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April 1999
Volume 26
Number 2

Machine Made Cigars (continued)
SSome manufacturers have begun to purposely blur the line between premium and all-tobacco machine-made cigars to take advantage of brand recognition. Spanish cigar-maker Tabacalera SA, which last year purchased Havatampa Inc., has since brought two versions of a new cigar to the market. One - the Vega Fina - is a low-priced hand-made premium cigar from the Dominican Republic. The other - the Vega Fina Natural - is an all-tobacco cigar made by machine in Spain. It sells for between 32 cents and 84 cents each in packs of four. "Is the Vega Fina natural for the traditional tobacconists? No," said Tony Barone, Havatampa's vice president of mass marketing. "The price point is not attractive to the traditional tobacconist. For convenience stores and outlets - places where they sell more cigarettes than cigars - it is on the high end of the product mix because it has a natural wrapper.

"We absolutely feel that the big growth in the future will be in machine-made cigars. The premium side right now is soft. Business is down. The growth is going to be in mid-range natural cigars."

Travis Club Sampler and Travis Club Senators 5-pack from Finck Cigar Co.; the venerable Swisher Sweets, the epitome of the mass-market machine-mades, and the natural leaf-wrapped Optimo Brigadier, from Swisher International, Inc.

Premium cigars have gained favor among smoke shop owners, in part because of the higher margin that they can demand.

"In terms of units sold, premium cigars are insignificant," said Leonard Brick, vice president of Brick Hanauer Co. Inc., Waltham, Mass. "In terms of dollars, sales of machine-made cigars are about equal with premiums." Brick said machine-made cigars - primary B&H and Jon Piedro brands - account for approximately 20 percent of the company's sales.

"They are mostly East Coast cigars," he said. "They are good quality, but they are not the same as a premium cigar. A lot of people still equate price with quality, when that's not necessarily true. If they've been buying a $3 cigar, they usually are going to turn their nose up at a 45-cent cigar, regardless how good it is."

The demographics of people who smoke mass-market cigars are very similar to the people who smoke cigarettes, according to Steve Swenson, director of marketing/mass market brands for General Cigar Co., manufacturer of Garcia y Vega, White Owl, Robert Burns and William Penn brands, among others. "That smoker is very much a mainstream middle-class person. And no, you don't see them being smoked in restaurants. People smoke them in their cars on their way to work. If they work outdoors, they smoke it on the job. Or if they are working around the house, they'll smoke it in the backyard while they are mowing the law." [As Smokeshop was going to press, Swedish Match announced an agreement to acquire General Cigar Co.'s mass market business. See story, page 20.]

"More and more traditional smoke shops have seen the opportunity for domestic cigars and affordable premiums in the $2 to $3 price range," said Janelle Rosenfeld, vice president of Consolidated Cigar Co., Fort Lauderdale, Fla., which markets short-filler Antonio y Cleopatra (AYC), Dutch Master, El Producto, Backwood, and Muriel machine-made cigars.

Although labeled "domestic" by the company, most of Consolidated's machine-made brands are manufactured in factories in Puerto Rico and the Dominican Republic.

Rosenfeld, however, said Consolidated doesn't see the crossover emerging for low-end mass market cigars.

"Most of the domestic cigars, although sales have increased, those are staying in their typical markets," she said.

Others suggest that the "typical" smoke shop is changing, just as cigars are changing, as evidenced by the hundreds of tobacco discount outlets that have opened in recent years.

RESOURCES
Brick-Hanauer Co. (800) 255-5556
Finck Cigar Co. (800) 292-4427
General Cigar Co. (860) 243-4500
F.D. Grave (800) 852-4427
Havatampa, Inc. (800) 237-2043
Topper Cigar Co. (800) 966-8677

"I'm not sure what 'typical' means any more when it's applied to a smoke shop," said Tom Ryan, vice president of sales and marketing for Swisher International Group, Inc., Jacksonville, Fla., which bills itself as the largest volume seller of cigars in the world. "The retail environment has changed over the last five years."

Swisher claims 25 percent of the machine-made market with its Swisher Sweets brand, which are sold for between 60 cents to 80 cent each. The company also produces popular brands such as King Edward, Optimo, and Blackstone. "There are a lot of cigarette stores - outlets - that have put in small humidors and expended by selling low-priced and premium cigars. Even some convenience stores and grocery chains have installed humidors," Ryan said. "That has put cigars - premiums and mass-marketed cigars - into a lot of different places where you never found cigars before."

General Cigar's Swenson agrees that most traditional tobacconists probably aren't interested in selling low-end machine-made cigars because high volume sales would be required to make the same profit that a tobacconist can make on a premium cigar.

Grave doesn't begrudge the increased popularly of premium cigars in the 1990s. "I'm glad there was a boom in imported cigars," Grave said. "Our cigar is a great cigar to have in the retail store, but you can't support a store with our cigars alone. We know that. These imports have allowed a lot of retail stores to flourish, and that's what we need to keep our cigars shipping."

Topper said that although his company in the past primarily has sold its cigars in the Northeast, that has changed. "Over the last couple of years, we've grown dramatically throughout the country," he said. "We have double digit increases in sales the last three years."

And, as the company has grown, so has its penetration of the market. "We still do a large part of our business with tobacconists, but we also are in a lot of grocery stores and drug stores," Topper said.

Topper said he sees an opportunity for machine-made cigar manufacturers in California, where a tobacco-tax initiative approved by voters last November has driven the price of cigars sky high.

"We will benefit from the California situation because we are price-oriented," Topper said. "In general, if we are a good value at $1, we are still a good value at $1.50 with everything being relative." Swenson said the future of mass-market cigars likely will depend on what happens to lawsuits and legislation designed to control the sales of cigarettes.

"Cigarettes drive the whole mass-market business," he said.


SMOKESHOP - April 99