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August,
2009

TOBACCO INDUSTRY NEWS
Production, Distribution, Regulation, Trade...

Altadis USA Closing 107-Year-Old Hav-A-Tampa Factory

Tampa - Citing a steep drop in sales attributed mostly to the April 1 SCHIP-mandated federal tobacco tax increases, but also the economic recession and nationwide smoking bans, Altadis USA announced it will close down its Hav-A-Tampa factory by late August. The company, which had been furloughing workers and halting production for a week or two at a time in an attempt keep the operation ongoing, began laying off employees immediately following the June 24 announcement.

The factory, which produced machine-made birchwood-tipped cigars including Hav-A-Tampa Jewels, employed about 495 workers and has been in operation since 1902. Altadis USA’s nearby distribution center, which employs about 150, will not be affected. Remaining production will be moved to the company’s Puerto Rico factory, which currently has excess production capacity.

Hav-A-Tampa was founded by Eli Witt, who mechanized his factory to mass produce his cigars when hand rolling was the norm; he also pioneered the use of wood tips and cellophane wrapping. The company was acquired in 1998 by Tabacalera S.A. of Spain, which later merged with France’s Seita S.A. to form Altadis.

J.C. Newman Cigar Co., the last major manufacturer of cigars in the Tampa area and oldest family-owned premium cigar maker in the United States, was forced to raise prices 33 percent on the 40,000 machine-made cigars it produces daily in its historic Ybor City cigar factory. April was the worst sales month in the company’s history said Bobby Newman, executive vice president.


Oettinger Davidoff Group Acquires Cusano Cigars

Bradenton, FL - The Oettinger Davidoff Group, headquartered in Basel, Switzerland, has acquired Bradenton, Florida-based Cusano Cigars, operated by DomRey Cigar, Inc., as well as its CTS Concepts LLC subsidiary and Dominican Republic factory. The terms of the purchase from the Chiusano family were not disclosed. Cusano Cigars is the second American cigar maker to join the Oettinger Davidoff Group this year, following the acquisition of Camacho Cigars from the Eiroa family.

Cusano’s longfiller cigars have been produced by Tabadom SA, a subsidiary of the Oettinger Davidoff Group in the Dominican Republic, since 1997. Cusano also opened its own factory, DR Global S.A., in the Dominican Republic in 2007 to produce additional new premium cigar lines. The company markets cigars in the mid and upper price segments—including the Cusano and Cuvee brand—and has also specialized in multi-channel marketing of tobacco products.

“We are gaining access to several new distribution channels in the USA, including the so-called c-stores through subsidiary CTS Concepts LLC and tobacco outlet chains through DomRey Cigar, Inc.” said Dr. Reto Cina, Oettinger Davidoff Group c.e.o. Cusano’s Perfect Cut brand was developed especially for the tobacco outlet and convenience store channels. Other brands include Celebrity Bundles and Dominican Sweets.

DomRey is also the exclusive importer and distributor for the Dutch Agio Cigars brands Panter and Meharis.

Michael Chiusano, who founded Cusano Cigars in 1995, will retain his position as president and his brother Joseph will remain director. Cusano’s 26 U.S. employees and 20 in the Dominican Republic will all be retained.

“Belonging now to the Oettinger Davidoff Group means our family name and dedication to our products will be shared and protected around the world,” said Michael Chiusano. “The global presence of the Davidoff group is unparalleled and we are proud to become members of such a respected team.”


Fire Levels Picus’s Dominican Republic Cigar Box Factory

Santiago, Dominican Republic - A voracious fire destroyed Picus Dominican, Inc., a cigar box factory in Villa González, Santiago in the Dominican Republic on Friday, June 26. Located in the Palmarejo industrial free zone adjacent to the cigar factories of Oettenger Davidoff Group—Cigars Davidoff, Occidental Cigars, and OK Cigars—the building was quickly consumed by the fast-burning blaze. None of the factory’s 200 workers were injured, having fled the building at the first sign of fire, according to local reports.

Firefighters from Villa González, Tamboril, Navarrete, Esperanza, and Santiago battled the blaze—which reportedly started after 9:30 am—well into the evening hours. A crane was called in to demolish walls on the north side of the facility to allow firefighters to penetrate the blaze even as flames continued to destroy hundreds of tons of timber and fuel stored there. A shipment of mahogany and cedar to manufacture boxes for foreign markets had arrived the night before, an employee who preferred not to be identified told local media. The blaze left all 200 workers jobless.

While none of the adjacent Oettenger Davidoff cigar factories were damaged by the blaze, the Picus facility supplied all of the boxes for the Davidoff brands, as well as certain quantities of boxes for other cigar makers including La Aurora. Reports indicate that it will be at least six months before Dominican box production can be restored, potentially affecting cigar exports for the affected manufacturers who must make alternate arrangements.

Picus Dominicana is the largest facility of Picus Group, the largest cigar box manufacturer in the world, with additional factories in Nicaragua and the Philippines. Manufacturing was formerly based in Eindhoven, The Netherlands, where the company traces its roots back to 1883. Eindhoven production ceased in 2001.


Altria Sales & Distribution Consolidates Cigarette, Cigar, and Smokeless Tobacco Sales Services

Richmond, VA - Altria Group has consolidated the sales and distribution functions of all three of its tobacco companies—Philip Morris USA, U.S. Smokeless Tobacco Co., and John Middleton—into a new company called Altria Sales & Distribution Services. The move consolidates the separate sales functions of its two recent acquisitions in the cigar and smokeless tobacco categories with its own cigarette sales organization, formerly an inhouse function of Philip Morris USA, freeing each company to focus on manufacturing and branding.

One of Altria’s service companies, Altria Sales & Distribution now provides centralized sales, merchandising, and distribution services to all three of Altria’s tobacco companies, and strengthens relationships with retailers and wholesalers to best offer tobacco brands from all three tobacco companies in retail stores. The combined sales force is comparable in size to the previous Philip Morris USA sales force prior to integrating UST. Program details are accessible to registered retailers at Altria’s new category management website, Insightsc3m.com.


Swedish Match Posts Record Quarterly Sales, Profit

Stockholm - Cigar and snuff maker Swedish Match AB posted a 38 percent rise in second-quarter earnings and predicted higher second-half sales and operating profit. Pretax profit rose to $101 million, adjusted for the sale of a South African pipe tobacco and snuff operation.

Chief executive Lars Dahlgren told Reuters in an interview in June the cigar business might be more profitable in the second quarter than analysts expected, but there was a risk the snuff margin would come in lower than in 2008.

The second quarter operating margin for the cigar division—which accounted for 29 percent of sales last year—rose to 24.9 percent from 20.2 percent, above a forecasted 18.9 percent.

“We delivered the strongest sales performance and, excluding one-time items, highest operating profit ever. Compared with the same period last year sales increased for all product lines, and operating profit increased for all product lines except for lights. Snus sales and volumes grew in all Scandinavian markets,” Dahlgren stated.

“In the U.S. we continued to gain market share for snuff, and volumes grew by 21 percent. The strong volume gain was aided by the replenishment of trade inventories following the federal excise tax related destocking at the end of the first quarter. Our U.S. mass market cigar business delivered an unusually strong operating margin, as increased demand for cigars in the new “foil fresh” packaging to a large extent compensated for the expected volume drop following the tax related hoarding in the first quarter.”

The company saw a sharp surge in cigar sales in the first quarter ahead of the new U.S. federal tobacco taxes introduced on April 1, and sales grew further in the second quarter. “We see a strong second half of the year for the cigars,” said Dahlgren, who nonetheless expected a normalization of the cigar margin.


Heavenly Cigar Company Invests in Management and Corporate Expansion to Benefit Retailers

Naples, FL - Heavenly Cigar Company’s plush and spacious new headquarters may be the most tangible sign of the company’s growth and success, but it won’t be the most noticeable evidence for tobacco retailers.

In the face of hard times for smokers and the industry alike, Heather Phillips, Heavenly’s founder and c.e.o., is investing in the future. “We know the business is coming back and we’re preparing for that day,” Phillips explains. Heavenly’s new location remains in Naples, Fla. where Phillips launched her business in 1999.

Despite the sluggish economy, Phillips has initiated a number of steps that combine to drive Heavenly, and its line of 14 premium hand rolled flavored cigars and new Red Lion brand, forward.

Last January, Phillips hired Kari Soule, as chief financial officer. Says the twenty-year financial management professional, “I jumped in headfirst, restructuring and streamlining the work flow in both the office and the warehouse, made dealings with the company’s new factory easier, and more direct, tightened inventory control, added to the sales and customer service staff, and worked with product branding and marketing.” All this needed effort freed up Phillips’ energy and imagination for marketing and promotion.

In addition, two tobacco-industry veterans joined Heavenly’s sales, marketing, and customer service staff, in early 2009. National sales manager Keith Hager brings 11 years of experience in the business, starting with his own tobacco accessories importing and distribution company, Zipstyle. He then worked with Rocky Patel Cigars as import and operations manager, followed by a six-month assignment at Graycliff, as Florida territorial sales management consultant, where he increased sales 48%.

Another new key player is Nicole “Mimi” Alvarez-Martin who, as the granddaughter of Tropical Tobacco Company founder Pedro Martin, grew up in the tobacco world and worked at Tropical from age fourteen, followed by six years as owner of M Distributors, a successful importer and distributor of bundled cigars. At Heavenly, she has filled many assignments in sales, marketing, and customer service, working in depth with the company’s independent representatives, supporting reps and establishing and building relationships with retailers. "We now have excellent representation in three territories, and will have a total of six within sixty days," she says.

All this restructuring will have payoffs for retailers with better deliveries and prompt, responsive and personable customer service, says Phillips - all key aspects of building brand loyalty.


Canadian Tobacco Amendment Would Ban Little Cigars, Flavored Tobacco… and U.S. Burley?

Montreal - An amendment to the 1989 Health Canada Tobacco Products Control Act proposes to ban the sale of small little cigars and all flavored tobacco.

Banned would be all additives identified as flavoring agents as well as caffeine, most coloring agents, essential fatty acids, all fruit or vegetable-derived products, spices, seasonings, herbs, sugars, sweeteners, and non-necessary mineral nutrients, among other substances. Menthol is included in a list of additive exemptions.

However, the Virginia Farm Bureau Federation contends that the bill, if passed, would essentially ban all burley exports from the U.S. to Canada. The original intent of the bill - Canada Bill C-32 - was to ban only candy-flavored little cigars, it says, but notes it has been written so broadly that it will apply to all cigarettes and will ban all flavorings used with Virginia-grown burley, effectively prohibiting the manufacture and sale of American blend cigarettes - with Virginia-grown burley tobacco - in Canada.

American blend cigarettes contain burley tobacco and use certain ingredients to aid in the manufacturing process and to provide the products with their distinct taste. Unlike the products that are supposed to be targeted by the bill, these American blend cigarettes do not have a fruity or sweet odor or flavor.

According to agricultural leaders, banning the flavorings effectively bans the sale of the American blend cigarettes. “This isn’t about tobacco control, this is about arbitrary discrimination against one type of tobacco versus another,” said Wayne Pryor, President of the Virginia Farm Bureau Federation.

“There are certainly ways for the Canadian government to achieve their goal of banning fruit-flavored products aimed at kids without wiping out the market for American burley tobacco and threatening American jobs.”

If other countries follow Canada’s lead, the market for American-style tobacco products will be nonexistent outside the U.S., Pryor contends. Dean Wallace, the executive director of the Council for Burley Tobacco, stresses it would deny tobacco farmers an opportunity to sell burley to any company for use in Canadian products. “No less than the future of the burley tobacco growing industry is at stake,” says Pryor.

Kentucky congressmen believe the bill would “violate several trade agreements including the Technical Barriers to Trade and North American Free Trade Agreement.”

Meanwhile, Health Canada spokesperson Christelle Legault notes that American-style cigarettes make up only 0.5 percent of the total value of the cigarette market in Canada.


Sumatra, JavaTobacco Auction Complete

This year’s auction campaign of Indonesian Java and Sumatra tobaccos took place at the Bremen tobacco exchange and was attended by leaf buyers of the European cigar industry and tobacco trading companies.

The 650 bales of Vorstenlanden tobaccos offered from the growing area of Central Java were sold on a firm price level and were bought by Bremen tobacco traders as well as European cigar manufacturers.

Also on offer were 1,500 bales of Sumatra tobaccos of which 1,036 bales of high quality were sold at acceptable prices. Buyers were Danish, Dutch, and Belgian cigar manufacturers as well as Bremen tobacco trading houses. In addition, 464 bales of lower quality were not sold and will be marketed at a later stage.

The Ambassador of the Republic of Indonesia, H. E. Eddy Pratomo, the Consul General of the Republic of Indonesia, Teuku Darmawan, as well as the advisor and representative of the Indonesian Ministry for plantation companies, Soedjai Kartasasmita, visited the Bremen tobacco exchange for the auction in order to obtain a direct impression of the marketing of this very important Indonesian export commodity.


First Annual Tennessee Cigar & Brew Fest to Debut in October

Jackson, TN - Forever Communications, the owner of three west Tennessee radio stations/networks, is launching the First Annual Tennessee Cigar & Brew Fest, scheduled for Saturday, October 31, 2009 from 11am-4pm at the Fairgrounds Park, Jackson, Tenn.

Billed as Tennessee’s first event celebrating consumer passion for hand crafted brews and premium handmade cigars, the event will feature live cigar rolling and representatives from major premium cigar manufacturers offering sampling and other merchandise. In addition, the event will showcase home brewers from across the region demonstrating how to craft award-winning beer as well as micro-breweries offering unlimited free samples of their best brews.

Cigar companies and other related industries are offered limited free booth space, with other booths are available for purchase. Attendance predictions were not available at press time, but Buzz Blackburn of Forever Communications stated that the venue can hold thousands of attendees. The event is receiving full promotional support on all of Forever Communication’s sponsoring radio stations - Rock 92.3FM, TJ Network (1390AM, 94FM, 105FM), and Froggy 104FM - which includes three Cigar Dave affiliates, as well as local print and TV.

Door prizes and giveaways will be awarded throughout the event, which will also feature entertainment with live music, food and other “guy-themed” vendors. The festival’s cigar retail partner is Ye Olde Pipe Shoppe, Jackson, Tenn., which has the largest humidor between Memphis and Nashville.

For information on how to become a vendor, call 1- 731-267-9200, Email: vendorinfo@cigarandbrewfest.com, Web: www.cigarandbrewfest.com.



SMOKESHOP - August, 2009