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December 1998
Volume 25
Number 6

Still
Rolling

After celebrating its 50th anniversary last year, La Plata Cigar Co. is undeniably one "boutique" handrolled brand with staying power. But, like all California tobacco companies, future success remains a challenge.

by Bob Ashley

Victor Migenes Jr., owner of Los Angeles-based La Plata Cigar Co., sees the cigar business as an ever-changing ocean, where one wave never resembles the one that preceded it. So it is with the cigar industry; collecting itself after the resurgence in the middle of the 1990s ended abruptly in late 1997 with a slump in sales.

"Things have begun to steady now," said Migenes. "1998 was full of confusion and turmoil for manufacturers, wholesale distributors, and retailers. Retailers today aren't as overstocked as they were in the middle of 1998, when the large cigar companies were doing things to get back the shelf space that they lost.

"The only thing that kept us going in 1998 was that we have been in business for more than 50 years. We are not one of the upstarts that is going to disappear. We did not fade away because people know us."

La Plata, founded in 1947 by Migenes' father, Victor Sr., manufactures two brands for wholesale distribution, and a third that is available primarily available in its Grand Avenue store in downtown Los Angeles.

The La Plata Classic is a Honduran-made cigar offered in nine sizes, ranging from 5" x 36 to 8" x 50 with a retail cost of $2.75 to $6. Four sizes are available in a Connecticut broadleaf double maduro. The La Plata Anniversario, developed to commemorate the company's 50th anniversary in 1997, is made in the Dominican Republic in five sizes, ranging from 43/4" x 52 to 7" x 52, at prices between $3 and $6.50.

La Plata employs seven people in a retail store and small rolling room about a mile south of Los Angeles's business center. The company's cigars are available in 20 states, mostly in the West and Midwest. Migenes is looking for a distributor to sell into the eastern United States.

Although only 38 years old, Victor Jr. has been a cigar maker since he was 24, when he took over the company after his father became ill. The company has manufactured cigars for 51 years, primarily in a small building on Grand Avenue about a mile south of the downtown Los Angeles hub.

During the late 1980s and early 1990s, Migenes said he struggled to keep the company operating. "There were times when I could have closed the doors and walked away and I would have been better off financially," Migenes said. "But I kept it going because it was something that my father started."

The cigar resurgence allowed Migenes to expand his manufacturing operation in Honduras, where his cigars were made by Villazon & Co. That relationship recently ended after the purchase of Villazon by General Cigar Co. "General, for whatever reason, didn't want to continue to make the cigars," Migenes said.

Currently two or three rollers make La Plata's house brand, which is sold primarily at the store. House-brand production depends on what is available. "We only make a few thousand a month, depending on what tobacco we have on hand," Migenes commented.

In mid-December, Migenes was still trying to assess the effect of Hurricane Mitch on Honduras, where the La Plata Classic line is commented.

"We have a good amount of Honduran stock right now," Migenes said. "It won't last a year, but it will last a long time. If there is trouble getting started up again, we will concentrate on selling the Dominican line."

Recognizing that the cigar market has changed, Migenes has repackaged La Plata's Dominican-made Anniversario brand by reducing the number of cigars in a box. "We didn't change the blend, but we lowered the prices some and are offering boxes of 20, instead of 25," said Migenes. "That makes it more appealing to a store that wasn't buying from us. It's $13 or $14 less a box. On an order of 10 or 20 boxes, that can add up. A box with a smaller cigar count becomes less of a gamble for the cigar store owner."

Migenes said that decreasing consumer demand and the reemergence of the major brands made 1998 a challenging year for La Plata. "It was pretty difficult for the first five or six months, stated Migenes.. The larger companies overstocked the market in the beginning of the year. They filled their back orders - all of them - and they found innovative ways of taking back shelf space from micro companies, one of them being La Plata. The last few months, we've gone into some new stores that had us on their list of brands to bring in when things settled down a little bit."

But even as the cigar industry is stabilizing, non-market forces - specifically California's anti-tobacco laws and burdensome taxation policies - are likely to affect La Plata's fortunes.

La Plata and other California-based cigar wholesalers and retailers are attempting to assess the effects of California's Proposition 10, which voters approved by a narrow margin in November, and which will raise the tobacco tax in California. The new law, which is to go into effect January 1, was expected to be challenged in court. In 1998, California also became the first state to ban smoking in bars and restaurants to protect employees from second-hand smoke.

"The new tax could raise the price of cigars by 90 percent," Migenes said. "We don't know for sure. They calculated the tax on cigarettes, but they haven't said yet what the hit might be on cigars. It could be very high. I know of owners who already plan to close their stores. California is not business-friendly, not only for tobacco, but other industries."

The new tax, Migenes said, is likely to cause him to rethink moving his store to an upscale location more central to the downtown area. He also must decide whether to keep La Plata's wholesale operation in California or move it to another state.

"We are two entities: La Plata cigars the brand, and La Plata the retail store. The La Plata brand could be based almost anywhere in the states. The store, on the other hand, is an entity that always is affected by the political changes in tobacco policies in California. The store always gets hit in all regards because it stands alone.

"In effect, there are some hard decisions to be made, he continues. "One is to sell the store, complete with its own customer base. When you talk about whether to keep the wholesale entity in California, the decision has to be how much you lose or gain in another state, with its tax laws. Or do you take your losses in California and eat the increase?

"It's not a decision you make overnight. Ultimately, I would like to see La Plata under the umbrella of a larger company, where I feel that it's a comfortable place. As far as my involvement thereafter, my intention would be to stay involved to the capacity that I would be allowed if my time and services were needed."

Migenes said he doesn't expect to expand La Plata offerings any time soon because of the changes in the cigar market. "I've had a new brand in the wings for about two years," he said. "The band is made. I've chosen the blend and already have some material printed. But I will not release it because it is not the right time. Anyone bringing out a new cigar right now, they have no brains. There is just too much out there at present."


SMOKESHOP - December 98