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April/
May 2000

CIGAR IMPORTS:
THEY TELL ONLY HALF THE STORY

While total premium cigar imports were down about 22% last year, the industry can take solace in several aspects of the current state of affairs in cigar land.

First and foremost is the fact that a decade ago, only a third of last year’s premium cigar volume made its way into the country. Premium cigars remain well above pre-boom levels, despite the much ballyhooed cigar "bust," which has been largely a shakeout on the manufacturing side - a slugfest that has concentrated market share among fewer players. While this in fact has raised an entirely new round of concerns among retailers, many fears are unwarranted. Foreign buyouts are placing old brands in the hands of large, but none the less dedicated, cigar manufacturers. Compared to the legions of get-rich-quick players who lowered quality to never-before-seen levels, this should be a confidence-building turn of events.

Secondly, last year’s drop in imports has already slowed in comparison to the drop in 1998, and shows that the situation is not careening out of control. Will all of the market expansion the industry gained in the 1990s continue to erode in mirror fashion over the next five years? Only if the industry lets interest in premium cigars as a desirable lifestyle expression fade away. The boom may have taken on a life of its own, but now its up to retailers and manufacturers alike to devise ways to keep customers coming back, to keep up the momentum as much as possible.

Finally, the first monthly cigar import report for 2000 may shed another ray of hope. While monthly fluctuations cannot predict long term trends, it is interesting to note that premium cigar imports were up by 66% from the year earlier. Is there finally light at the end of the warehoused glut of discontinued brands? Has the supply pipeline begun to open up and more accurately reflect domestic demand and sales? Was the large drop in imports a largely temporary correction to compensate for over-ambitious imports in the peak boom year? Will the market settle in at a comfortable post-boom level well above pre-boom levels? Many in the industry believe yes, and time will tell.

On the other hand, there are plenty of factors working to keep the downward trend continuing downward. Significant changes in the marketplace since 1990 include soaring OTP taxes, Internet and mail order competition, and a relentless barrage of anti-tobacco activism that has altered the norms of tobacco purchasing and enjoyment. The regulatory morass that has befallen the cigarette industry continues to lurk in the shadows of OTP, keeping the specialty tobacco industry pondering just how safe a distance exists between cigarette regulation and complete tobacco regulation.

With the Supreme Court ruling that the FDA holds no authority over tobacco regulation, the issue now awaits an explicit regulatory mandate from Congress. And once again, cigars and pipes are in danger of succumbing to potentially significant marketplace changes. The industry must promote the pleasures of responsible tobacco use, while defending the right to do so - a tall mandate. The alternative? Watch cigars embark on another two-decade-long slide, and count the economic casualties along the way.

E. Edward Hoyt III
Editor