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August/Sept.
2001

TOBACCO INDUSTRY NEWS

Tony Borhani Cigars, Tabacalera Tambor to Open Nicaraguan Factory; Costa Rican Facility Closes

San Diego - Tony Borhani Cigars, which produces the premium boutique brand Bahia, is moving its cigar-making activities to Nicaragua. The company has stopped cigar production at its longtime contract manufacturer and one-time joint venture partner in Costa Rica, Tabacalera Tambor. Douglas Pueringer, the factory's owner, is opening a new factory in Esteli, Nicaragua which will have a separate rolling room dedicated solely to Bahia cigars.

"He will have other clients," explained Tony Borhani, president of Tony Borhani Cigars. "I will hire my own rollers, buy my own tobacco, and supervise my own section." Borhani said he was aiming to start production at the new facility by mid-August, beginning with just 10 rollers and an intense focus on quality control that "did not exist in the past." Oscar Mursuli, a 73-year-old Cuban-born legend in cigar making, will retrain all of Borhani's rollers.

"We are going to roll cigars the Cuban way. We will use Cuban caps," Borhani said. Production is slated to reach only 1 million cigars annually; the company had been producing 1.2 to 1.4 millions cigars in Costa Rica.

The decision to move to Nicaragua was based largely on labor costs and expertise, Borhani said, citing "the better rollers and the lower manual labor costs [in Nicaragua, necessary] to make us more competitive in the market." Costa Rica enjoys one of the highest standards of living among Central American nations, a burden that translated in high labor costs. "The cigars in Costa Rica were too expensive," said Borhani, "and sometimes we had to compromise quality because of the rollers."

Borhani said he has about 600,000 cigars currently in inventory, enough to cover retail shipments until January 2002.

Borhani said he is also abandoning the tobacco-unfriendly state of California, relocating the company's headquarters to Miami.


Indian Tabac to Open New Dominican Factory
Naples, FL - Indian Tabac Cigar Co., a boutique cigar maker based in South Florida, is opening a new factory in the Dominican Republic in partnership with Augusto Reyes. Reyes currently manufactures the company's Dominican lines - the Cameroon Legend and the Deluxe Tubo -at his Tabacalera Reyes factory in Santiago.

According to Indian Tabac president Rocky Patel, plans to open a facility in Esteli, Nicaragua in June were abandoned, citing stability concerns in Nicaragua. The new Dominican facility will be located near the current Reyes factory. Indian Tabac's Honduran cigars are currently made under contract by Nestor Plasencia in Danli, Honduras.


Estavan Cruz to Launch Major Marketing, Image Initiative
Union City, NJ - Estavan Cruz Tobacco Co. has named Capricon Advertising, Inc., a New York metro area firm serving Fortune 500 clients, as its advertising and marketing agency of record.

"Our unique blend of cigars has received very high ratings, and we really need to spread the word," says Estavan Cruz president, Steve Sacks. "Our first priority is to let the world know about us, in order to increase demand at the retail level."

In addition to creating advertising and marketing materials for the New Jersey cigar company, Capricorn has been commissioned to develop a whole new image for Estavan, including logo, band, and box designs.

"Appearance is crucial," says Tom Zarzecki, chief creative officer at Capricorn. "A highly rated premium cigar needs a unique and distinctive look - one that begs the customer to pull it from the box and fire it up."

Estavan Cruz is also developing an anniversary cigar to celebrate the company's 5th year in business. The Anniversario Cinco will be a limited edition, box pressed maduro available in several sizes. "This will be the forerunner for a new premium line that we're adding to our roster," says Sacks.

"Signing with U.S. Cigar Sales to sell and distribute for us was just the first step," says Sacks. "There's a lot more to come."


A Dynamic New Web Site for La Tradicion Cubana

Miami, FL - La Tradicion Cubana, one of few remaining traditional Cuban-style cigar factories in Miami, has utilized the latest in Web-design technology for its new Internet Web site.

According to Luis Sanchez, founder and president of La Tradicion Cubana, "Our new site, presents our complete story to consumers and retailers alike. Contrasted with our old site, it is alive with flash animation to enhance viewers' interest and excitement."

Complete up-to-date photographs and detailed descriptions of all La Tradicion Cubana cigars are present. "We also included pages so cigar customers can learn about and appreciate our traditional approach to the cigar craft," says Sanchez. "We remain true to the time-honored way cigars were made in Cuba, which is my heritage. To pay homage to those who keep this art alive, we also include photographs and brief biographies of all our artisans, with how long they have been making cigars - which is 73, years, in one roller's case."

The site includes a page for questions from viewers. "We'll answer every question promptly, with no exceptions," Sanchez asserts.

"We will sell no cigars directly to consumers from our site," states Sanchez, "to protect our current and future retailers."

Visit La Tradicion Cubana on the web at http://www.tradicion.com.


Online Tobacco Sales to Reach $5 Billion by 2005
Cambridge, MA - Hundreds on Internet retailers currently sell tobacco products online, tax-free and often without verifying buyer's ages, creating concern for lawmakers and governmental agency. But according to a report by Forrester Research, that may just be the tip of the iceberg: by 2005, the research firm predicts, online tobacco retail sales will reach $5 billion annually, causing states to lose $1.4 billion in tax revenue. The analysis is contained in Forrester's new consumer packaged goods brief from, Online Tobacco Sales Grow, States Lose.

"Tobacco products are the perfect online replenishable because they are cheap to ship, nonimpulsive, and not taxed, which save heavy smokers a lot of money," said Robert Rubin, director at Forrester. "Two-thirds of Internet tobacco retailers are located on Indian reservations, making it impossible to collect tax revenue."

"Technology will play a vital role in stymieing underage purchases," said Rubin. "Federal lawmakers will force tobacco retailers to place bar codes on all shipped boxes containing tobacco products."


High Court Votes Down Massachusetts Tobacco Ad Ban, But Barriers Remain

Washington, DC - The U.S. Supreme Court struck down a Massachusetts ban on tobacco advertising at retail outlets and outdoors near schools and playgrounds. The high court, by a 5-4 vote, said federal law on cigarette ads preempted the cigarette advertising restrictions adopted in Massachusetts in an effort to reduce smoking by children. The justices said the outdoor and point-of-sale advertising regulations for smokeless tobacco and cigars violated constitutional free-speech rights. The regulations affected storefront advertisements smaller than 14 square feet.

The justices also ruled that the ad restrictions on cigars and smokeless tobacco amounted a ban on advertising of a legal product to legal users.

The only state regulations to survive involved retail outlet sales practices, which bar self-service displays for tobacco products and require that the products be put in a spot accessible only by the sales staff. For Massachusetts tobacco shops, this may mean an end to walk-in humidors and any customer handling of cigars. One possible avenue for smoke shops there is to adopt strict, adult-only standards, not admitting minors onto the premises, or at least into humidors.

The decision was extremely complicated, noted Justice Sandra Day O'Connor in delivering the court's opinion. While the ruling came in answer to an industry appeal of the Massachusetts ban, it also now calls into question existing restrictions on tobacco ads in other juridictions, including New York and Chicago.

O'Connor said states and local cities have other ways of regulating conduct to make sure minors do not obtain cigarettes. She noted that it is illegal in Massachusetts to sell tobacco products to anyone under 18. Retail tobacco signs - including basic store signage - are no longer illegal in Massachusetts. But walk-in humidors and open cigar bins may still be a problem for tobacconists.



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