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June 1998
Volume 25
Number 3

RETAILER & TOBACCO INDUSTRY NEWS (cont.)

Dominican Cigar Producers Look to Europe for Growth
Cigar producers in the Dominican Republic, the world's leading exporter of premium handmade cigars, have expressed considerable concern that the U.S. market is saturated, projecting that further sales growth will need to come from Europe. The Dominican Republic exported 258 million premium cigars last year, an increase of 50 percent on 1996, according to Hendrik Kelner, president of Procigar, the Dominican producers' association.

Kelner said it would be hard for the industry to sustain its present rate of growth, as 93 percent of the nation's cigar sales last year were in the U.S. "We will not have any significant expansion in the U.S. market this year," he said. "We will try to get more involved in the European market, but this will be difficult."

Dominican producers fear a possible loss of market share in the U.S. and expect to be overtaken by Cuba as the world's leading exporter if Washington ends its embargo on imports from the island. "We are not now afraid of competition from other countries," said Kelner, "but our main threat is from new Dominican cigar factories that do not maintain the high standards of quality and production that have made the Dominican Republic the world's leader in the production of premium cigars." The Dominican Republic's dominance of the U.S. premium cigar market has been made easier by the inability of Cuba, the country's neighbor and a major competitor, to sell to the U.S. market. However, the Cuban cigar industry is already well established in Europe. Cuba, the world's third largest exporter after Honduras, sold 103 million cigars last year. According to Manuel Garcia, vice-president of Habanos, the country's exporter, Cuba plans to produce 160 million this year, moving to 175 million by 1999, and 200 million by 2000. Cuba's main market in Europe is Spain, and the island plans to increase exports to Spanish distributors this year to 40 million, four million more than last year. Cuba also has substantial markets in France, the U.K., Switzerland, and Germany. Kelner acknowledged that Cuba's previous success in Europe meant it would be difficult for the Dominican industry to make a "big and immediate impact" on the market. "It will be easier for my company, which produces for Davidoff," he said. "For the Dominican industry in general, however, breaking into the European market will not be easy."

Dominican sales to the U.S. have been adversely affected by a small but growing black market in Cuban cigars, according to Procigar. The Cuban product is freely available in stores in several Caribbean countries, and is frequently stripped of its label by American tourists and then smuggled into the U.S. under the guise of either Jamaican or Dominican cigars. The Dominican industry was also troubled by difficulty in obtaining wrapper leaves for its premium cigars, Kelner said. Insufficient quantities are produced by the domestic industry, and sources of imports such as Connecticut and Ecuador have been hit, respectively, by disease and drought.


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