Production, Distribution, Regulation, Trade...

Denmark’s Stanwell Pipe Factory to Close by Year-end;
Contract Manufacturer to Assume Production

Skandinavian Tobacco Group has announced it will close its Stanwell pipe factory in Borup, Denmark, and move production of Stanwell pipes to an external partner, citing a shrinking market.

“The continued drop in sales of pipes in Denmark and on Stanwell’s many export markets has made it difficult to maintain a cost-efficient production at the Stanwell factory,” the company said in a statement. Sales of Stanwell pipes have dropped from 126,000 units in 1995 to 65,000 in 2008, according to ST Group.

The production at Stanwell’s present factory in Borup will be gradually phased out during the coming months, and the facility closed entirely by December 31, 2009.

“We regret to have to say goodbye to trusted employees and a unique era of pipe production in Denmark,” the company said; 17 employees will be affected.

Søren Lundh Aagaard, managing director of Stanwell A/S, will continue to be responsible for the Stanwell activities after the closing of the factory. The company says it will continue to develop and market quality pipes in exclusive designs and secure the future of the Stanwell pipe brand.

The future, but as yet undisclosed contract manufacturer, “will be a company with a long history of producing pipes of a quality which can match the present superior quality of Stanwell,” the company said. “The future set-up will ensure that in the years to come Stanwell will maintain the high quality of the Stanwell pipes at competitive prices.”

Stanwell A/S Denmark was established in 1942, and moved to its current production facility in Borup in 1965. Since 2000, Stanwell has been owned by Nordisk Tobaks Kompagni A/S, which is a fully-owned subsidiary of Skandinavian Tobacco.

Faced With Challenge by Altadis USA, Jose “Pepin” Garcia Family Renames its New Nicaragan Factory

Estelí, Nicaragua - Naming a business after your family is a logical and very common practice the world over. For the Garcia family of Estelí, Nicaragua - Cuban expatriate and family matriarch Jose “Pepin,” son Jaime, and daughter Janny - the naming of their new cigar factory, which was completed last year, seemed a straightforward affair: Tabacalera (cigar factory) Garcia.

That, unfortunately, rang a little too close to home for Altadis USA and its decades-old Tabacalera de García Ltd. in La Romana, Dominican Republic - the largest cigar factory in the world. Now, the Garcias have elected to change the name of Tabacalera Garcia rather than attempt to fight Altadis’ claim of infringement, avoiding a potentially costly endeavor and, given the obvious similarity of names, a decidedly uncertain outcome.

The new name of the factory is “My Father Cigars,” which is also the name of cigar brand the family makes.

The Garcia family is also partners with Eduardo Fernandez, and operates the Tabacalera Cubana S.A. factory in Estelí. Between the two factories, a number of premium brands are produced, including Don Pepin Garcia, 601, Tatuaje, Cubao, San Cristobal, Benchmade, Old Henry, Tabaco Baez, My Father, and La Giralda.

The Garcia family’s Miami-based factory, import, and distribution company - El Rey de los Habanos, Inc. - remains unchanged.

1st Quarter Cigar Imports Soar Prior to April 1 Tax Hike
Premium Cigar Segment, Freed from Floor Stock Tax, Stockpiled Before Deadline

Washington, DC - The race to stockpile premium, handmade cigars before the April 1st effective date for federal excise tax increases had cigar factories throughout the Caribbean and Central American working at full capacity. Now, monthly import statistics released by the Cigar Association of America for the first quarter (January through March) show just how busy they were: an incredible 88.8 percent increase in imports were posted year-to-date, with an estimated 97.6 million premium cigars shipped into the country compared to 51.7 million during the same period last year.

Total imports of large cigars reached 385.8 million sticks for the first three months of 2009, compared to 178.4 million last year, an increase of 116 percent.

The Dominican Republic - the leading supplier to the U.S. - shipped a total of 191.9 million large cigars during the first three months of 2009, compared to 125.3 million in 2008, a 53 percent increase. Of that total, the CAA estimates 46.27 million were hand made premiums, compared to 22.8 million in 2008, or a 103 percent increase.

Honduras, the second-largest U.S. supplier of cigars, saw premium cigar imports for the quarter soar 75 percent, from 13.7 million last year to 23.9 million in 2009. In all, Honduras shipped 28.8 million large cigars year to date versus 15.2 million in 2008, an 89.5 percent increase.

Nicaragua, meanwhile, saw similar gains, shipping 26.2 million premium cigars for the quarter in 2009, versus 14.2 million last year, a jump of 79.5 percent. Total large cigar shipments to the U.S. were 38.8 million for the first quarter this year, compared to 21.3 million for the same period last year, an increase of 82.2 percent.

While the April 1st effective date for new federal excise tax rates on tobacco products included a floor stock tax on all tobacco products held in inventory, thanks to heavy industry lobbying, large cigars - which includes nearly all premium cigars - were exempt, incentivizing the industry to stockpile as much merchandise as possible under the expiring tax rates. Inventory trends in all other merchandise categories was entirely opposite, with orders plunging as retailers and distributors attempted to sell down stock to avoid paying potentially crippling floor stock taxes on the hardest-hit merchandise segments.

With the import rush now over, higher federal taxes in place at retail, and a myriad of manufacturer pricing adjustments being implemented across product lines to compensate, the industry is nervously watching how far the pendulum will swing the opposite way before factory re-orders stabilize. Exactly how much the higher cigar taxes will dull demand remains to be seen, with manufacturers absorbing varying portions of the increases on certain brands.

General Tobacco Opens Arizona Distribution Center

Mayodan, NC - General Tobacco (GT) opened GT West, a distribution center for its complete line of quality, low-priced tobacco products in Phoenix, Arizona. This new site will expedite delivery time to accommodate its west coast customers. Transit times to customers include: one day to Arizona, Nevada, New Mexico, and Southern California; two days to Central California, Colorado, Utah and Idaho; and three days to destinations such as Oregon and Washington State.

“General Tobacco’s mission is to provide superior quality tobacco products at competitive prices. Now, our focus is to ramp up our customer service,” said J. Ronald Denman, executive vice president of General Tobacco.

DJ Aleman, president of GT West, stated, “The distribution center exclusively services GT customers at no extra cost to them. Orders are processed and shipped out the same day providing the best possible service.” He added, “Having a service center in the same time zone should have a significant impact on customer satisfaction and sales.”

General Tobacco has recently introduced its new American Blend products and is now producing its entire brand portfolio in the U.S. All product packaging has been redesigned with a bolder emphasis on its made in the USA origin.

SMOKESHOP - June, 2009