El Presidente Posted December 7, 2010 Posted December 7, 2010 I had a great discussion recently with Ramses on a question that is often raised...what does it cost to produce a cigar? He (and we) often hear the line "it is a weed rolled in a country paying workers $1 a day. It would cost 10 cents to 50 cents tops" While not being an accountant he went through some intriguing thoughts. Base total people working in the greater tobacco industry in Cuba is some 260,000 people. Assume a $1 a day. Research and development (strains/seedlings/distribution) Hardware (irrigation/machinery/trucks etc) Infrastructure (drying/sorting/fermenting/warehousing for these features). Transport Ageing/warehousing (Ligero 2 1/2 years, Seco 18 months, Volado 12 months, wrapper 12 months, + non general ageing for specialty releases). Factories (maintenance, development, machinery, operational) Product (bands/boxes/tubes etc). Warehousing again (storage for distribution/maintenance/operational costs) Legal and Marketing Throw in the odd Hurricane and need to rebuild infrastructure. Sensible commercial return. Now I am only guessing at the core cost structure but I am assuming somewhere in the vicinity of 2200,000 - 3000,000 dollars a week in costs before return. Nothing definitive here (no way of knowing) but an interesting doodling exercise.
Dbone Posted December 8, 2010 Posted December 8, 2010 Lol, good food for thought. I'd imagine their fixed overhead is not heavily burdening their profit margin. Am I correct in thinking their factories are paid for, there's not much equipment to depreciate, probably get a deal on the taxes?
El Presidente Posted December 8, 2010 Author Posted December 8, 2010 Lol, good food for thought.I'd imagine their fixed overhead is not heavily burdening their profit margin. Am I correct in thinking their factories are paid for, there's not much equipment to depreciate, probably get a deal on the taxes? Factories are under constant repair (Upmanns roof recently fell in). Hard to depreciate an Ox. Bad Huricane and some significant % of their field infrastructure needs repair. The company provides free medical
PLUSH Posted December 8, 2010 Posted December 8, 2010 when I was in Nicaragua this spring, the cost I heard being knocked around was .40c to .80c. Kind of puts that $15 cigar in perspective by the time we pay for it.
El Presidente Posted December 8, 2010 Author Posted December 8, 2010 when I was in Nicaragua this spring, the cost I heard being knocked around was .40c to .80c. Kind of puts that $15 cigar in perspective by the time we pay for it. That was one of the points made last week in that the total cost of production is seldom taken into account. It is exasperated in Cuba specifically due to inefficiency. If I am in Esteli with fields/production/rollers/warehousiing on tap and tightly managed you can get some real economies of scale compared to a bureaucratic monolith spread across 2/3 of the country and a quarter of a million people.
PigFish Posted December 9, 2010 Posted December 9, 2010 I would be surprised if it was a thin dime! -Piggy
Dbone Posted December 9, 2010 Posted December 9, 2010 Kind of puts that $15 cigar in perspective by the time we pay for it. For reference, industrial product end user price is marked up at least 60%+ to cover wholesale and retail distribution. And the manufacturer likes to make at least 40% to cover labor, material, overhead, and a small profit. The $15 cigar would cost around $3. Although considering their material costs, labor, and overhead are dramatically lower then it could be in the nickels and dimes. Geesh, if they're really sitting in 3-4 years of leaf, all their inventory of raw material could be paid for.
MrGlass Posted December 9, 2010 Posted December 9, 2010 Now I am only guessing at the core cost structure but I am assuming somewhere in the vicinity of 2200,000 - 3000,000 dollars a week in costs before return. I just re-read this, and are those figures you doodled right? 2.2 - 3 million dollars a week?
winelover Posted December 9, 2010 Posted December 9, 2010 Rob if the Cuban market ever frees up would you be interested in going in and starting your own cigar company?
maalouly Posted December 9, 2010 Posted December 9, 2010 I just re-read this, and are those figures you doodled right? 2.2 - 3 million dollars a week? Yeah he meant 3 million Pesos
El Presidente Posted December 9, 2010 Author Posted December 9, 2010 I just re-read this, and are those figures you doodled right? 2.2 - 3 million dollars a week? Keep in mind wages at $1 a day already account for 1.3 million a week.
El Presidente Posted December 9, 2010 Author Posted December 9, 2010 Rob if the Cuban market ever frees up would you be interested in going in and starting your own cigar company? With the right partners I would do it in a heartbeat
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