Saint Luis rey Serie A

[NSXCIGAR]

19 hours ago, gweilgi said:

Perhaps we should be very very grateful that this streamlining (rationalisation?  Rightsizing?) was so long in coming.  I mean, for decades now Cuba has managed to pull off the astonishing trick of successfully pretending to be an entire cottage industry while in fact being one single state-owned company.

Somewhat my point. We traditionalists benefited for decades at the expense of the CC industry's lack of profit-maximizing endeavors and sentimentality for maintaining tradition. No private enterprise would have allowed the state of affairs Tabacuba found itself in in the year 1999. If this was anything other than a state-run company it would have gone belly-up long before that. Cigars were almost entirely a product of national pride and I doubt the bottom line mattered at all until the Soviet money dried up. I highly doubt they would have allowed Altadis to buy in unless they felt it was absolutely necessary. I know they had accepted a great deal of money from Altadis leading up to 2000 and perhaps the bill was coming due, but I'm sure if they could have avoided giving away half their interest they would have found a way.

 

19 hours ago, gweilgi said:

My questions would be "is it inevitable that HSA loses money on their smaller offerings" and "what have they done to address this issue"?  Does it make sense to surrender entire market segments and drastically changing a core value of the Cuban cigar industry?  How many future customers will not be "recruited" if and when Cubans are seen as simply too elite, too super-premium?

When Cohiba Talisman fly off the shelves at $70 each I think we can say the limit has not been reached. I'm sure as prices rise on these super-premium releases they'll find out where sales start to slow and back it off a tad. The margins on these are so high that there's plenty of buffer if and when sales on these begin to slow. Right now the Asian economy is on the upswing and it's just a flat-out huge market with lots of room to grow. And then you have the future USA market at some point. I'd say long-term, HSA's future looks bright. 

 

19 hours ago, gweilgi said:

And given that march up the price ladder, is Cuba at all capable of delivering the sort of quality control that would be required?  In that segment, I can have the very high and justified expectation that there will not be a single plugged smoke in any box of Davidoff Winstons or Patron Anniversary or Fuente Opus X that I buy sight unseen, and that every cigar will be perfectly matched in colour.  By contrast, I can march into any LCDH and will still inspect every box.  DOn't get me wrong -- I love Cuban cigars.  I adore them, and I have the humidors (and credit card receipts) to prove it.  But I do so knowing that I have to accept flaws.  I am not sure how many people around the world will do so if their cigars keep creeping up in price....

If profits continue to be high and production must be increased it's reasonable to assume some money will be plowed back into QC. They've been doing a pretty good job in the last 5 years with limited raw materials. I think the major QC issues have been generally solved and quality has become remarkably uniform throughout all factories to the point where factory code chasing has become chiefly moot. 

Sure, overall, NCs have better QC. But I've had and seen my share of poorly constructed NCs. Also, cigars like Opus X and Padron 1926 and 1964 are considered regular production and are priced much higher than almost all CC regular production cigars. Also, many NCs are rolled with the machine--something that will probably not happen anytime soon in Cuba. And lastly, even the very best NCs are still not as good as the very best CCs, and I just don't see that changing anytime soon. The climate and soil of the NC regions are just what they are and that will never change no matter how much capital is poured into the NCs. CCs will always have that special something. I don't think they will ever need to match the tangible factors of NCs like QC, marketing etc. as long as the intangibles exist. They just can't go back to the 2000-2002 levels however. That would be a disaster. But there's no sign of that happening. It's been a solid 15 years with no real major hiccups so I think it's safe to assume those issues were ironed out for the most part. 

[Fugu]

On 13.3.2018 at 11:56 PM, NSXCIGAR said:

Very little changed for CCs from 1962 to 2002 outside of a wave of cuts in the 1970s. Cuba wasn't really too concerned with their bottom line until the late 90s when the Soviets' demise and the end of the cigar boom converged to make them panic and bring in an outside private enterprise to make the operation profitable as any private company would do.

On 14.3.2018 at 8:07 AM, NSXCIGAR said:

We traditionalists benefited for decades at the expense of the CC industry's lack of profit-maximizing endeavors and sentimentality for maintaining tradition. No private enterprise would have allowed the state of affairs Tabacuba found itself in in the year 1999. If this was anything other than a state-run company it would have gone belly-up long before that.

Just to get that sorted a bit, the story goes a little different: The Soviet's demise in 1991 and the end of the cigar boom (end of the millennium) did not coincide. The boom in fact was just about to set out at that time (1992, peaking in 96/97). The Cubans were actually always concerned and always had to fight calamities and were always facing limitations in their production means - and tobaccco wasn't their only concern.... Production had been inefficient, always, no question about it, but it's not as if Cubatabaco didn't care. But the situation worsened considerably when support of their Comecon brothers suddenly ceased. Cuba couldn't bring in the most basic means for its tobacco production, lacking in fertilizer, fuel and even the gauze cloth for the tapado-fields (actually, at that time, colleagues and me were personally affected by that very situation, when working on a base in Antarctica turn 1991/92, that was dependent on Russian diesel oil supplies, facing a sudden outage without warning....). That was a seriously difficult situation for Cuba, as the industry was about to fail completely, but even worse, leading to the "special period", incl. suffering starvation of its population (with e.g. the fishing industry even temporarily collapsing).

They found a solution around it (for tobacco) with the aid of Tabacalera and Seita, later Altadis: Their biggest market's importers (also competitors and even opponents at court on trademark issues) gave them the means to keep production up and running in 1991/92 through 93. When the cigar boom set in, Cuba, quite like many NC producers, wasn't prepared. Around that time Cuba saw the foundation of Habanos SA (1994), with the aim to improve (professionalize) production and marketing and with it export sales. When they realized that that was showing less effect than what they had hoped for they did the (mutually) smart move to bring Altadis on board as a partner. It wasn't just the money. They wanted their know-how, a broader market entry (with at the same time tightening of the embargo in 1992 and the Helms-Burton Act in '96), and - not least - Altadis already was in hold of a huge distribution network, from which they were to profit. Flip side was the first strong streamlining of their product portfolio. In parallel, because Cuba wanted to split up with a share of the marketing branch only, HSA had to be restructured (until then having been in charge of production and marketing prior to 2000) as the future sole marketing entity. So, another body had to be established for the production branch, still to be held by the Cuban state, which then saw the birth of Tabacuba (once again - as there always seems confusion: Tabacuba is NOT Cubatabaco, didn't exist in 1999).

Actually 1999 and 2000 were fairly good output years, below plan but still well above 140 m and 100 m units for export, resp., way more than mid of the 90s (despite wrapper leaf shortages in 2000). The Cuban cigar output was actually jumping at the end of the 90s in an attempt to boost output in response to the boom: As we all know - the dreaded years - and Cuba, quite like the many NC makers, was suddenly faced with an overproduction of cigars (of questionable quality due to quick recruitment of underskilled workers), seeing a stockpiling of some 200 m cigars. Which fell in line with or was the result of the end of the cigar boom. [- Side note: It wasn't just Cuba being affected. There had also been a very strong consolidation and shakeout taking place in the NC industry with the sudden ending of the cigar boom! -] Therefore, they simply couldn't jack up returns at that time, and that's holding for CCs as much as NCs, since quality and worldwide demand were down, warehouses filled. So, there was a strong need then to boost sales at that point. And that was the moment when Altadis entered stage in 2000. As I said, I think that was actually a pretty smart move as much as the prior Cuban/French/Spanish collaboration in the early 90s saved the industry in Cuba from collapsing, while the Europeans at the same time saved their CC market from vanishing.

What I was going to say by all this is that (and sorry for long posting): If you look back at it historically, then those "dreaded traditionalists", the seemingly pain in the butt of current "modern" Cuban cigar marketing, those who had for a very long time been the solid basis and sole foundation supporting and keeping the Cuban cigar industry afloat during times of hardship, those are given the boot. At least that's how I feel about it. Today, I am forced to smoke tobacco of my Coronas Gigante or the Coronas Extra in a Sublimes-format - if at all I can find it in regular production (had I not been stockpiling...). May be economically wise of Cuba to do so, in terms of current sales figures and revenue margins - perhaps, who would really know? But there may, there will, come different times, when those that had entered the train for reasons of mere representation and craze will be the first to jump off again. Could be in another difficult situation when the loyal long-termers - the Conniesaurs - had long become extinct....

 

[NSXCIGAR]

41 minutes ago, Fugu said:

What I was going to say by all this is that (and sorry for long posting): If you look back at it historically, then those "dreaded traditionalists", the seemingly pain in the butt of current "modern" Cuban cigar marketing, those who had for a very long time been the solid basis and sole foundation supporting and keeping the Cuban cigar industry afloat during times of hardship, those are given the boot. At least that's how I feel about it.

I should have perhaps been more clear--I am aware the Soviet support ended in 91 and the boom ended effectively in 98. My point is that the boom allowed the Cubans to float despite the Soviet dissolution and when the boom ended in the late 90s the Cubans had major problems they couldn't ignore. They brought in Altadis because they had to. They needed, not wanted, their know-how and market position and network. Their industry simply wasn't viable.

I had also made the assertion that I don't think the CC industry had been viable for decades. The veteran traditional smokers hadn't been "keeping Cuban cigar industry afloat" at all. They never were. The Soviets, and then the boom were, and then Altadis did who quickly realized that the Cubans had no idea what they were doing. The model that existed in 1997 hadn't been viable since the 1960s. Things had needed to change for decades and it took losing the supports of the Soviets and the cigar boom ending to really make that clear to the Cubans. 

[GWG]

Im not sure how to ask this question so i will throw my thougts out there and hope that it makes enough sense to address. I enjoy the "boutique" cc lines as much and probably more than the montes,cohiba's etc. With most Cuban retailers I have dealt with the boutiques are there but that is all. Nothing to make me look to them because they are an unknown and name recognition draws me to the standards. Here through this forum I am motivated to try them because of the emphasis many place on them. Where there are retailers such as Rob who have an interested and excited following, why isnt a more expanded push made to market the lesser lines, and maybe draw a little more interest from habanos. The business of selling Cuban cigars will always be the most important, but I am sure that the history, mystery, pride and uniqueness of Cuban cigars will always be important to those that manage habanos.....one would hope anyway. Maybe its time for alittle renaissance of the  families , culture and history of the many overlooked Cuban boutiques. Hopefully im not cutting my own throat and making it more difficult and expensive to get them.

Oh and thanks Rob for spreading your passion to us all!

[Fugu]

On 22.3.2018 at 12:43 AM, NSXCIGAR said:

I should have perhaps been more clear--I am aware the Soviet support ended in 91 and the boom ended effectively in 98. My point is that the boom allowed the Cubans to float despite the Soviet dissolution and when the boom ended in the late 90s the Cubans had major problems they couldn't ignore. They brought in Altadis because they had to. They needed, not wanted, their know-how and market position and network. Their industry simply wasn't viable.

I had also made the assertion that I don't think the CC industry had been viable for decades. The veteran traditional smokers hadn't been "keeping Cuban cigar industry afloat" at all. They never were. The Soviets, and then the boom were, and then Altadis did who quickly realized that the Cubans had no idea what they were doing. The model that existed in 1997 hadn't been viable since the 1960s. Things had needed to change for decades and it took losing the supports of the Soviets and the cigar boom ending to really make that clear to the Cubans. 

Valid points, but then again - the very same could be said of the many and not just the US-based NC-producers back then (e.g. that was the time when General Cigar had to shut its Macanudo premises in Jamaica. Or, Spanish Altadis, at the time brand-new shareholder of HSA, also had to close down premises in Nic and Honduras...). The whole premium industry had to cut back massively. Consolidations, companies dying, market shakeouts everywhere. And it's not as if the non-Cuban producers had done it all without subsidies. 

I really don't buy into the notion that CCs were sold under value back then. By Y2k Cuba's premium cigar export biz had come in third place of industries bringing in hard currency, behind tourism and sugar. It had always held an important place in generating convertible cash. If at all, then that may have been the case immediately after the boom-phase - but again, that exact same did apply to NC makers, too, sitting on piles of unsold cigars back then that had to be given away at cost price or vastly under. So, I really fail to see the point of differentiation between "prosper" NC and "poor" CC that you are making there business-wise.

Don't get me wrong, I get what you mean. But playing a bit devil's advocate here, as it all isn't as clearcut as it appears to be. And it might be too much of an excuse (for my liking) for the current CC business behaviour we see today. At least I don't see any justification in all this to chop the Serie A.... haha

[dominattorney]

On 3/8/2018 at 6:23 PM, gweilgi said:

OK, so I am a bit dim this morning ....

... but this does not make sense to me.  

Bricks and mortar as points of sale may be shrinking, but doesn't that mean there is *more* scope for online retailers?  If the standard retail model is increasingly no longer a shop with limited retail and storage space but a website and a warehouse, why should there be pressure at all to decrease the model range?    What about the long tail?  

Brand awareness can be a problem ... but what are they doing to address this?  Outright advertising and branded marketing may become illegal everywhere, so where is the push for new ways to inform the customer?  We live in an age where cottage producers in Paraguay can find customers in Finland, and where musicians can bypass the entire recording industry by direct marketing and clever use of the internet ... so why the hell can HSA not put something together to do the same?

I LIKE SLR, dammit.  

 

 

I would go further and suggest a large number of cigars are sold in bars and resorts to jackass tourists.  Usually there's only 4-5 offerings, all from Cohiba, Monte, and RJ.  I don't think that the shrinking of Brick and Mortar shops has a significant effect on the online market, which is generally frequented by the collector or at least the more savvy consumer of the product.  I would venture to guess that the large share of the market are the looky-loo type who wouldn't bother to go online or to buy more than 5 cigars at a time. 

[NSXCIGAR]

13 hours ago, Fugu said:

Valid points, but then again - the very same could be said of the many and not just the US-based NC-producers back then (e.g. that was the time when General Cigar had to shut its Macanudo premises in Jamaica. Or, Spanish Altadis, at the time brand-new shareholder of HSA, also had to close down premises in Nic and Honduras...). The whole premium industry had to cut back massively. Consolidations, companies dying, market shakeouts everywhere. And it's not as if the non-Cuban producers had done it all without subsidies. 

Yes, that's worth pointing out. But the CC industry was far more established worldwide and while the NC industry was almost totally reliant on North America. But you're right--it may be a bit more complicated than that. Perhaps the premium market itself did undergo a massive shift in the late 90s making all existing business models non-viable. Perhaps it was inevitable that Altadis or another similar conglomerate and HSA combine along with the other industry-wide failures and mergers. I'll concede that.

13 hours ago, Fugu said:

I really don't buy into the notion that CCs were sold under value back then. By Y2k Cuba's premium cigar export biz had come in third place of industries bringing in hard currency, behind tourism and sugar. It had always held an important place in generating convertible cash. If at all, then that may have been the case immediately after the boom-phase - but again, that exact same did apply to NC makers, too, sitting on piles of unsold cigars back then that had to be given away at cost price or vastly under. So, I really fail to see the point of differentiation between "prosper" NC and "poor" CC that you are making there business-wise.

Not sure if you're responding to me here but I don't recall claiming CCs were ever undervalued or sold at sub-optimal prices. I don't think that. I just think many of the changes we've seen since 2000 were overdue. Special production, large RG, marca streamlining--all these things were going to happen and they probably should have happened sooner in perhaps both the NC and CC industries. Pricing I think has risen too high for many of these but I don't think they were ever priced too low. NCs have always been priced the same or greater for the most part.

13 hours ago, Fugu said:

Don't get me wrong, I get what you mean. But playing a bit devil's advocate here, as it all isn't as clearcut as it appears to be. And it might be too much of an excuse (for my liking) for the current CC business behaviour we see today. At least I don't see any justification in all this to chop the Serie A.... haha

You may very well be right. We just don't know how much impact cutting a cigar like the Serie A will have. I just think it's clear that any model that isn't a premium priced special production or large RG cigar (excluding global brands) produces less profit per cigar than a classic vitola model. You always have a shortage of high-quality tobacco and the question will always be where to allocate it for maximum profit. Serie A or a Marquez or Tesoros? My opinion is that if the Marquez or Tesoros were exactly the same as a good Serie A, people would be raving about them and buying them all up and they'd be an all-time great ER. If you were HSA how do you not stick a few extra volado leaves in a Serie A, stick a ER band on and charge twice the price? Any tobacco going into the Serie A would be a waste in that case unless you hit maximum demand with the ERs which clearly hasn't happened yet. Although it begs the question what is happening to all this tobacco formerly allocated to SLR? The Tesoros and Marquez represent 225,000 sticks. Was this approximately Serie A numbers? 9,000 Serie A boxes produced worldwide? And how many more SLR ERs will there be in the next 24 mos? Perhaps they're holding back tobacco and gearing up for an introduction of large RG regular production models. The Marquez and Tesoros would be perfect additions to regular production for HSA--very similar to the QdO 50 and 54. 

[Fugu]

15 hours ago, NSXCIGAR said:

Not sure if you're responding to me here but I don't recall claiming CCs were ever undervalued or sold at sub-optimal prices. I don't think that

That was my impression from your statements such as

On 14.3.2018 at 8:07 AM, NSXCIGAR said:

We traditionalists benefited for decades at the expense of the CC industry's lack of profit-maximizing endeavors and sentimentality for maintaining tradition. No private enterprise would have allowed the state of affairs Tabacuba found itself in in the year 1999.....

Cigars were almost entirely a product of national pride and I doubt the bottom line mattered at all until the Soviet money dried up.

Perhaps I over-interpreted that.

 

15 hours ago, NSXCIGAR said:

Was this approximately Serie A numbers? 9,000 Serie A boxes produced worldwide?

That figure sounds reasonable, though I'd guess it has been way lower than that towards the end.

15 hours ago, NSXCIGAR said:

I just think it's clear that any model that isn't a premium priced special production or large RG cigar (excluding global brands) produces less profit per cigar than a classic vitola model.

By that logic, all regular production should be on the way out. Perhaps that's the plan in fact. As I always said, it is way less obvious / noticeable jacking up prices (for basically the same product) through special releases, than it is to confront clients with steep price hikes on regulars.

[NSXCIGAR]

9 hours ago, Fugu said:

Perhaps I over-interpreted that.

I think so. I think prices have been fine. They just weren't innovating or expanding for decades. They allowed the NC market to gain a foothold in Canada and Europe which should never have happened. 

9 hours ago, Fugu said:

That figure sounds reasonable, though I'd guess it has been way lower than that towards the end.

Wow. That is not a lot of boxes. If the ERs are outselling a regular production model I really can't see how HSA can keep it. 

 

9 hours ago, Fugu said:

By that logic, all regular production should be on the way out.

I think they are except for the global brands. I mean, who can't say regular production is on its way out when LGC, Dip and SLR are all down to one model? QdO was down to one until this year. That's something that would be unimaginable 20 years ago. The fact that four marcas were down to one model has convinced me that that this is their approach.

Now of course, to be technical, regular production isn't going away. It's that old classic regular production models and vitolas are being replaced with new large RG regular production models with a possible brand revamp. QdO is the trial run. I don't see how SP, RG and VR won't follow. The SPNP, RGPC and VRF and VRDA are on death's doorstep and that will mean all three will be down to one long filler model.