic threshing floor, and lumber from an 1860s New England barn for the store's columns and trusses to recreate a tobacco drying barn will join tobacco crates, bails, old cigar presses, rolling stations, and stacked chairs. Completion of the 2,000-square-foot retail cigar store and bar, the third in metro Orlando area for owner Mark Angelo, is slated for the spring.


Seita Acquires Consolidated Cigar
Leading French Tobacco Co. Adds Premium Cigars

Seita S.A., France's largest producer and distributor of tobacco products, has acquired Consolidated Cigar Holdings Inc., the leading cigar maker in the U.S. in revenue terms.

Seita, producer of the pungent Gauloises and Gitanes cigarettes, said it had acquired about 99 percent of the outstanding share capital of Consolidated Cigar Holdings, Inc. following a cash tender offer of $17.85 per share. Seita, which announced its bid in December, expects to merge one of its subsidiaries with the 80-year old Consolidated Cigar. The transaction is valued at some $730 million.

Consolidated Cigar Holdings, which had 1997 sales of $299 million and net income of $54 million, employs 5,400 people, including 550 in the U.S. The company, which had been controlled by billionaire investor Ron Perelman prior to the acquisition, is headquartered in Fort Lauderdale, Florida, and operates eight plants two in the United States, two in Puerto Rico, two in Honduras, one in the Dominican Republic, and one in Jamaica.

Consolidated Cigar realizes almost all its sales in the U.S., the world's largest cigar market, where it has a market share of approximately 24% with such brands as Dutch Treats, Antonio y Cleopatra, Dutch Masters, Muriel and Backwoods, Don Diego, Te-Amo, Montecruz, and Henry Clay. It also holds the U.S. marketing rights to premium brands H. Upmann, Montecristo, and Por Larranaga.

Seita reported $3.1 billion in sales and $149 million in net income in 1997, and its shares are listed on the Paris Bourse. It sold 64.3 billion cigarettes in 1997, nearly 50% outside of France. In the cigar segment, the company is number one in France, with 38% of the market, number four in Europe, and number seven worldwide. The company is the largest importer of small cigars in Spain, with Picaduros and Fleur de Savanne brands. In the U.S. it sells the Pleiades cigars large hand-made luxury cigars made in Santo-Domingo. The acquisition of Consolidated Cigar will provide Seita with extensive expertise in the premium, hand-rolled cigar market, while enhancing its tobacco purchasing abilities and the production and marketing of its Pleiades brand in the U.S., the company stated. The transaction will make Seita the world's leading cigar company, with total volume of 1.6 billion cigars, making it a strong second business alongside Seita's cigarette division, which is focusing on the international development of the Gauloises Blondes brand. Previously, Seita's second major line of business was supplying France's 35,000 state-licensed tobacco shops with tobacco and non-tobacco products, and providing tobacconists with point-of-sale computerization and modernization consulting services.

Theo Folz, Consolidated Cigar's current president and chief executive officer, will continue to manage the company.

In November, Consolidated Cigar retained Chase Securities to advise it on alternatives that included a merger or sale of the company in the face of falling earning and share prices. A glut of premium cigars in the U.S. marketplace helped cut Consolidated's net income by 37 percent to $24 million in the first nine months of 1998, down from $38.4 million a year ago.


National Macanudo Robust Tasting Event Scores Big
Retailers, General Cigar Hosted Over 53,000 Consumers

This past December, 865 tobacconists throughout the country held one of the largest consumer cigar tastings ever staged. Designed to draw customers into retail outlets to sample the new Macanudo Robust cigar, the event attracted an average of 62.4 customers per location, according to Macanudo's manufacturer, General Cigar Co. At that rate, General Cigar projected that over 53,630 consumers sampled the new brand extension of the country's number-one selling premium cigar brand.

"Shockingly huge," exclaimed Craig Cass, owner of three Tinder Box stores in Charlotte, North Carolina, commenting on the impressive turnout for the tastings at his establishments. He estimates that 650 people came by during the few hours of the event, and feels that the tasting has had a sizeable impact on his sales of Macanudo Robust since then. Cass' flagship store at Southpark Mall went all out for the event, with a live radio remote and the voice of the Carolina Panthers.

Stacey Rumbo, floor manager at The Humidor's main store in the San Pedro Mall, Dallas, thinks the event was a "really good success." And Pete Fennel, manager of Up in Smoke at San Antonio's Galleria Mall, was "amazed" at how many people showed up, and has been pleased that the store has been "selling, and selling, and selling" Macanudo Robust since.

"Based on the e-mail and phone calls we've received, it's clear we not only successfully promoted Macanudo Robust, but also built significant traffic for smoke shops during the holiday season," said Steve Raye, marketing director for Macanudo. "Retailers reported a definite increase in new customers people they had not seen before. It's adding value to the customer's shopping experience and generating loyalty to the retailer."

Cass agreed, citing the need for suppliers and retailers to secure consumer allegiance by working together. "This gave us a way of telling customers to come by, have fun, and have a treat," he said. Raye, meanwhile, said that General Cigar has already seen the benefits of its investment in terms of repeat sales. "Most importantly, we've demonstrated to our retail customers our dedication to helping them sell through product. Partnership is what it's all about," he said.



SMOKESHOP - February 99