Cuban Cigar Trends

[nem]

While reviewing some investor presentations from Imperial Tobacco (parent company of Altadis, and in turn Habanos SA), I came across a February 2013 presentation (https://www.imperial-tobacco.com/files/financial/presentation/investor_day_presentations/presentation5_transcript.pdf) concerning their cigar marketing strategies, which can perhaps be summed up as follows:

"It’s about style and exclusivity and can be compared with a powerful car, an exclusive watch, a vintage champagne . . . We make new proposals through the product itself and through special packaging and presentations . . . We encourage the wishing factor, to have the latest, the most exclusive or to be in fashion."

This strategy really explains the boom in regional editions. Rather than produce a variety of tasty regular production cigars, demand is best stimulated by pushing limited/regional editions under the assumption that consumers want the latest and presumably greatest cigars. So this begs the question: are ELs/ERs generally blended with better tobacco (that will also age better than regular production cigars), or are they just gimmicks for consumers wanting the latest, most exclusive cigars in the prettiest packaging?

Imperial Tobacco's report also highlighted emerging markets they considered key: China, Russia, Brazil and the Middle East. I hate to generalize, but in some of these markets, price is at times the best way to signal exclusivity and increase sales. Even though I typically prefer smaller ring gauges, I do have a soft spot for Cohiba Behikes. However, when we see Behikes selling for $35-50 per stick before taxes . . . are these cigars really that much better, or do they primarily cater to consumer demand for exclusivity while maximizing Habanos SA margins?

[nem]

Another point I'd like to raise is the discontinuation of many thin and medium gauge cigars and introduction of a variety of large gauge cigars, especially with ELs and ERs.

If Imperial Tobacco, and in turn Habanos SA, is looking to market cigars as a lifestyle product signaling luxury and exclusivity, they may be inclined to want something less than modest, if not outright attention grabbing. To this end, a double robusto (e.g. LGC Immensos, Bolivar Libertadores, Upmann Magnum 50, Cohiba Behike) makes more sense than a delicado (e.g. ERdM Grandes de Espana, Partagas SdC #1) or lonsdale (Bolivar Lonsdales/Immensas/Gold Medal, Upmman Londales, RG Lonsdales, VR Clasicos).

[fingerburner]

A good cigar is a good cigar, IMO. Price point is purely subjective - the same as one's experience with said cigar.

[Blakes]

After reading that I think Cuba should just re-nationalise Imperials stake and tell 'em to piss off!

[Colt45]

Habanos had started moving towards marketing their cigars as luxury items a few years prior to Altadis being acquired by Imperial. If memory serves correctly, early on, ELs were priced very closely to regular production.

Where there's money to be made........

[AndrewNR]

It's ironic that allot of the character that built cigars is now killing it. Cigars are in a way the relentless fad.

When haven't they somewhere among some age group or social tier been a sign of sorts? Unfortunately we'll never know how this effects sales. Clearly it's enough to mean those of us who enjoy them as a timeless luxury need to roll with the punches.

I think in allot of ways we form another cog in the machine forever recycling every aspect of cigars. We age our cigars, we jump.at what we like and shun the rest. All the while Joe flavour of the week grabs at everything riding the wave he fits.

The connoisseur market is a niche market, cigars aren't a common hobby. Realisticly we can only expect production to reflect that. Especially as the cigar market continues to push production towards western business models. Quick profits, following trends, increasing profit margins and reducing costs.

It will undoubtedly get far..far worse before it can ever begin to recover. And that's coming from a ground zero Australian

My 2c,

Andrew

[nem]

A good cigar is a good cigar, IMO. Price point is purely subjective - the same as one's experience with said cigar.

Cigar smoking is indeed a very subjective experience. Let's shift lenses for a second. We probably all have a friend or acquaintance like this: he smokes a lot of premium cigars, but they are not very good (by "connoisseur standards") or they might even be fakes, yet he keeps on smoking them regularly, perhaps even daily in the patio area of the nightclub he owns. Eventually, he subtly concedes that he doesn't in fact like the taste of cigars, but feels that cigar smoking projects the "right image." So here's the question: what's the ratio of cigars smoked for their flavors versus cigars smoked as fashion accessories of sorts?

[AndrewNR]

Nem, bingo IMHO.

[Blakes]

So here's the question: what's the ratio of cigars smoked for their flavors versus cigars smoked as fashion accessories of sorts?

But isn't it dangerous chasing this market solely.... what happens if cigars fall out of favour and become unfashionable, who do they fall back on? The smokers who enjoyed cigars for what they are regardless of image/status.... but wait, they got priced out of the market.

I don't see why they don't do both, offer the luxury, super high end 'exclusive' cigars with all the bells and whistles boxes/bands/certificates whatever.. but still offer standard cigars for those who are really only interested in the cigars not the perceived image they portray.

We may not be the biggest share in the market but speaking for myself, If Cuba continues to make cigars I can afford and enjoy I'll still be smoking them 50 years from now regardless. Why turn your back on that?

[earthson]

Wow - I am waaaaay not in Imperial Tobacco's demographic! If anything, I'm more of a traditional, core line, small RG smoker. And I always thought RE stood for Rarely Exceptional?

If IT/Altadis truly understands marketing fads, then they must know that it will eventually swing back to traditional brands and sizes. Consumers are a fickle lot and although billions are spent annually on attempting to lead the desire of the masses, the desire of an individual is truly an independent whim that often defies control. Just think - someone chasing the latest and greatest isn't always a good repeat customer - he/she has bought your product, enjoyed it, and is now down the road chasing the next big thing. Maybe someday, being a connoisseur will be in fashion?

For now, Johnny Cooltits can keep his Monte Double Edmundo and Glass-top Cohibas with his baby blue Impala on 24-inch chrome rims. I'm gonna go smoke this JLPC and call my Volvo mechanic.

[nem]

But isn't it dangerous chasing this market solely.... what happens if cigars fall out of favour and become unfashionable, who do they fall back on? The smokers who enjoyed cigars for what they are regardless of image/status.... but wait, they got priced out of the market.

I don't see why they don't do both, offer the luxury, super high end 'exclusive' cigars with all the bells and whistles boxes/bands/certificates whatever.. but still offer standard cigars for those who are really only interested in the cigars not the perceived image they portray.

We may not be the biggest share in the market but speaking for myself, If Cuba continues to make cigars I can afford and enjoy I'll still be smoking them 50 years from now regardless. Why turn your back on that?

Here's a potential, or perhaps inevitable issue: there's only so much fertile soil in Cuba, and in turn, they can only produce so much first class tobacco. It's perhaps a zero sum game. This is purely speculative, but a friend speculated that the likes of the ERdM Tainos and LGC Tainos weren't discontinued due to a lack of demand so much as a need for specific quality tobaccos, especially large wrapper leaves elsewhere.

[FLB03TT]

Great Thread! To answer the 1st question- never had an EL, so no comment. I do buy older, reasonably priced, REs primarily because they have several years of age.

I've been smoking a cigar daily for about 20 years. Up until 1.5 years ago they've been 99% NC. for the last year and a half I've been smoking CCs exclusively. A few weeks ago I set out to find 3-4 NC sticks that satisfy me to the same degree CCs do. I've been recuperating from full knee replacement surgery (no cigars for 6 weeks BTW) and so I have been unable to pick up individual NC sticks locally. Instead I've spent many hours researching the current NC state of the art (perhaps this is an oxymoron) and can only say that the line extensions and specialty blends/releases are absolutely mind boggling! Only a few old line manufacturers have largely avoided this behavior- Padron, Fuente, Ashton. The problem with the aforementioned brands is that their super premiums are priced well above (particularly Padron) the tried and true CCs that I know I love.

Tatuaje is a brand often mentioned on FOH as producing satisfying NC sticks. So i thought I would target a few different Tats to try. Well, you have to have a graduate degree in chemistry and an encyclopedic memory to wade thru this brand's myriad cigars. One of their sticks is offered with your choice of three different wrappers!! Then, if you're still with the program and want to purchase a few different Tat. sticks you'll find that no one has them in stock. But, of course, they have this NEW blend that just came in………...

The point is, I'm a cigar smoker, not a cigar of the month club member. I'm looking for blends that I can depend on, that don't change every 30 days, with a depth of experience and tobacco inventory which should deliver to me a similar stick in 2005 and 2015.

I clearly don't have the patience to fiddle around with the Tatuajes of the world, so when I'm up and running again I guess I'll grab a few Fuente and Padrons and see how the strike me. My guess is that, for the $$, CCs will prevail.

Me thinks that the recent explosion of brand extensions and limited releases is primarily a marketing exercise designed to sell more cigars to those cigars smokers who respond to the promise of the latest, limited release product also being the greatest. When all the hype, print ads, road-shows and BS comes and goes I believe that this segment of the market will prove not to be the greatest, only different. This leads cigar smokers, like me, back to the main line decades old great blends which have and will continue to stand the test of time.

Sorry for the rant, but this thread uncorked the bottle and released the genie.

[earthson]

Tatuaje is a brand often mentioned on FOH as producing satisfying NC sticks. So i thought I would target a few different Tats to try. Well, you have to have a graduate degree in chemistry and an encyclopedic memory to wade thru this brand's myriad cigars. One of their sticks is offered with your choice of three different wrappers!! Then, if you're still with the program and want to purchase a few different Tat. sticks you'll find that no one has them in stock. But, of course, they have this NEW blend that just came in………...

The point is, I'm a cigar smoker, not a cigar of the month club member. I'm looking for blends that I can depend on, that don't change every 30 days, with a depth of experience and tobacco inventory which should deliver to me a similar stick in 2005 and 2015.

I clearly don't have the patience to fiddle around with the Tatuajes of the world, so when I'm up and running again I guess I'll grab a few Fuente and Padrons and see how the strike me. My guess is that, for the $$, CCs will prevail.

To be fair, the original Tat brown label and La Riqueza are the only Tat brands that have ever done it for me. Even recent brown labels still have that great tobacco and pretty danged consistent construction. It's been sad to see the Tatuaje brand as a whole, however, turn from boutique into your average Rocky Patel-type of showboater with god awful blends coming out several times a year. The Fausto, La Casita Criolla, El Triunfador, et al are just awful and suckers are currently shelling out $15 per stick for the new "Cojonu wet-wrapped" sticks.

Fuente and Padrons have always done right by me, as have DPG's core lines (Although more and more of these are getting the axe a-la-Havana style).

I don't do market research for cigar companies, but it would be interesting to see how the market share is divided - what's the percentage of total production bought by folks who have been smoking for more than 5 years? How about more than 15 years? I know several people on this and other forums who know their stuff and will buy 3, 4, 5, and more boxes of CCs with an excellent vintage. Are there really that many status-seekers coming in off the street to outweigh the purchasing power of the dedicated hobbyists and connoisseurs?

[kjellfrick]

Great Thread! To answer the 1st question- never had an EL, so no comment. I do buy older, reasonably priced, REs primarily because they have several years of age.

I've been smoking a cigar daily for about 20 years. Up until 1.5 years ago they've been 99% NC. for the last year and a half I've been smoking CCs exclusively. A few weeks ago I set out to find 3-4 NC sticks that satisfy me to the same degree CCs do. I've been recuperating from full knee replacement surgery (no cigars for 6 weeks BTW) and so I have been unable to pick up individual NC sticks locally. Instead I've spent many hours researching the current NC state of the art (perhaps this is an oxymoron) and can only say that the line extensions and specialty blends/releases are absolutely mind boggling! Only a few old line manufacturers have largely avoided this behavior- Padron, Fuente, Ashton. The problem with the aforementioned brands is that their super premiums are priced well above (particularly Padron) the tried and true CCs that I know I love.

Tatuaje is a brand often mentioned on FOH as producing satisfying NC sticks. So i thought I would target a few different Tats to try. Well, you have to have a graduate degree in chemistry and an encyclopedic memory to wade thru this brand's myriad cigars. One of their sticks is offered with your choice of three different wrappers!! Then, if you're still with the program and want to purchase a few different Tat. sticks you'll find that no one has them in stock. But, of course, they have this NEW blend that just came in………...

The point is, I'm a cigar smoker, not a cigar of the month club member. I'm looking for blends that I can depend on, that don't change every 30 days, with a depth of experience and tobacco inventory which should deliver to me a similar stick in 2005 and 2015.

I clearly don't have the patience to fiddle around with the Tatuajes of the world, so when I'm up and running again I guess I'll grab a few Fuente and Padrons and see how the strike me. My guess is that, for the $$, CCs will prevail.

Me thinks that the recent explosion of brand extensions and limited releases is primarily a marketing exercise designed to sell more cigars to those cigars smokers who respond to the promise of the latest, limited release product also being the greatest. When all the hype, print ads, road-shows and BS comes and goes I believe that this segment of the market will prove not to be the greatest, only different. This leads cigar smokers, like me, back to the main line decades old great blends which have and will continue to stand the test of time.

Sorry for the rant, but this thread uncorked the bottle and released the genie.

A very eloquent summary of why I stopped being interested in NC cigars. Thanks.

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[drockspang1]

I don't do market research for cigar companies, but it would be interesting to see how the market share is divided - what's the percentage of total production bought by folks who have been smoking for more than 5 years? How about more than 15 years? I know several people on this and other forums who know their stuff and will buy 3, 4, 5, and more boxes of CCs with an excellent vintage. Are there really that many status-seekers coming in off the street to outweigh the purchasing power of the dedicated hobbyists and connoisseurs?

Great topic and very similar in nature to a thread started by Rob a couple days ago...well at least it veered off to a related topic...

http://www.friendsofhabanos.com/forum/index.php?showtopic=118502&page=2#entry484823

^^^ sorry if the link doesn't work. I'm posting thru my phone and I'm not the most tech savvy.

I too wonder if these reasons mentioned above, or something along the lines of an effort to maximize profits or creating a sense of "exclusivity", rather then some of these vitolas being poor performers. I don't know the answer, but interesting none the less.

[johnhenry]

It's ironic that allot of the character that built cigars is now killing it. Cigars are in a way the relentless fad.

When haven't they somewhere among some age group or social tier been a sign of sorts? Unfortunately we'll never know how this effects sales. Clearly it's enough to mean those of us who enjoy them as a timeless luxury need to roll with the punches.

I think in allot of ways we form another cog in the machine forever recycling every aspect of cigars. We age our cigars, we jump.at what we like and shun the rest. All the while Joe flavour of the week grabs at everything riding the wave he fits.

The connoisseur market is a niche market, cigars aren't a common hobby. Realisticly we can only expect production to reflect that. Especially as the cigar market continues to push production towards western business models. Quick profits, following trends, increasing profit margins and reducing costs.

It will undoubtedly get far..far worse before it can ever begin to recover. And that's coming from a ground zero Australian

My 2c,

Andrew

I think there are a base/ foundation of smokers who are passionate and educated that are being ignored at this time. The powers that be think that this type of smoker will be there no matter what they do. What choice do they have where else will they go?

I personaly will stock up on what is available ignor the donkey dong overpriced hype. I have friends at my B&M that point me good direction and cut through the crap that allows me buy smaller ring gauge cigars. There are also customs like johnny o or store blends ,etc.They lose 20-40 % of my business.

[nem]

I took the liberty of quantifying Habanos SA's 2013 regional releases. Please fill me in if this data set is inaccurate or incomplete. Looking at these 12 releases, we notice a few takeaways:

(1) Two thirds of the regional releases have a production run of 50,000 cigars, perhaps this is the "minimum production run."

(2) The only 2013 regional release with a production run of less than 50,000 cigars is the Quai d'Orsay Belicoso Royal with 25,000 cigars produced despite France being one of the three largest markets for Cuban cigars, if I recall correctly. Interestingly, the French market had no regional releases for 2012 despite a total of seven French regional releases in the four years between 2008 and 2011. Perhaps the French market is less than receptive to regional editions at the moment: maybe one of our European members can chime in?

(3) Total 2013 regional edition production is 785,000 cigars, which should be less than 1% of Habanos SA's current annual production. However given the price point of regional edition cigars, they may yield a similar effect on revenue as the Trinidad brand.

[Pedro2486]

I took the liberty of quantifying Habanos SA's 2013 regional releases. Please fill me in if this data set is inaccurate or incomplete. Looking at these 12 releases, we notice a few takeaways:

(1) Two thirds of the regional releases have a production run of 50,000 cigars, perhaps this is the "minimum production run."

(2) The only 2013 regional release with a production run of less than 50,000 cigars is the Quai d'Orsay Belicoso Royal with 25,000 cigars produced despite France being one of the three largest markets for Cuban cigars, if I recall correctly. Interestingly, the French market had no regional releases for 2012 despite a total of seven French regional releases in the four years between 2008 and 2011. Perhaps the French market is less than receptive to regional editions at the moment: maybe one of our European members can chime in?

(3) Total 2013 regional edition production is 785,000 cigars, which should be less than 1% of Habanos SA's current annual production. However given the price point of regional edition cigars, they may yield a similar effect on revenue as the Trinidad brand.

Nice forensic examination bro. I definitely think your third point makes good sense. I'd be interested to hear what the wise men here think

[Bostin]

Wow - I am waaaaay not in Imperial Tobacco's demographic! If anything, I'm more of a traditional, core line, small RG smoker. And I always thought RE stood for Rarely Exceptional?

If IT/Altadis truly understands marketing fads, then they must know that it will eventually swing back to traditional brands and sizes. Consumers are a fickle lot and although billions are spent annually on attempting to lead the desire of the masses, the desire of an individual is truly an independent whim that often defies control. Just think - someone chasing the latest and greatest isn't always a good repeat customer - he/she has bought your product, enjoyed it, and is now down the road chasing the next big thing. Maybe someday, being a connoisseur will be in fashion?

For now, Johnny Cooltits can keep his Monte Double Edmundo and Glass-top Cohibas with his baby blue Impala on 24-inch chrome rims. I'm gonna go smoke this JLPC and call my Volvo mechanic.

10+

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