Distributor Squeeze and Price Increases.

[El Presidente]

The Cuban cigar world resembles a sitcom/tragedy more and more every month. 

It has been widely (and correctly) reported that HSA is putting the squeeze on distributors. Simply, they want control of the retail supply chain/distributor margins. There are plenty of behind the scenes manoeuvres going on but I haven't run into anyone yet who is hopeful of a negotiated outcome. The next 6 weeks will be interesting. While the internal war continues, I think you can say goodbye to Airport duty free Cuban cigars and most grey marketers for the time being. With existing low stock levels being intentionally trimmed lower, then the lowest ROI distribution chains are being cut first by the affected distributors. 

The price increases will kick in next week for most of the globe. Ouch. 5 -15%  Near $25 USD for a BBF. Now I will pay $25 USD for a great BBF as I will pay the same for a Padron Anniversary...but it is tough to stomach considering that they were $8-$10 a few years ago. 

Put on your seatbelt folks. There is a wild ride to come in the second half of 2024. I doubt all the current players are going to survive to see in 2025. 

[Gubbins]

Feels like this is happening every other month now...

[SCgarman]

10 hours ago, El Presidente said:

The Cuban cigar world resembles a sitcom/tragedy more and more every month. 

It has been widely (and correctly) reported that HSA is putting the squeeze on distributors. Simply, they want control of the retail supply chain/distributor margins. There are plenty of behind the scenes manoeuvres going on but I haven't run into anyone yet who is hopeful of a negotiated outcome. The next 6 weeks will be interesting. While the internal war continues, I think you can say goodbye to Airport duty free Cuban cigars and most grey marketers for the time being. With existing low stock levels being intentionally trimmed lower, then the lowest ROI distribution chains are being cut first by the affected distributors. 

The price increases will kick in next week for most of the globe. Ouch. 5 -15%  Near $25 USD for a BBF. Now I will pay $25 USD for a great BBF as I will pay the same for a Padron Anniversary...but it is tough to stomach considering that they were $8-$10 a few years ago. 

Put on your seatbelt folks. There is a wild ride to come in the second half of 2024. I doubt all the current players are going to survive to see in 2025. 

Aside from the grey market vendors, this likely means the end of the road for many LCDH stores throughout most of the globe? If their shelves are sparse now, how do they sell empty shelves? I suspect many will have no choice but to close. The situation is not sustainable in any way shape or form. Pretty sure all the big NC players are loving seeing this. Lots of opportunity to gain a foothold in markets that have been Cuban dominant for decades.

[PigFish]

… but the medical benefits and schools are second to none. Cuba is an fine tuned machine of wellness of the educated and contented… 

Oh shit. I was dream typing again! Sorry!

[Jerryvonkramer]

They could be looking at this. The exchange ratio of a Big Mac to a Monty 2 over time would be an interesting graph to see. 

[Uwiik]

This is downright ridiculous, but as long as the Chinese market still has money this craziness will never subside. I used to feel stupid spending all that money on 2023 highly inflated price, but now I am feeling lucky, with my current stock and current consumption rate I am safe for the next 19 years 😝. I surely hope my sticks quality can last that long.

[Partyshrts]

So every Marca will be seeing an average 10% increase? This will effect the whole Grey market?

[EasternPromises]

Prez - you mention a price increase next week, is that the same price increase that we just saw in APAC?

[Salomones]

Is it the increase which was already done in Spain and Germany a few months ago? Or a new one?

[Partyshrts]

Will prices increase immediately on 24 Tuesday? Or will it take a week or two to trickle down?

[SCgarman]

On 5/24/2024 at 8:23 AM, Jerryvonkramer said:

They could be looking at this. The exchange ratio of a Big Mac to a Monty 2 over time would be an interesting graph to see. 

No offense, but I hardly expect the powers that be at HSA are looking at fast food prices in the USA. There is absolutely no correlation between the two. 

[VeguerosMAN]

On 5/24/2024 at 10:01 PM, SCgarman said:

Aside from the grey market vendors, this likely means the end of the road for many LCDH stores throughout most of the globe? If their shelves are sparse now, how do they sell empty shelves? I suspect many will have no choice but to close. The situation is not sustainable in any way shape or form. Pretty sure all the big NC players are loving seeing this. Lots of opportunity to gain a foothold in markets that have been Cuban dominant for decades.

Sooner or later Cuba might have to import tobaccos from other countries just to survive for a little longer. But I expect they will ultimately go out of business in the future as there will be no farmers and rollers left in the island to make ends meet.

[Jerryvonkramer]

5 hours ago, SCgarman said:

No offense, but I hardly expect the powers that be at HSA are looking at fast food prices in the USA. There is absolutely no correlation between the two. 

Global inflation caused by an increase in USD over past five years is what I was referring to. The fast food prices are just one indicator of this. The Big Mac index has long been used by economists.

There’s a tendency to think every decision made by Habanos is internal (i.e. because of stuff in Cuba) but they also have to operate in and respond to what’s happening in the world.

[El Presidente]

2 hours ago, VeguerosMAN said:

Sooner or later Cuba might have to import tobaccos from other countries just to survive for a little longer. 

They have never made more money. 

[El Presidente]

6 hours ago, Partyshrts said:

Will prices increase immediately on 24 Tuesday? Or will it take a week or two to trickle down?

I have kicked it down the road by a month. It commences sometime next week. 

[Li Bai]

11 hours ago, El Presidente said:

They have never made more money. 

Sadly that's not good news for us. How is it gonna look like in three to five years you think ?

I know, at this point it would only be a wild guess but your professional input would be of great value 👍

[Duxnutz]

Been about 18 months since I’ve bought a box of Cubans. I was wanting to stock up on 3-5 boxes I’ve run out of but writing is clearly on the wall. Out of interest I was thinking what my price per cigar ceiling is for the cigars I was after. 
 

My thoughts; 

Montecristo No. 2 a $25 USD cigar max 

Hoyo EPI No. 2. A $15 cigar at best.

Punch Punch. One of my favourites so prob $20 USD max. 
 

Taking a gander at grey market dealers (I love FOH but I’m sadly outside their service area) it seems I’m already priced out! Gaaaaaasp.

[99call]

22 hours ago, El Presidente said:

They have never made more money. 

A question for you Rob. 

Whilst price increases for me, the everyday cigar smoker, and great businesses like yourselves,  have been rightly pissed off, and challenged by the price rises. To me Cuba just seems be be doing the obvious. i.e. 

The situation previously was;

- Cuba sells to distributor and makes a margin

- Distributor sells to the first punter and makes a margin

- First punter flips to second punter and makes a margin

- Second punter flips to third punter and makes a margin

- Third punter lists on an auction platform and both make a margin

- The buyer is likely a Chinese millionaire, who buys to smoke.

If Cuba thinks, "F**k this!!. why don't I just sell directly to that Chinese Millionaire at a huge premium, and cut out all these middle men?".      Then in a way I can't blame them. Yes it's a model that must have a breaking point, but I always thought pre 2018 that Cuban Cigars were a bargain compared to other luxury goods. 

Whilst it makes me sad for myself and all the good and great people in the cigar world, equally I feel sympathy for the producer, why on earth should the market be making the biggest cut out of their product, surely if anyone deserves it, it is the producer?  no?

[Fireball]

As long as they can do it and be successful, they will. Ironic in a way that it is such a capitalist mindset. 

[99call]

8 hours ago, Fireball said:

Ironic in a way that it is such a capitalist mindset. 

It's not ironic, it's just difficult for some who want to paint it a certain way. I.e. it doesn't fit their convenient narrative.   

In many ways the only issue is widening wealth divide. When one incredibly wealthy person, has a greater buying power than 100,000 normal people, you have a problem. 

[Capn_Jackson]

Disheartening news, @El Presidente, but all the more reason to appreciate you and the folks at Fabrics 5.

[Li Bai]

9 hours ago, 99call said:

Whilst it makes me sad for myself and all the good and great people in the cigar world,  Equally I feel sympathy for the producer, why on earth should the market be making the biggest cut out of their product, surely if anyone deserves it, it is the producer?  no?

In a way I agree, but is it really the producer here who benefits from the situation.

[99call]

7 hours ago, Li Bai said:

In a way I agree, but is it really the producer here who benefits from the situation.

I obviously refer to the Cuban Government, and not the tobacco workers.

[mohammed.s.almutlaq11]

On 5/25/2024 at 1:13 PM, Uwiik said:

This is downright ridiculous, but as long as the Chinese market still has money this craziness will never subside. I used to feel stupid spending all that money on 2023 highly inflated price, but now I am feeling lucky, with my current stock and current consumption rate I am safe for the next 19 years 😝. I surely hope my sticks quality can last that long.

I don't think they will last that long. For mine I will try vacuum plastic bag.

[VeguerosMAN]

Given the dire situation Cuba is in right now, I don't know how long they can sustain their tobacco business before hitting the wall. Of course, Habanos can make money by shifting their clients to ultra rich in China for a while, but that only works when the state of CC industry is healthy and the workers are happy. In the long run, I believe NCs will have their significant market share in China as Cuba struggles to deal with worker shortage and massive exodus of population.