Cuba cracking down on black market?

[pedromendes]

The news today that Partagas store manager Abel Esposito was arrested for contraband trafficing to European sources, as well as having undeclared foreign currency has got me wondering. Add this to the long list of other arrests for economic crimes (including some foriegn company executives), it begs the question: is Cuba finally cracking down on the black market? And if so, why now?

[cigcars]

That temptation and monies being offered to people who have to make due on pesos, etc. And for what people are willing to pay for fine Havana seegars...it's inevitable and no doubt spreading

[PigFish]

The State that steals freedom from its people creates a culture of corruption. When ones only choices for advancement are nepotism, or party position, the path to steal becomes quite alluring.

The Cuban people have my sympathy.

[Charltonc]

If I was in their position I would probably take the same risk or try to escape the country. Many of my good friends have escaped from Cuba and they say it was the happiest and depressing day of their life. I am grateful for my situation. America is not great, but what is.

[dangolf18]

I've tested out some of the European grey market vendors and received fakes. Glad this sort of stuff is happening, though I can't blame the guy for wanting make some money on the side. (I wish they'd go after people he sold the raw tobacco or fakes to).

[Colt45]

I've really no idea as to the whole cracking down, why now, etc..... But with regards to HSA, I imagine people stealing hurts their bottom line, as well as their brand image. Not to mention, were I Imperial, and had made the investment, I'd be a little miffed.

[CanuckSARTech]

I've really no idea as to the whole cracking down, why now, etc..... But with regards to HSA, I imagine people stealing hurts their bottom line, as well as their brand image. Not to mention, were I Imperial, and had made the investment, I'd be a little miffed.

Colt, IMO, you bring up a great point that got me to thinkin'.

Is this crackdown BECAUSE of Imperial Tobacco???

If we look at deletions and whatnot, as has been discussed aplenty on here, there's been an exponential explosion in that happening since the Imperial 50% purchase. Someone brought up the numbers in threads before, that in the handful of years since Imperial bought into H S.A., there have been more deletions than in the whole history combined of Habanos / Tabacuba / etc.

So (and this question is posed to all), do you think this recent crackdown is due in part to Imperial's urging, or perhaps their "investigative sleuthing" of Cuban business practices?

[PigFish]

Colt, IMO, you bring up a great point that got me to thinkin'.

Is this crackdown BECAUSE of Imperial Tobacco???

If we look at deletions and whatnot, as has been discussed aplenty on here, there's been an exponential explosion in that happening since the Imperial 50% purchase. Someone brought up the numbers in threads before, that in the handful of years since Imperial bought into H S.A., there have been more deletions than in the whole history combined of Habanos / Tabacuba / etc.

So (and this question is posed to all), do you think this recent crackdown is due in part to Imperial's urging, or perhaps their "investigative sleuthing" of Cuban business practices?

Mate...

... you have got to understand that only 1/2 of H SA is foreign owned. While 100% of Tabacuba is Cuban government owned. Tabacuba owns an interest in each of the distributorships as well. H SA therefore has little actual "authority" over the Cuban cigars. Influence, well we can all debate that, but actual control rests with the Cuban government.

Real authority and projected authority are different here. I am not talking influence, but actual authority on what to produce, in what quantities and what to delete rests with the Cubans.

[geosmoke]

The State that steals freedom from its people creates a culture of corruption. When ones only choices for advancement are nepotism, or party position, the path to steal becomes quite alluring.

The Cuban people have my sympathy.

This is so true. It's very hard to stay honest and not take advantage of any illegal opportunity when you have no food to put on the table for your kids.

Unfortunately a few of them, mostly the ones on privileged positions, have no limits on doing this and they live a much better life than most of us in the free countries. This might be one of these situations. Maybe he got his hands way too deep in the cookie jar.

But no worries, someone else will take his place after a while.

[CanuckSARTech]

Yeah Piggy. I'm aware of that.

I just meant that since Imperial made the 50% buy of H S.A., and therefore one would presume that the last few years have allowed them to get into the books, and see how the supply chain is working and whatnot, is it presumable that Imperial is kind of at the bottom of this? That they're "shining the light" into this?

[PigFish]

Yeah Piggy. I'm aware of that.

I just meant that since Imperial made the 50% buy of H S.A., and therefore one would presume that the last few years have allowed them to get into the books, and see how the supply chain is working and whatnot, is it presumable that Imperial is kind of at the bottom of this? That they're "shining the light" into this?

I don't what to blow up another thread on my blame game! I see it differently. I see this through a prism of history about totalitarian regimes as can be read in the 100's of posts I have made on the topic.

Imperial believes in a balance of products. I have posted on this as well. Why would they support a huge a catalogue on their US domestic side, and then and unbalanced catalogue on the Cuban side? It is not intuitive or logical! I therefore don't blame them for discontinuations.

Now back to your regularly scheduled programming!!!

Cheers! -R

[CaptainQuintero]

It's probably just musical chairs.

Corruption runs first-world countries from top to bottom to a far, far greater extent, it's just that they are also far, far better at covering their tracks, keeping everything on an even keel and keeping everyone happy.

[tdlfoto]

I don't what to blow up another thread on my blame game! I see it differently. I see this through a prism of history about totalitarian regimes as can be read in the 100's of posts I have made on the topic.

Imperial believes in a balance of products. I have posted on this as well. Why would they support a huge a catalogue on their US domestic side, and then and unbalanced catalogue on the Cuban side? It is not intuitive or logical! I therefore don't blame them for discontinuations.

Now back to your regularly scheduled programming!!!

Cheers! -R

With due respect Ray, I think the prism is acting more like a cloud in this instance. Keith is suggesting Imperial is giving HSA the proverbial rectal exam and exposing some rot within...that is costing them $$$. You've trotted out the blame-the-regime anthem. Would it be relevant of me to point out the shortcomings and wanton fraud that is inherent in the "free market"? Or how the "free market" tends to reduce choice over time in view of great profits (see: monopoly/duopoly)? I tend to think Keith is pointing to a valid insight. One which I hope won't be railroaded by another round of Ayn Randist rants.

Now, on the subject of Imperial offerings and catalogs, of which I'll declare I'm not well versed, is it possible that they view the Habanos product / market quite differently given its history, fan-base, matters related to the embargo, etc? Are they pruning the tree so to speak, in order to offer what they feel are the most profitable products, while at the same time reducing production costs (homogenization of the product line)? Maybe. And if alienates a sector of users (many here no doubt, me included to an extent), but if, at the end of the day, numbers are up, does it really matter (to them)? By pure market logic, I'd posit, no, it does not.

[El Presidente]

The news today that Partagas store manager Abel Esposito was arrested for contraband trafficing to European sources, as well as having undeclared foreign currency has got me wondering. Add this to the long list of other arrests for economic crimes (including some foriegn company executives), it begs the question: is Cuba finally cracking down on the black market? And if so, why now?

I suspect a few overseas players will be pulling out of the Partagas Festivial week

I would like to say much of what I think about this but today is not the time. I have always referred to the "Partagas Mafia".

In the end if I pay 500 million euro for distribution of Cuban Cigars then I want to control the distribution of "ALL" Cuban Cigars.

It will be interesting to see how this pans out and how many others are roped in.

[CaptainQuintero]

Now, on the subject of Imperial offerings and catalogs, of which I'll declare I'm not well versed, is it possible that they view the Habanos product / market quite differently given its history, fan-base, matters related to the embargo, etc? Are they pruning the tree so to speak, in order to offer what they feel are the most profitable products, while at the same time reducing production costs (homogenization of the product line)? Maybe. And if alienates a sector of users (many here no doubt, me included to an extent), but if, at the end of the day, numbers are up, does it really matter (to them)? By pure market logic, I'd posit, no, it does not.

Trevor posted a piece on this subject that is a really great read:

"This info from 2003 regarding Altadis sa influence on Habanos maks interesting reading. I don't know the source as I have had this info for years. Its a bit long but well worth the read. RECOMMENDED.

In an ever-increasing urge to gain extra profits, Habanos S.A. has decided to dramatically change the way they make and market cigars, following a system that better fits into an efficient free-market global economy, that is intended to give cigar smokers what they have been asking for.

Of the 549 vitolas that were manufactured in 1992, at the beginning of Cuba's "Special Period," by the end of 2003, only 319 will remain in production. The rest will go the way of the La Flor del Cano Short Churchills, or the Bolivar Gold Medals, cigars that are never to be made again, aside from the occasional “special limited production” cigars that are only sold with a luxury custom-made humidor for thousands of dollars.

When it comes to this streamlining of production, it would seem that the impetus for this change did not come from within Havana. It would seem that the idea came from abroad.

In 1999, after conducting buy-outs and mergers with a myriad of cigar-producing companies around the world, Altadis S.A. made one of it’s biggest purchases to date, with a 50% buy-out worth $500,000,000US of Habanos S.A., the Cuban government’s marketing and distribution wing for sales of Cuban cigars and tobacco. This buy-out, was a tremendous sum of hard currency that Habanos S.A. so desperately needed. If one took the net sales of last year as an indicator, that sum of money would be equivalent to Habanos S.A.'s sales over a period of about 3 1/2 years. Needless to say, Altadis S.A. undoubtedly wishes to increase the sales and profitability of the Cuban cigars. Altadis S.A.'s motivation is influenced by four things, output, supply, demand, and the US trade embargo.

Through the recommendations of Altadis S.A., Habanos S.A. will continue to manufacture only 33 marquees of cigars. The La Corona line, founded in 1844 in Havana, will have its production in Havana discontinued. The La Corona line of cigars will continue to be made in the Dominican Republic, using tobaccos from the Dominican Republic and Conneticut, as Altadis S.A. owns the rights to distribute this in the United States, so therefore, they can hence market this Dominican-made version world-wide.

Of the 33 remaining marquees, almost all will see major changes. Instead of having varying degrees of quality within the grand marquees, Habanos S.A. has decided to do what Altadis S.A. did with their line of cigars. The grand marquees will only contain premium and super-premium “totalamente a mano” hand-rolled cigars. This will allow consumers to better understand just what sort of cigar they are buying.

However for the cigar connoisseur on a budget, things will become a little more difficult. Currently the Bolivar, H. Upmann, Hoyo de Monterrey, Partagas, Punch, Ramon Allones, and Romeo y Julietta marquees are produced using the “totalamente a mano” method, the “tripia corta” machine-bunched hand-finished method, and the “mecanizado” machine made methods. After the close of 2003, these marquees will only be made using the “totalamente a mano” method.

The “tripia corta” cigars have their wrapper put on by hand, and a good deal of effort goes into producing these cigars, however Habanos S.A. does not charge all that much for them, and hence they are a good value. However, as some types of cigars are made three different ways, one who rarely smokes Cuban cigars is met with a bewildering set of choices. Some cigars, like the Romeo y Julietta Romeo No. 1 Tubos, are manufactured utilizing all three processes. The Romeo No. 1 Tubos that is totally machine-made is the cheapest, and retails for $43.75US per box of 25 in Havana, while the Romeo No. 1 machine-bunched hand-finished line retails for $55.00US per box of 25 in Havana, while the “totalamente a mano” Romeo No. 1 Tubos de Luxe retails for $116.25US per box of 25 in Havana.

As the hand made version is over 100% more expensive than the hand finished cigars, but utilize the same tobacco that is in short supply, if Habanos S.A. were to only sell the hand-made variants, they would make far more money than they would utilizing the same resources. Furthermore, as torcedors from time to time cannot work, as there is not enough tobacco to roll cigars every day of the year, this better utilization of tobacco will make it harder for torcedors to seek extra-legal employment as black-market torcedors, as they are kept busy in the factories. Freeing up more of the long-filler tobacco to be utilized in premium flagship vitolas will allow Habanos S.A. to make even more money.

Furthermore, in the future, only Belinda, Quintero, Jose L Pidera, Gispert, La Flor del Cano, Cabanas, Los Statos de Luxe, and Troya will be made by the “tripia corta” or “mecanizado” methods, however the Partagas line will have one vitola made by the “tripia corta” method, the exception being the Partagas Culebras. It would be important to note that this market strategy is employed by Altadis USA, as their premium marquees are all hand-made long-filler cigars, while their mass-market marquees solely consist of machine-made short-filler cigars. By separating premium cigars from mass-market machine made cigars, the occasional Habanos smoker will not be turned off from a particular brand, as the current state of affairs could leave one with the impression that a certain marquee, or worse Habanos in general are sub-standard, if that person was smoking a machine-made short-filler cigar, which can be erratic.

Many of the machine made Habanos are made utilizing machinery from the era of the Second World War. Some have compared these cigars to the work of an one-armed blind torcedor, and Habanos S.A. obviously would wish to distance its grand marquees from their uglier machine made counterparts. Altadis S.A. has also seen to better meet another demand for Cuban tobacco more efficiently. When a cigar is created, you have the long filler leaves that go into the cigar, and bits of leaves that are created as the bunch of the cigar is cut.

While this by-product can be utilized for short-filler machine made cigars, as they have in the past, because the blend of tobaccos was similar. As the premium marquees have their short-filler products eliminated from their portfolio, Altadis S.A. has found a more profitable way to utilize these short filler tobaccos and has arranged the shipment of modern cigarillo producing machines to Cuba, so Habanos S.A. can produce cigarillos for export for all of their major brands, just like Altadis USA does for their cigars in the Dominican Republic.

However, machine made cigars will not be the only type of cigars to be cut. To prop up the demand for the niche market Cuaba marquee, only Cuaba will continue to make perfecto vitolas. The Partagas Presidente, the Romeo y Julietta Celestes Finos, and the flagship of the Fonseca line, the Fonseca Invictos will not be produced after 2003. Also, as the El Rey Del Mundo Tanios, La Gloria Cubana Tanios, Partagas Churchills de Luxe, Ramon Allones Petit Coronas, Ramon Allones Coronas have such miniscule production levels, they are surely unprofitable, and will be cut.

So that Habanos S.A. can continue to produce the maximum number of the vitolas that sell the most, vitolas within a marquee that have the same dimensions, but different blends will be axed. Such overlapping that exists with the corona gordas of the Punch marquee, with the Punch Royal Selection No. 11, the Punch Black Prince, the Punch Super Selection No. 1, and the Punch Punch, will be eliminated.

As with Darwinian struggle, only the best selling cigar of a vitola will survive, in this case being the Punch Punch. Most notable of these cuts will be the Romeo y Julietta Prince of Wales, as it has the same size as the more popular Romeo y Julietta Churchill. Like with the distinction Altadis USA delineates between machine-made marquees and premium long-filler hand-made marquees, Altadis S.A. eliminated whatever overlap existed in their lines of cigars, with the exception of special release cigars and cigars with different wrappers (ie. Conneticut Shade, Maduro, and the Nicuraguan-grown Havana 2000).

These changes are obviously so Habanos S.A. can be able to bring to market as much of the well known vitolas as possible, to increase demand among the average cigar smoker, as the grand marquees will have a greater chance of being in stock, and the simplification of the lines will better allow the occasional smoker of Habanos to better understand the range of Habanos, hopefully leading to the creation a greater pool of regular Habanos smokers. With the global market for Habanos, the continued production of these vitolas would be hard to justify economically.

The Habanos portfolio - according to international demand and the market structures have been divided into four groups.

The “marcas globales” (global brands) which contains the Cohiba, Montecristo, Romeo y Julietta, Partagas, Hoyo de Monterrey, and Quintero marquees.

The “marcas mulitilocales” (multi-local brands), which consists of the Punch, Bolivar, H. Upmann, Vegas Robaina, Fonseca and Jose L. Piedra marquees.

“Marcas locales” (local brands), which are sold only by market importance in certain countries, represent only 18 marquees, being the Rafael Gonzalez, Ramon Allones, El Rey Del Mundo, Saint Luis Rey, La Gloria Cubana, Juan Lopez, La Flor del Cano, Por Larranga, Sancho Panza, Vegueros, Diplomaticos, Quai d’Orsay, Los Statos de Luxe, Troya, Belinda, Cabanas, and Gispert.

To round out Habanos S.A.’s portfolio, there are the three “marcas de nicho y especiales,” the niche market brands, however they have some modicum of global distribution, which are the Trinidad, Cuaba and San Cristobal de la Habana.

Doubtlessly, this reorganization has been better tailored to better suit the global demand of Habanos. Furthermore, another demand that Habanos S.A. will likely do something to reorganize is their tobaccos that they export. As Habanos S.A. seeks to increase demand for cigars made in Cuba, export of Cuban tobacco to Europe and the Canary Islands will more than likely diminish, as all companies who are not a part of Altadis S.A. are effectively siphoning off tobacco from what could potentially be something Altadis S.A. would sell. This especially likely, as the amount of money that Habanos S.A. earns from the sale of raw tobacco is a mere fraction of what they make from the sale of finished cigars."

[mk05]

I stopped reading after "really great read."

What does that article have to do with anything?

[CaptainQuintero]

I stopped reading after "really great read."

What does that article have to do with anything?

Sorry I forgot, I'll try and find it in a different format

[AverageJoe83]

Sorry I forgot, I'll try and find it in a different format

Lol. Crayons work well I hear.

[Trevor2118]

I stopped reading after "really great read."

What does that article have to do with anything?

One can use it to compair the 1999 Altadis S.A. purchases of 50% (for $500,000,000US) of Habanos S.A. with the 50% Imperial (€12.6 billion) buyout.

[mk05]

Thanks for the synopsis, I just didn't want to read the whole thing.

I am quite familiar with the m&a front of this; I believe the expanded branding here to be more of a protective measure.

[Troels]

Theese kind of things should theoretically be least likely to happen in a perfect totalitarian regime, as it must be a result of either lack of control or trust!

In our "western world" promoting ones own interests over others is often called lobbyism.

(not that I'm a devout fan of the Cuban regime, or anti democrat)

[Nino]

Hi,

Internet time is expensive and slow here in Cuba, so I have not had the time to read through all the thread.

Just my 2 cents and no more : The arrest of Abel, his son and prob a few others have not only to do with cigars and black market.

There's much more in the back oven...

No details here, but the few of you coming here will get the full course dinner plus dessert on the story.

N

[maverickdrinker]

yes, there is must more than meets the eye...

[Rays98GoVols]

^{It will be interesting to see how this all pans out...}