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Nov./Dec.
2000

RETAILER & TOBACCO INDUSTRY NEWS

General Cigar Closes Jamaican Factory, Drawing an Era to End
Operations of Cifuentes y Cia Moved to Dominican Republic


Kingston, Jamaica - General Cigar Co., parent company of Jamaican cigar maker Cifuentes y Cia, closed the Kingston-based facility on October 13, signalling the end of era rich in history of cigar making that included the birth of the Macanudo brand. All production - limited in recent months to more costly Macanudo shapes and the Cifuentes line - has been transfered to General Cigar's operations in La Romana, in the Dominican Republic. The factory employeed 225 workers at the time of the announcement.

"After analysing our competive situation and our labor costs very carefully and over a long period of time, we have concluced that the Ciguentes operation cannot be operated profitably," said Edgar Cullman, president of General Cigar, in a news release. "At a time when the premium hand-rolled cigar market is more competitive that enver, we are relocating our operation in the heart of the industry. The Dominican Republic offers us significant tobacco farming and process capabilities as well as greatly decreased labor costs."

John Webber, vice president of operations at General Cigar, told the Jamaica Gleaner that labor costs were estimated to be 70 percent lower in the Dominican Republic. Jamaican tobacco, which in recent years has been absent entirely from the Macanudo brand, has been quite scarce as local growers - in search of better returns - have switched to other crops in recent years.

General Cigar first came to Jamaica in 1969 when it purchased the Temple Hall factory, later renamed Cifuentes y Cia and operated under the direction of the late Cuban cigar maker Ram-n Cifuentes. Ram-n, who's family owned the Partagas factory in Havana, Cuba until the Castro regime seized the facility in 1959, reached an agreement with General Cigar in the 1970s to manufacture Partagas cigars in Jamaica, later moving production to the Dominican Republic. But the factory has been best known as the birthplace of the Macanudo, which were made originally made only in Jamaica. In recent years, less expensive sizes of the factory's flagship Macanudo line have been transitioned to the Dominican Republic, and the Cifuentes factory concentrated on larger sizes, as well as Macanudo Vintage and Cifuentes lines.

The facility expanded rapidly during the cigar boom, more than doubling its size in the late 1990s and reaching peak production in 1997, employing 1,250 people. Like other cigar-producing regions, overproduction in the post-boom cigar glut left the Cifuentes overstaffed reduced. Staff cutbacks began in 1998, with recent job cuts of 400 employees in late 1999, and another 200 employees in May 2000. But not even widespread salary cuts implemented in 1999 in a "bid to stave off closure," according to the Gleaner, could close the financial gap. Cifuentes y Cia was the largest cigar manufacturer in Jamaica, significantly outproducing Jamaica Tobacco Co., which is owned jointly by Robert Gore and Altadis U.S.A.


General Cigar Sues Altadis for Restraint of Trade over Cuban Cigars
Charges that U.S. Unit Is Illegally Tying Future Sales of Cuban Cigars to Sales of Non-Cuban Cigars


New York - General Cigar Holdings Inc. filed a lawsuit against Madrid-based Altadis, S.A., the world's largest producer and distributor of cigars, and its U.S. subsidiaries, Altadis U.S.A. and Consolidated Cigar Holdings Inc., in the U.S. District Court for the Southern District of Florida, where Altadis is headquartered. The suit charges that Altadis is violating federal and state antitrust and fair-trading laws by illegally conditioning the future sale of Cuban cigars to U.S. customers on the purchase of its non-Cuban cigars. The suit also charges that Altadis is in violation of the U.S. embargo of Cuba.

Altadis itself was formed through the 1999 merger of the Spanish (Tabacalera de Espana, S.A.) and French (Seita) tobacco companies. Additionally, the merger of the U.S. subsidiaries, Consolidated Cigar and Havatampa, gave Altadis a 39 percent share of the U.S. cigar market. On September 30, 2000, Altadis acquired a 50 percent interest in Habanos, the Cuban cigar monopoly established by the Castro regime.

The suit states that Altadis has entered into an exclusive or near-exclusive distribution arrangement with Habanos, on which basis they have threatened to withhold supply of Cuban cigars unless retailers display an assortment of its non-Cuban cigars. Further, Altadis representatives have allegedly stated that they would be selling Cuban cigars in the United States in the near future.

As a result, the complaint charges, "Defendants possess and/or have a dangerous probability of obtaining a monopoly power in certain cigar markets. In an effort to obtain and extend monopoly power, to gain an unfair competitive advantage and to restrain trade, defendants have undertaken a series of acts designed to impede, foreclose and restrain competition from General Cigar and others."

In addition to tying the sale of Cuban cigars to the purchase of non-Cubans, the complaint charges that Altadis has engaged in illegally trafficking in property owned by United States nationals and confiscated by the communist Cuban government; illegally transacting business with Cuba; attempted monopolization and monopoly leveraging; contracts and combinations in restraint of trade; unfair, deceptive and fraudulent competition; trademark law violations; and intentionally interfering with the prospective business relations of General Cigar and other cigar manufacturers.

"As a result of Altadis's conduct, retailers are being threatened and the cigar trade is being denied the opportunity to compete on the merits of their products," said Edgar M. Cullman, Sr., chairman of General Cigar. "We believe it is unfair competition for Altadis to use its arrangement with the communist Cuban monopoly to force retailers to comply with their requirements."

General Cigar is seeking preliminary and permanent injunctive relief and to recover damages.


Imperial Tobacco Sells Cigar Activities

London - Imperial Tobacco, Canada's largest cigarette and cigar maker, has sold its cigar trademarks to ST Cigar Group Holding BV, which plans on transferring production to Europe. Imperial, which garnered 52% of the Canadian cigar market with brands such as Colts, Old Port, Reas, and House of Lords, did not disclose the value of the deal. The company will continue to operate its production facility in Joliette, Quebec until spring, when ST Cigar Group will take over.

Hans Hoppenbrouwers, managing director of ST Cigar Group, said the acquisition will allow the company to complete its portfolio of cigar brands. "The transfer of the production to one of our European facilities will also permit us to capitalize on available synergies. We are determined to develop the strong position of the brands on the Canadian market," he said.

Imperial makes some five million cigars and 120 million cigarillos annually and is selling the business at a time of robust sales.


Torano Cigars Shifts Operations to Former Tabacalera Factory in Danli

Danli, Honduras - Torano Cigars has moved into a landmark factory that had lain idle since Tabacalera, S.A. ceased operations in Danli. In October, Torano relocated all of its physical assets to Tabacalera San Cristobal; the plant became fully operational, and the company doubled its work force from 125 to 250. Torano is currently the sole tenant and now produces all of its own Honduran cigars there, as well as those for private label clients.

Torano is the third cigar manufacturer to lease the four buildings, totaling 40,000 square feet. Nestor Plasencia was the first tenant, from 1985 to 1997, and produced tens of millions of cigars there. Tabacalera S.A. was the second tenant, beginning in 1997. In a consolidation move, Altadis S.A. - incorporating the former Spanish company Tabacalera S.A. - vacated it this year, along with the former Consolidated Cigar factory, its other Danli subsidiary. The two closures idled hundreds of local workers.

Carlos Torano, president of Miami-based Torano Cigars, saw that the facility could meet production needs sparked by a burst in 1999-2000 sales. Torano promptly signed a long-term lease with the building's owner.

"The success of our cigars caught us by surprise," reports Torano, "especially now, when business is supposedly soft." Torano's sales leaped 35% over the past year, driven largely by marketplace enthusiasm for the Reserva Selecta, Torano's premiere cigar.

"Almost immediately after opening our former facility here in Danli, we outgrew the space," says Torano. "Our new factory enables us to streamline our production to meet the consumer demand for Torano cigars...With space for 500 workers, it provides for our needs for the foreseeable future, in this time of growth for our brand." Se-or Fidel Olivas, a twenty-year industry veteran who has overseen operations in Danli since the company opened its former factory in 1998, will manage the new facility. The extra capacity will be put to use immediately. Stuart Alexander & Co., Australia's largest distributor of specialty foodstuffs, cigars, and other tobacco products based in Sydney, has placed an unusually large opening order with Torano Cigars. Following extensive testing of several leading brands, the company purchased 50,000 Reserva Selecta premium cigars, Torano's flagship line.

Torano Cigars - long a major producer of private label brands - has been ambitiously penetrating foreign markets with the resurgent profile of its own brand, establishing extensive sales distribution in Italy, Switzerland, the United Kingdom, and Germany. The Stuart Alexander order is Torano's largest to coup date. "Foreign distributors usually dip their toe into the water with small trial orders," notes Carlos.


General Cigar Opens New Distribution and Customer Service Center

Norwood, New Jersey - General Cigar Co. has opened a new customer service and distribution center serving retail accounts worldwide. The facility, which was officially dedicated on October 16, offers clients centralized access to the company's customer service and distribiton efforts, consolidating two facilities previously operated in Upper Saddle River, New Jersey and Dothan, Alabama. All Villazon and General Cigar premium brands, including Macanudo, Partagas, Punch, Hoyo de Monterrey, Excalibur, and Cohiba, are now handled at the single facility.

The 80,000-square-foot facility is designed and operated with state-of-the-art technology tailored for Gen eral Cigar. The new center features an Oracle-based customer service system and a 40,000-square-foot humidified warehouse, one of the largest in the nation, accounting for half of the facility. The premises are outfitted with a shipping container-sized freezer and a 1,500-square-foot cold room for conditioning inventory to control beetle infestation. An automated pick-and-pack work environment that is kept at a constant 65 degrees and 70 percent humidity, ensuring that retailers receive only the freshest, premium cigars.

"The reloction...allows us to better serve our customers," said John Budesa, vice president operation at General Cigar Co. "Our relocation to Norwood positions us geographically closer to our customers, allowing for quicker delivery and fulfillment of orders. Having our distribution center under one roof enables us to better balance our inventory, ensuring that we always have our most sough after cigars in abundant supply.



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