My Take on The Partagas Shenanigans

[CaptainQuintero]

From what I've heard it isn't limited to the gray market (Even if everyone can agree on the definition) but custom work, using state owned products for personal business uses etc etc. What I've heard could be completely wrong of course lol but I think the scale is quite large.

One example someone mentioned to me was when at a collector/person with clout/retailer/individuals etc etc behest, people in Cuba are pressured to produce certain cigars outside of the official allotment (eg Monte Gran Reserva) and unknown to the official HSA 'company' which are then sold to that collector/individual/person with clout etc at essentially 100% profit as the materials are being stolen from the Cuban government/people.

I don't know if that is an accurate example or not though or just the tip of the iceberg etc

[smokum]

Sounds like Abel would make a fine governor for Illinois. Sad situation.

[ptrthgr8]

Sounds like Abel would make a fine governor for Illinois. Sad situation.

Ha. I was thinking the same thing.

So this sort of thing has happened before? Seems like it's fairly common? Is it because of the way the system in Cuba works? Do these sorts of things ever happen in NC factories/businesses? So much cloak and dagger stuff going on.

What's the impact to the cigar smokers around the world? Can it lead to higher prices since part of the supply is being used for non-revenue generating actions? I don't quite understand the overall impact.

Cheers,

~ Greg ~

[monkey66]

Am i missing something here or are many of us conplicit in this situation.

Don't know about Oz but in Europe/US i can hardly think of any botl i know who hasn't chased 'that great deal' on something.com at some time. Or that great group buy, or those spiffy customs. Or their fave, cheap supplier.

We don't ask too many questions but hang, draw and quarter any one who gets caught.

There's an old saying 'you can't con an honest man'. If i buy grey market cigars and they turn out to be crap surely the sins on me?

No customers, no grey/black market.

This is bigger than a Cuban problem. I don't like it and i am not judging anyone else but i am going to stand up and admit to my (all be it small) part in this mess.

Sent from happy, clappy, tappy.

[tippexx]

Am i missing something here

No customers, no grey/black market.

The grey market exists and is encouraged to exist for one singular purpose Monk. It is the conduit to the US market. The idea that Habanos or the Cuban Security Services wouldn't know that huge quantities of product were being secretly produced or diverted is laughable, of course they know, they just choose to pretend not to.

For the moment I agree with Nino. No one will be punished. The individuals concerned perform a function, and for long as the US Embargo exists that functionality will remain in effect. Once the Embargo is lifted those individuals will no longer be required and the 'grey market' as we know it will no longer exist.

Chasing the 'best price' is the norm for US consumers. Government fixed prices (Europe) and cozy agreements (UK) are alien concepts. Retailers in the US are expected to be competitive and are successful because of it. Given the choice I believe the vast majority of US BOTL would prefer to spend their dollars in the US. When Cuban once again become freely available in the USA (as they inevitably must) and US BOTL can be confident as to the authenticity of what they are buying, I would not foresee US home prices being significantly different to those currently available from grey market sources, simply because starved of volume the grey market vendors of Cuban cigars would have to increase their prices or cease to exist.

Auf wiedersehen Pet, Goodnight Vienna!

[El Presidente]

The grey market exists and is encouraged to exist for one singular purpose Monk. It is the conduit to the US market. The idea that Habanos or the Cuban Security Services wouldn't know that huge quantities of product were being secretly produced or diverted is laughable, of course they know, they just choose to pretend not to.

For the moment I agree with Nino. No one will be punished. The individuals concerned perform a function, and for long as the US Embargo exists that functionality will remain in effect. Once the Embargo is lifted those individuals will no longer be required and the 'grey market' as we know it will no longer exist.

Chasing the 'best price' is the norm for US consumers. Government fixed prices (Europe) and cozy agreements (UK) are alien concepts. Retailers in the US are expected to be competitive and are successful because of it. Given the choice I believe the vast majority of US BOTL would prefer to spend their dollars in the US. When Cuban once again become freely available in the USA (as they inevitably must) and US BOTL can be confident as to the authenticity of what they are buying, I would not foresee US home prices being significantly different to those currently available from grey market sources, simply because starved of volume the grey market vendors of Cuban cigars would have to increase their prices or cease to exist.

Auf wiedersehen Pet, Goodnight Vienna!

Almost right

With HSA buying 50% of distributors ownership, they know the legitimate and grey market dealers they supply.

What they don't want is home (Cuban) grown competition throwing a spanner in the works.

US market is 30%-40% of global sales. What intrigues me is the "new brand" strategies for the US should/when it opens up. Cubans will not be cheap in the US. They will position it ala Premium Pricing +. They will also agressively attack grey and legitimate dealers who supply into the US. Crikey, they know exactly who they are. It will be a bloodbath

[monkey66]

The grey market exists and is encouraged to exist for one singular purpose Monk. It is the conduit to the US market. The idea that Habanos or the Cuban Security Services wouldn't know that huge quantities of product were being secretly produced or diverted is laughable, of course they know, they just choose to pretend not to.

For the moment I agree with Nino. No one will be punished. The individuals concerned perform a function, and for long as the US Embargo exists that functionality will remain in effect. Once the Embargo is lifted those individuals will no longer be required and the 'grey market' as we know it will no longer exist.

Chasing the 'best price' is the norm for US consumers. Government fixed prices (Europe) and cozy agreements (UK) are alien concepts. Retailers in the US are expected to be competitive and are successful because of it. Given the choice I believe the vast majority of US BOTL would prefer to spend their dollars in the US. When Cuban once again become freely available in the USA (as they inevitably must) and US BOTL can be confident as to the authenticity of what they are buying, I would not foresee US home prices being significantly different to those currently available from grey market sources, simply because starved of volume the grey market vendors of Cuban cigars would have to increase their prices or cease to exist.

Auf wiedersehen Pet, Goodnight Vienna!

You may make in interesting point but from the UK point of view I think you are underestimating the price differential. Grey market sources are 50-75% cheaper than UK retail, that is a hell of a lot! Also around 40-50% in Europe.

You have quoted me but not sure why? My point is if one buys from grey suppliers one is part of the problem, do you disagree with that?.

Not a dissimilar discussion just started by Rob:

http://www.friendsofhabanos.com/forum/index.php?showtopic=112892

[monkey66]

Almost right

With HSA buying 50% of distributors ownership, they know the legitimate and grey market dealers they supply.

What they don't want is home (Cuban) grown competition throwing a spanner in the works.

US market is 30%-40% of global sales. What intrigues me is the "new brand" strategies for the US should/when it opens up. Cubans will not be cheap in the US. They will position it ala Premium Pricing +. They will also agressively attack grey and legitimate dealers who supply into the US. Crikey, they know exactly who they are. It will be a bloodbath

Quite a vision Rob!

Keep your friends close ...and your enemies closer

[tippexx]

What they don't want is home (Cuban) grown competition throwing a spanner in the works.

Of course not. And for as long as Habanos is just another name for the Government of Cuba there won't be any. Cottage industry Fauxhiba and a few tonnes of misappropriated tobacco are of little interest to them. In fact, the existence and mythology surrounding home produced counterfeits in many ways serves their purpose well, it's creates a fear and focuses over attention onto the island and away from other activities.

Habanos cannot openly pump cigars (which officially don't exist) into the grey market without some sort of recording. The World is fully aware of Cuba's annual tobacco production (because the US monitors it) and the tobacco industry can make a reasonable estimate as to what that might equate to in finished product. So, the unofficial product exists — some is reported by Habanos as being stockpiled (fair enough) — but doesn't want it's hands dirtied in shifting it. Hey Ho they get a few 'trusty lads' to do it for them. If in the process the lads have it away with a few hundred boxes for themselves, so what? That's just Caribbean 'bunce' and no less would be expected .... but start to cream-off money and the ball-game changes .... firing squads time.

The strategy is already in place Rob. What goes to the grey market today will go to the US tomorrow and without a chain of cumbersome and greedy chain of middle men. Cost? Cost will be what it will be, the market will decide, remember CCs were sold alongside NCs in the US prior to the Embargo and weren't necessarily regarded as premium .... just Cuban. The EL, ER vitola (shame most of them are so shitty) are are just marketing attempts at maintaing interest and a (currently) perceived price differential.

[tippexx]

You have quoted me but not sure why? My point is if one buys from grey suppliers one is part of the problem, do you disagree with that?.

Wasn't pickin' on you Monk .... for some reason I have to be Athome, not my usual Tippexx.

Part of the problem yes, but only because of the greater problem in certain Governments taxing them so highly they take almost all except Mini's and Puritos out of the everyday pocket-range of ordinary working stiffs.

[maverickdrinker]

What was interesting in discussing what happened at Partagas in Havana in the cuban cigar community is that everyone was aware of what happened but nobody officially knew what exactly happened.

The extent of the situation was never really discussed. Lots of nervousness surrounding the impact, lots of speculation/different stories surrounding the extent but nothing really concrete.

Many locals in the know were not comfortable discussing the topic.

A couple of people did state that the next couple of months could be interesting to say the least. No really information on what that meant but I sense that more things are coming down the pipeline.

[tippexx]

Many locals in the know were not comfortable discussing the topic.

A bit like discussing going 'over-the-wall' outside a Stassi police station I would think. Not wise!

[matteo]

Very well said Rob.

[El Presidente]

Of course not. And for as long as Habanos is just another name for the Government of Cuba there won't be any. Cottage industry Fauxhiba and a few tonnes of misappropriated tobacco are of little interest to them. In fact, the existence and mythology surrounding home produced counterfeits in many ways serves their purpose well, it's creates a fear and focuses over attention onto the island and away from other activities.

Habanos cannot openly pump cigars (which officially don't exist) into the grey market without some sort of recording. The World is fully aware of Cuba's annual tobacco production (because the US monitors it) and the tobacco industry can make a reasonable estimate as to what that might equate to in finished product. So, the unofficial product exists — some is reported by Habanos as being stockpiled (fair enough) — but doesn't want it's hands dirtied in shifting it. Hey Ho they get a few 'trusty lads' to do it for them. If in the process the lads have it away with a few hundred boxes for themselves, so what? That's just Caribbean 'bunce' and no less would be expected .... but start to cream-off money and the ball-game changes .... firing squads time.

The strategy is already in place Rob. What goes to the grey market today will go to the US tomorrow and without a chain of cumbersome and greedy chain of middle men. Cost? Cost will be what it will be, the market will decide, remember CCs were sold alongside NCs in the US prior to the Embargo and weren't necessarily regarded as premium .... just Cuban. The EL, ER vitola (shame most of them are so shitty) are are just marketing attempts at maintaing interest and a (currently) perceived price differential.

I will disagree in part with you on this

Once upon a time, a company called Imperial took over Altadis who had paid 500 million Euro for 50% of a business. After Manuel Garcia, they were pissed. Apparently, their VP partner was robbing them blind to the tune of serious supply/dollars. They put the screws on behind the scenes. Military shadows put on all Senior Cuban Staff of HSA. It is one of the reasons there is the current "plenty of movement, no progress" in HSA.

The Grey market today is not supplied by Cuba (direct) to my understanding. The days of Guatemala, etal having record years are over (check the numbers). grey is supplied by distributors who are controlled in the main by HSA. They will continue it for as long as it suits them.

The "Market" will not determine the price in the US post embargo. "Retail Price" will be dictated by the the HSA US Affiliate (Altadis). They will screw each distributor to cut every parallel importer into the US. Don't comply...loss of their 50% of license.....let's face it, no longer in their best interest. Their will be some outposts, Russia etal. The new warranty seal codes will screw them. No Garcia approving easily cut codes any longer.

The way HSA is positioned with their investment in all major distributors, If I were CEO I could destroy the "Grey market" in a month. It would take me another month to tidy up the small change coming out of Cuba via central and South America.

Where is 1001 these days? That took 10 minutes to wrap up post Martinez/Garcia.

Just my 2 cents mate. I could be completely wrong. However this is no world of massive subterfuge. No one is that bright and nor is the industry that large in global terms to be honest. As for the US monitoring production numbers out of Tabacuba, right now that would equate to needing to invest in a lobster dinner and a night at the Gato Tuerto.

Unlock the closet and watch the skeletons pile out. Everyone knows where the bodies are buried and always have done. While it suits them to have grey market dealers they will propogate it. The day it doesn't they will close it within a month. Again, home grown "entrepreneurs" out of Cuba will not be tolerated.

[mk05]

This topic will be treaded on lightly, as I suspect talking wildly of Cuban internal affairs may have consequences, but what do I know.

Tippexx, I believe Rob is hinting that basically all Cuban partnerships or enterprises are set up in such ways that Cuba can sever ties at any moment - whether it be the structure or the nature of the regime. Logically, I would assume that as a functioning enterprise, there is no moment where the higher ups in Cubatabaco & HSA are not aware of what is going on. It's more likely that they turned a blind eye until someone didn't get paid enough, someone got paid too much, or the enterprise was suffering too much. Remember that Cubatabaco's sole job is to make sure it pushes out as much product as it can.

One thing that would be very informative to those unaware, is to line up Habanos SA's M&A calendar with the timeline of the counterfeit products appearing. It would give you an idea of the distribution network and the people involved.

[tippexx]

It's more likely that they turned a blind eye until someone didn't get paid enough, someone got paid too much, or the enterprise was suffering too much. Remember that Cubatabaco's sole job is to make sure it pushes out as much product as it can.

Yes, I think I mentioned as much in earlier posts. Like any country Cuba wants and NEEDS foreign currency and specifically US Dollars. Unlike many countries in the region Cuba receives no aid from the US, and so all means are utilised, some legitimate some not so, it doesn't matter the result is the same, that is until someone thinks it's a good idea to dip their hands in Fidel's honey jar .... Not a good idea, the DGI when it wants to be, is ruthlessly efficient.

And yes Rob, the US does monitor the agricultural capabilities of Cuba (and other countries too) as part of a much bigger game, and by the nature of the game, the number of cigars produced and the doings of Habanos are possibly inconsequential and of little interest .... for the moment.

We concern ourselves with Cuba and Habanos because cigars are close to our hearts. But if we could stand away we'd most likely find similar shenanigens surrounding sugar and bananas.

[tippexx]

I will disagree in part with you on this

The "Market" will not determine the price in the US post embargo. "Retail Price" will be dictated by the the HSA US Affiliate (Altadis).

Sorry Rob, by 'Market' I meant the US consumer. In the US the average price of a cigar is $5 to $20 per stick, with the majority of sales in the $7 to $15 bracket. These are the sort of prices (inc Taxes) that US BOTL are used to, and would expect to pay on their own doorsteps. For a Tatuaje Petit Lancero for example and which is a good cigar the cost should be between $9 to $11.

I don't want to start a CC v NC debate as there's good and bad in both and some very exceptional NCs. For the moment US BOTL are buying their Cuban cigars abroad. Like anyone they look for the best price, but few in my experience are happy with those prices or believe they provide the same value for money they receive when buying NCs from their home vendors.

Prior to the Embargo Cuban cigars were not regarded as being particularly 'premier'. They were just cigars and the (then) individual brands were happily sold in US outlets alongside brands from Dominica, Nicaragua, Jamaica the USA and elsewhere.

The 'premier' perception is a post Embargo thing, partly marketing, partly 'forbidden fruit' but mostly due to the artificially high cost caused by the levels of taxation attached in various Countries. (Real premier luxury items which endure, handmade cars, handmade watches, jewellery, furniture etc do not attract taxation in the way tobacco products do). It's also true, that because of the Embargo NC cigars were not widely available outside of the USA, not because they were perceived elsewhere as being a lesser product, but because the USA ate up all the production. Today some of the top NC cigar brands are sold in the UK and are every bit a expensive as Cubans.

What I'm trying to say is, that when the Embargo is lifted I don't believe Habanos, Ataldis or anyone will be able to dictate prices in the US as they might do elsewhere. There will be a Honeymoon period where CCs will fetch top money in US retail outlets, but it will only last until US BOTL begin questioning the cost and quality of Cuban cigars in relation to what else is available .... and then it will be business as usual, and the same retailer competitiveness applied to CC as with NC. A win win then for the US guys.

[CanuckSARTech]

...If what I have been told is correct, computer records, overseas bank accounts and a plethora of correspondence has been seized. The trail to internal and external players has been well documented...

For the life of me, I don't understand why all these reportedly smart people, these people in high prestige and jobs, why they don't understand one simple thing....

When you delete an e-mail or throw away a correspondence, it isn't necessarily gone!

Man, I am not an advocate for what's being done in these situations. But, if you're going to expose yourself and your family to such risk, why aren't these guys doing it smartly?!?!?

Delete the e-mail, then delete it from the deleted folder, then clean up the hard drive on your computer! Shred the letter, don't just throw it out, and once you're done shredding it, burn up the pieces and then flush them down the toilet!

Oy vay!!!! No one breaks the rules smartly anymore....

I guess it's all about complacency then.

And, my fear with all this, is that this tightening will be an unfortunate vice on those who doing something's slightly similar, but not for personal financial gain or of such high values. That is, the individual connoisseur who likes to go to Cuba and buys customs and bespoke rolls and whatnot, for their own personal consumption and enjoyment. With the reported travel and tourist restrictions on both custom rollers travelling worldwide, and factory tours being heavily (if not fully) scaled back, then it's the little guy on all sides that may have the most to lose with all of this.

[mk05]

People certainly do keep track and/or do the market sizing of CCs. Not very hard as HSA sales are to distributors and not end market consumers.

What I'm trying to say is, that when the Embargo is lifted I don't believe Habanos, Ataldis or anyone will be able to dictate prices in the US as they might do elsewhere. There will be a Honeymoon period where CCs will fetch top money in US retail outlets, but it will only last until US BOTL begin questioning the cost and quality of Cuban cigars in relation to what else is available .... and then it will be business as usual, and the same retailer competitiveness applied to CC as with NC. A win win then for the US guys.

I see the US behaving exactly the way the rest of the world works. I do not see Cuba wavering its time proven methodology just for one market, because if they flinch here, they will have misgivings everywhere else. Even if US end market sales drop, I don't see HSA lowering cost to distributor or MSRP.

What do you mean by "top money?" Are you talking 2x NC? I highly doubt HSA will MSRP Habanos in that fashion to Altadis and General. More than likely, CCs will be in line with NC pricing from the get go in order to cross over NC smokers (premium for premium, regular for regular). If the prices are set too high, there will be no reason for consumers not to buy Habanos from abroad. I also discount any theories of NC taking away market share from Habanos as a function of value prop.

US is not the case of UK or HK where Habanos was around and then NCs were introduced into the product mix. It is in fact the opposite, where US consumers here only know what NCs are. If those do not cross over, it's not like HSA is losing market share - HSA never had that market to begin with. The only thing that can happen is a cross-over to CCs, which will undoubtedly happen, as Habanos is a time tested product, as seen by pretty much everywhere else in the world. People choose Habanos. The only losers in my mind, will really be the NC producers, given the terms that (I believe/heard) will be set by Cubatabaco and HSA.

[BrotherBear]

I believe Rob is hinting that basically all Cuban partnerships or enterprises are set up in such ways that Cuba can sever ties at any moment - whether it be the structure or the nature of the regime.

Reminds me of this...

http://youtu.be/X2KXzoXhhZE