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Aug./Sept.
2000

THE SHRINKING CIGAR ARENA:
MERGERS CHANGE THE LANDSCAPE

An odd irony surrounds the 2000 Retail Tobacco Dealers of America (RTDA) Annual Trade Show & Convention in San Antonio, Texas.

Once again, the RTDA anticipates a record-breaking show in terms of shear acreage - over 900 booths. Make no mistake; the voracious demand for booth space is largely accounted for by returning exhibitors, an indication that competition among today’s surviving manufacturers of cigars, tobaccos, and accessories remains in high gear. But even this year, there remains a waiting list for new manufacturers wishing to exhibit. This, even though the industry is in its third (or fourth, depending on who you ask) year of consolidation!

While the absence of numerous smaller manufacturers since last year’s trade show will certainly stand out in the minds of some, it is the changing face of the industry’s biggest players that will dominate

By the time you read this, Altadis USA - a new domestic operating unit of the European giant Altadis S.A. - will have replaced several longtime, familiar names in the industry: Consolidated Cigar Corp., Havatampa, and Tabacalera Cigars USA, as well as the previously consumed Hollco-Rohr. Altadis USA is now the U.S. industry’s largest cigar company, and continues to grow, assuming distribution of several brands formerly handled by Lane Ltd., following that company’s recent exit from the cigar arena.

General Cigar Co. - the other big player in premium cigars - is now under the ownership of Swedish Match, although its traditional management team (and former majority owner), the Cullman family, remains intact.

Globalization is a growing buzzword in many industries, and the tobacco arena is no different; this is a recurring theme among the so-called “Big Tobacco” or cigarette players. The changing face of the U.S. premium cigar industry in some ways echoes these consolidations. The roots of Altadis S.A. are largely planted in the cigarette sector, in fact, but due to its large size, even its much smaller cigar interests are quite large by U.S. standards. Swedish Match, a dominant player worldwide in the smokeless tobacco sector, sold its cigarette manufacturing operations last year to concentrate on its OTP business. The element of foreign ownership is a new twist, though.

With their domestic acquisitions, the marketing clout that these two foreign companies wield with their frontmarks, their manufacturing capacity and expertise, and their ability to command raw materials propels their potential dominance in the U.S. market to new heights. The gap between them and tomorrow’s surviving boutique manufacturers continues to widen.

The implications for specialty tobacco retailing are compelling. In an industry that has tried to “distance” itself from “Big Tobacco” and cigarettes, the truth is that it seems harder and harder to separate profitable niche tobacco retailing from tobacco sales in general. From taxation to package labeling to the multi-discipline, multi-national field of dominant suppliers, the tobacco business - whether mass or high-end specialty -is looking increasingly the same.

E. Edward Hoyt III
Editor