Premium Cigar Market Smokin'
for Retail Tobacconist
by Larry Ciptak
Come, give us a taste of your quality" is the Shakespearian cry today's cigar smokers are demanding of the industry. Premium cigars–those usually handmade delicacies with special wrappers, blends and sometimes inordinate prices–are steadily consuming a larger share of the cigar market, say U.S. government statistics.
Manufacturers are responding to the changing market by offering larger selections of premium cigars. The advent of the bundle as a major force has altered the way smokers and manufacturers alike think about brand names and quality cigars. Maduro cigars are defying decades of tradition and rapidly growing in popularity. And although cigarette sales have fallen dramatically in recent years, imported cigar sales appear to be holding their own, industry figures indicate.
Economic and legislative pressures have contributed to the changes, which doesn't explain why many smokers are willing to pay more for cigars they consider to be of the quality they desire–the "super premium" cigars that are increasing in number and popularity.
This article highlights some of the variables that are affecting the premium cigar market today.
Super Premium?
New in the vernacular of the cigar industry is what is being billed as the "super premium" cigar, those tasty morsels with a less palatable price tag–usually several dollars–and up–apiece.
In today's market, you can break up the premium market into premium and super premium cigars. "In the past four or five years, the "super premium" cigar has come into being. These are hand made, long filler, imported tobaccos, like premiums," but the price range ranges a minimum of 60-percent and up above premiums, said Sal Fontana. V.P. of Marketing and Sales for Caribe Cigars. Often the use of an expensive Connecticut Shade wrapper "kicks the cigar into the super premium range," he said. Davidoff, Ashton, Pleiades, Macanudo are some of the names that could be considered super premiums, Fontana said.
Paul Garmirian, author of "The Gourmet Guide to Cigars," said the super premium is a "form of labelling for cigars that stand out in a class by themselves. These cigars are paid a great deal of attention to by individuals, much in the way a vintage wine is." Garmirian recently introduced his own super premium cigar, the "PG Gourmet Series," May 1 at a gathering of the Cigar Connoisseurs Club of Chicago.
Price is a factor in a cigar being considered super premium, although "anything to do with taste is subjective," said Garmirian. "The bottom line is palatability. If it tastes good, has a nice flavor, and is a pleasurable experience, that's what matters."
Marc Adams, tobacconist at Bloom Cigar Company in Pittsburgh, agrees. "A super premium cigar is the one you like," he said.
Adams is skeptical when it comes to labeling a cigar super premium on pricing alone. "Paying six-dollars for a cigar is like paying $100,000 for a car. There is always a certain percentage of people who'll pay that price, but you're not getting a 300-percent better product just because you're paying 300-percent more," said Adams.
Bundles of Opportunities
Be it the economic milieu or the fact that smokers know a bargain when they see one, cigar bundle sales have skyrocketed in recent years. And responding to an increasing demand in both quality and quantity, manufacturers have been bringing a better, more consistent product to market.
"Most of today's value [in premium cigars] is provided through bundles," said Ben Henderson, owner of Lone Star Tobacconist in Houston, Texas. "People are price conscious and want a good product."
Henderson began handling bundles in the early 1980's. "Bundle cigars then were generally a very good quality cigar offered at a very good price, but that would basically be an introductory offer," Henderson said. "Over a six to nine month time frame, the cigar would either go way up in price, or down in quality. Suddenly people would come back and say, 'this isn't the same cigar,' and you'd have to start the ballgame all over.
"From the very beginning, I look for a group of cigars in the bundle category that are big enough companies to provide a consistent taste, that pay enough attention to their bundle business that they want to make a consistent bundle business over time, instead of just making bundles to get rid of surplus," Henderson said. He listed Consolidated Cigar Company's "Matican" and Antillian Cigar Company's "Juan Sosa" bundles as "quality, consistent bundles" that he carries.
Don Ward, V.P. of Sales for Sparta Industries, who manufactures the Don Tomas premium cigar line, said Sparta's Caz-Bar short filler and W&D long filler bundles are "our best sellers right now." Ward said the increase in bundle sales can be attributed to "the economic situation. [With bundles] smokers can still get a good quality cigar without buying a brand name."
Rafael Montero, Vice President of Tropical Tobacco, said in the past few years Tropical's bundle business has skyrocketed in comparison to their box business.
And retailers are finding their customers expecting variety and high quality in their bundles. Charles Kornguth, of Beverly Hills Pipe & Tobacco Co., only carries one brand of bundles, the National. Though Kornguth sells primarily super premium cigars–his biggest sellers are Pleiades, Oscars, Macanudos–demand for the bundles has risen in his shop. "That's one area where I may have to take a harder look and add another line or two," Kornguth said. "With the [35-percent OTP] tax in California, we need something to fill the $30-35 range."
Maduro More Popular
Bundles aside, of the trends in premium cigars, perhaps none is more obvious than the increase in popularity of those with maduro leaf wrappers. Manufacturers are having a difficult time keeping up with production demands of the sweet maduro cigars.
"In years gone by [maduro cigars] amounted to about 5-percent of all product sold. Today it amounts to 15 to 20-percent," said Fontana of Caribe. "It's become very difficult to come about quantities of maduro wrapper that the market is demanding right now." The process of curing maduro leaf takes longer and requires a special leaf, according to Fontana.
Montero said maduro sales have been rising steadily for the past five years. Tropical uses Connecticut Broad Leaf maduro wrapper in their premium cigars, including their Honduran Indian Head, Casa Martina, Kiskeya and Solo Aroma bundles.
"Our cigar business in maduro has hit the roof, basically," said Montero. "We're thinking of putting together a complete line of maduros, but the demand is such for the bundles that we've had to hold back."
Arturo Fuente, whose Hemingway cigar was voted best premium cigar by Connoisseur magazine, is also in short supply of maduro leaf. "Good maduro [wrapper] is hard to get," said Stanley Kolker of Fuente. "We're behind in production because of the short supply of quality maduro, and probably will be for several months."
Maduro is now showing the best growth in the premium cigar market, according to Ward of Sparta. "People are getting away from the thought that a dark cigar must be strong, when in fact the maduro is a much milder cigar. There's a natural sweetness in maduro. Years ago, if they saw a black cigar they'd say, 'it'll blow your head off'."
Montero agreed. "There's a false reputation for the maduro, being that it's so dark, people think that it increases the strength–and it doesn't. The maduro wrapper is a sweet smoking cigar, and not necessarily strong. The broad leaf wrapper from Connecticut is probably the best wrapper to use in a cigar, and it's one of the sweetest smoking cigars that we have."
"The darker the berry, the sweeter the juice," said Adams.
Maduros were considered stronger in years past because more claro and natural claro wrapper cigars, milder than the naturals and English Market Selection cigars that are predominant today, were being sold, Adams said. "Maduros were stronger [than the claros]," said Adams. "Today, maduros don't seem as strong in comparison to the person who smokes the English Market Selection cigars."
`91 Crop Looking Good
If there's a shortage of maduro leaf, it's not because of a poor tobacco crop this year. 1991's crop is expected to be excellent, say many in the industry.
"Our 1991 crop has been absolutely superb," Fontana of Caribe said. "Crops are all important, and have everything to do with the quality of the finished product."
The absence this year of "blue mold," a destructive fungus prevalent in Central American countries, has benefitted the crops, said Fontana. Fontana added that the weather has been "cooperative", and that soil enrichment techniques used by Caribe have helped as well. Tobacco in Central America is harvested twice a year, he said.
When asked about his company's `91 Honduran crop, Montero said, "The continued consistency of cigars–wrappers, binders, the works–is guaranteed with the `91 crop."
The 1991 crop, which will come to market about a year after it's harvest, is expected to be good because of the right combination of rainfall and sunshine, said Garmirian, who visited fields in the Dominican Republic in February and March. "The rainfall is the most important factor, and though 1990 was a good year, 1991 is looking even better," he said.
Ward inspected Sparta's Honduran crop in April, and said it was looking "real good."
Imports of Premiums
Though sales of premiums have risen in recent years, imports of "Class H", or premium, cigars are down slightly in the first four months of 1991 compared to the same time in 1990, said Tom Slane, V.P. of Economic Programs of the Tobacco Merchants Association. The TMA rates cigars from A-H based on wholesale price, and premium cigars–Class H–are rated as those that cost over $235 per-1,000 wholesale units.
In 1990, 106,371,638 Class H cigars were imported, compared to 96,372,028 in 1989 and 106,467,349 in 1988, according to the Department of Foreign Trade Commission. Domestic exports are down, "and they've been going down. Most of the good premium cigars are coming in," said Slane.
Ninety-percent of imported cigars are Class H, according to the Commerce Department. Only 14-percent of domestic cigars are considered premium, the U.S. Bureau of Tobacco and Firearms reported.
Country of Origin
The Dominican Republic continues to lead foreign countries in exports to the United States, contributing almost half of all premium cigars entering the U.S. The Dominican Republic exported 52,114,486 units in 1990, and 46,492,181 as of April of 1991, Department of Commerce figures indicate. Honduras runs second, with 29,864,524/24,291,170, Jamaica third with 9,442,590/9,247,280, and Mexico fourth with 7,391,458/7,934,083.
Honduran cigars are gaining in popularity as smokers discover that Honduran tobacco isn't necessarily strong, said Fontana. "There has been a stigma attached to Honduran cigars of the past. As soon as people hear "Honduran" they think "very, very strong". With some brands they might be, but today's smoker is looking for a mild, flavorful cigar with a little bit of kick to it," said Fontana. Caribe's "New Baccarat Havana Selection," a blended cigar with a Connecticut seed wrapper, is an example of a Honduran cigar that is mild yet flavorful, he said.
"There are some very good cigars coming out of Honduras, in particular the vintage series by Punch, which is excellent," said Garmirian.
Legislative Update
As of early August, there have been no new state cigar taxes implemented, according to Norman Sharp, President of the Cigar Association of America.
"I think one thing that's worked to our advantage is that the states are in such financial straits that they need far more revenue than they can get off of cigars," said Sharp. "The issue came up in a number of states this year, but surprisingly most of the bills didn't go anywhere."
Out of the 50 states, 34 presently have "other tobacco products"–or OTP–taxes, according to Sharp.
Minnesota was threatening to go from a 35 to 60-percent OTP tax–which was defeated–and Missouri's legislature passed a 10-percent OTP tax that still has to be approved by voters in December, said Sharp. "Florida proposed a 25-percent cigar tax, but nothing happened there," Sharp said. "Given the current anti-tax movement in this country, I don't know if it will be passed."
Iowa raised their OTP tax three-percent to a total of 22-percent, and North Dakota dropped theirs three-percent to 22-percent, according to Sharp. North Carolina passed a two-percent OTP tax that goes into effect January 1, 1992.
Future of Premium Cigars?
If states continue to increase taxes on cigars, "cigar smoking will cut down, and in that respect, we're in for a battle," said Mike Gold, of Arango Cigar in Chicago. "If not, [the cigar industry] is in for a great future."
Adams of Bloom Cigar said "It's not a market where [states] can get much out of [OTP] taxes, not like cigarettes. You can tax cigars 100-percent, but it's not going to raise the kind of revenues they need."
"Besides that, a lot of legislators smoke premium cigars," Adams said.
And not only are people "smoking better cigars and enjoying them," but the recent Pan American games in Cuba has resurfaced the "Cuban cigar awareness issue," said Gold. "People are saying, "I haven't had a good cigar lately," and they're visiting their local tobacconist."
Gold added that although today's cigar enthusiasts–no longer the "one-brand, one-size" smoker–demand variety, brand loyalty still exists.
"The future of premium cigars is secure. Cigars are known to not cause any detrimental health problems, and gentlemen prefer premium cigars," Adams said.
Henderson of Lone Star believes that most people who smoke premium cigars are "relatively financially comfortable" anyways–and will continue to smoke even if prices rise, although "it blows my mind how fussy some of these guys are about price."