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Aug./Sept.
2000

Ernesto's
Ascent

If only the story of every tiny Miami cigar manufacturer had as happy an ending as Ernesto Perez-Carrillo’s El Credito Cigar Co. Producer of the wildly successful La Gloria Cubana, Ernesto is busy doing what he does best - making creating cigars - with the logistical support of Swedish Match S.A.

by Bob Ashley

The last decade has been like riding a roller coaster without a seatbelt for Miami cigar maker Ernesto Perez-Carrillo and El Credito Cigar Co., the company his father founded in 1968.

Quietly producing 500,000 moderately priced cigars in 1990 at a small factory in Miami’s Little Havana neighborhood, Carrillo suddenly found himself riding the crest of the cigar boom that swept the country after his La Gloria Cubana Wavell received a highly favorable rating from Cigar Aficionado magazine.

Even as production grew dramatically to 6.1 million cigars in 1996 with the addition of a factory in the Dominican Republic, Carrillo found himself - as did others - unable to keep up with demand. That only increased the buzz about the cigar, which took on almost mythical proportions, and led to even greater demand. In turn, there was an increased frustration on the part of smoke shop owners who weren’t able to stock the brand for their customers.

Carrillo acknowledges that La Gloria’s sudden popularity caught him off guard. “It was a nightmare; a constant struggle,” Carrillo recalls none to pleasantly. “We couldn’t control it.”

Circumstances have changed since then. The cigar fad has faded, and gone with it are unrealistic demands on production.

Also gone are the shortages of premium tobacco - primarily, quality wrapper leaf - that characterized the boom years as dozens and dozens of companies got into the cigar-making business. That has increased the availability of tobacco to manufacture La Gloria Cubana and also has allowed El Credito to introduce reformulated versions of its two other primary brands, El Rico Habana and La Hoja Selecta.

Most importantly for the development of the La Gloria Cubana brand, in 1999 Carrillo sold El Credito to Stockholm-based Swedish Match AB, the second-largest producer of cigars in the world with worldwide annual tobacco sales of more than $1 billion.

Swedish Match has stepped in to reorganize El Credito’s business operations, aggressively expand marketing, and improve customer service. That has freed Carrillo to concentrate on making cigars, something he’s done for more than 30 years - first as a helper for his father and later as president of the company.

Under Swedish Match’s ownership, Carrillo remains president and is refocusing on extending La Gloria Cubana with new size offerings and re-establishing El Rico Habano and La Hoja Selecta brands.

Production at El Credito’s Miami factory, after falling, has stabilized at about 600,000 cigars a year. About 4.5 million cigars will be manufactured this year in El Credito’s factory in the Dominican Republic. La Gloria Cubana, which accounts for about 70 percent of El Credito’s annual sales, remained a value buy among consumers even during the boom when the price of other cigars skyrocketed. Retail prices across the 20-cigar La Gloria line today range from $2.50 to $7.50.

Under Swedish Match’s guidance, Carrillo opened a new warehouse /headquarters about a mile from the Little Havana factory in February. Computers were installed to track production, inventory, and orders; a chief financial officer and a national sales manager were hired; and customer service and telemarketing were expanded.

El Credito also is developing new print advertising and point-of -sales material with Keller Crescent Co., Evansville, Ind., Swedish Match’s primary advertising agency, that will highlight the distinctive yellow and red colors and the “La Gloria Lady” that are featured on La Gloria Cubana’s cigar band.

“In my situation now, I still feel like I own the company,” Carrillo says. Primarily, he adds, Swedish Match brought its organizational expertise to El Credito. “After a while - after you grow - you need to have some kind of structure,” Carrillo says. “Now the telephone is getting answered and if we get back-ordered on some sizes, it’s only for a couple of weeks - not months, like it was before.”

The purchase of El Credito has been part of an aggressive effort by Swedish Match to expand into the North American cigar market. In 1998, the company purchased General Cigar Co.’s machine-made operations, which included Garcia y Vega, White Owl, and Robert Burns brands, among others. Earlier this year, Swedish Match assumed majority control of General through a stock purchase from Edgar Cullman and family members.

Swedish Match finalized the acquisition of El Credito in August, 1999. “Swedish Match wanted to get into the premium cigar business in the United States and La Gloria stood out as the brand with the most upside potential,” said Julian Roebuck, Swedish Match’s North American brand manager for cigars. “We didn’t know the cigar business in the Unites States. We needed to find someone who would stay in the business with us. That person is Ernesto. He is a brilliant cigar maker. It wouldn’t have worked for us if he’d said, ‘Fine, here’s the company. Goodbye.”’

Swedish Match doesn’t intend to tinker with Carrillo’s cigar making, but rather attend to the non-production necessities of marketing and distribution that nearly overwhelmed El Credito during the cigar boom, Roebuck said.

“Ernesto wants to pay attention to the leaf - to making cigars. And that’s the way it should be.” Roebuck says.

El Credito employs 25 rollers in a small Miami factory on Calle Ocho (8th Street) in Little Havana where Carrillo expects to product 600,000 cigars this year. Plans are in the works to increase total production from about 5.1 million cigars this year to 8 million cigars within the next three years by expanding the La Gloria Cubana line and re-establishing El Credito’s El Rico Habana and La Hoja Selecta brands.

Carrillo also has taken over distribution of Swedish Match’s Indonesian-made Montegue, which Swedish Match introduced in the United States in 1996 and which was the company’s sole premium American brand before the El Credito purchase.

None of this would have been possible if not for Carrillo’s father, Ernesto Sr., Carrillo says. Keeping the business intact was more than a simple chore in the 1980s and at the height of the cigar boom.

“My father had a vision that was incredible,” Carrillo says. “Just before he died, he said he wanted me to keep the company going; that one day the business would be good. He never imagined it would be this good.”

Carrillo’s father bought El Credito, a company established in Cuba in the early 1900s, in 1948. He later acquired the brand name La Gloria Cubana from the owner of a nearby factory and registered his ownership of the brand after he arrived in the United States. The Cuban government also claims ownership of the brand name La Gloria Cubana and manufactures and distributes a small number with the name internationally.

As a senator in the Cuban assembly representing Pinar del Rio, one of Cuba’s primary tobacco growing regions, Ernesto Sr. fled Cuba with his family, including 7-year-old Ernesto Jr. in 1959 after Fidel Castro overthrew the government.

In the United States, Ernesto Sr. opened a bar and a restaurant and waited 10 years before opening a retail cigar store at the location of El Credito’s current factory.

Sales primarily were through the store and mail order, Carrillo says. Ernesto Sr. began producing La Gloria Cubana, a blend of Dominican, Nicaraguan, and Ecuadorian tobacos, in 1972 - mostly for sale to local Cuban customers.

“I remember my father going through the Yellow Pages selling his cigars,” Carrillo says.

At 19, Ernesto Jr. got married and moved to New York City to pursue a career as a drummer. He moved back to Miami and took over the family business a short time before his father died in 1980.

Times were not good in his early years at the helm at El Credito, Carrillo remembers. El Credito production was 850,000 cigars in 1980 when Carrillo took over the business. Production fell to 500,000 cigars by 1985, and Carrillo says he lost $20,000 one year.

Today, Carrillo spends between 15 and 20 days a month in the Dominican Republic, purchasing and processing tobacco and overseeing cigar production at El Credito’s Santiago factory.

Swedish Match brought a new attitude to El Credito at the right time. “We have to be aggressive because that is what will work in the marketplace,” Carrillo says.

Carrillo’s aggressiveness is translating into several new La Gloria Cubana offerings.

The Churchill-sized La Gloria Cubana Limited Edition, of which only 100,000 are being produced, will be available for Christmas. The cigar, which will retail for $8, is made with tobacco set aside to mature for two years. Also scheduled for release at the Retail Tobacco Dealers of America trade show in San Antonio, Texas, is the Serie R No. 6, a 57/8 x 60 cigar that will complete a three-size robusto extension of the La Gloria brand that began last year with the introduction of the No. 4 (43/4 x 52 and the No. 5 (51/2 x 54).

Another extension will be the Hermoso, a 41/2 x 48 cigar that will be marketed unwrapped in boxes of 30. El Credito also will offer a new Churchill-size (63/4 x 48) in a stylized white tube and the 41/2 x 40 La Gloria Cubana Minuto is being repackaged in a Cuban-style five-pack box with 10 boxes per tray.

Because of trademark issues with Cuba, Carrillo plans to begin to market between five to seven of La Gloria Cubana’s smaller sizes outside the United States under the name La Gloria Dominicana.

Carrillo reformulated the La Hoja Selecta blend in April and began to manufacture the cigar for the first time since 1998. The reformulated blend consists of Nicaraguan, Dominican, and Ecuadorian filler with a Connecticut-grown broadleaf binder and an Ecuadorian wrapper.

“I wanted La Hoja to be a mild cigar for people who don’t want as much body,” Carrillo says.

Carrillo said he will take El Rico Habana in the opposite direction. The reblended El Rico Habana will be all Nicaragua filler and binder with an Ecuadorian wrapper. “That is a full-bodied, ass-kicking blend that is very close to the old Cuban blend,” Carrillo says.

Aware that some people consider La Gloria Cubanas manufactured in Miami to be better cigars than those produced in the Dominican Republic, El Credito will at some point develop packaging that will differentiate the two, Carrillo says.

The two cigars are identical in material and construction, Carrillo insists. “There is a lot of romance and tradition about the Miami-made cigars,” Carrillo says. “There is a mystique. No matter how you try to evade that, it always comes up.”

Although he might like to, it would be difficult to increase production in Miami, Carrillo says, because costs are higher in the United States, and there is a dwindling number of experienced rollers among the Cubans who settled in the Miami area when they left Cuba in the 1960s and 1970s.

“There is a lack of people in Miami who can make cigars the way they need to be made,” Carrillo says. “Many of the good cigar rollers have retired.”

One thing Carrillo expects during the next few years is an abundance of tobacco at reduced prices because the tobacco planted during the last stages of the cigar boom has come to maturity.

“Everybody was expecting the boom to keep going,” Carrillo said. “There was a lot of tobacco planted. Today, everyone seems to have a lot of tobacco inventory.”

Personally, Carrillo says the changes at El Credito in recent years have been positive. “It’s more exciting now,” Carrillo observes, “because I have the material to work with. I look forward to making a cigar and getting it out on the street and seeing what the response is.

“You can keep a brand like La Gloria going for a while because of the mystique. But after a while people have to have the cigar or they will move on to something else.”

With El Credito’s new emphasis on marketing, customer service, and extending the La Gloria brand, those who have appreciated La Gloria Cubana, El Rico Habana, and La Hoja Selecta aren’t likely to move along to something else very soon.


SMOKESHOP - August 2000