What could cause Cuban prices to trend down?

[yuppie]

Recession? Increased production?

I wonder if there is any factor that would cause the price of Cuban cigars to start trending down...

[Habanoschris]

A time machine 🤣

Or Superman flying around the Earth.

[yuppie]

7 hours ago, Habanoschris said:

A time machine 🤣

Or Superman flying around the Earth.

Is it simply a matter of inflation where Cubans hold their value better than the dollar? Or is there increased consumer demand and limited production?

[Habanoschris]

IMHO there are a few factors driving increased pricing:

• cigars increase in value with age and less availability as they are smoked 
• increase in luxury branding and luxury goods demand, foreign markets 
• increase in general demand / decrease or level production 
• expanding global market 
• Habanos evolving business model etc 

Others may have more info, etc.

[mikejh]

Groupons!

[cigaraholic]

[riderpride]

Other than above, the understanding that cigar tourism was real. They didn't just sell sticks to go into a government bank account like now - it brought real $$ to locals and businesses that changed hands multiple times.

Cheers!

[ATGroom]

Habanos' strategy since Allied Cigar took over Imperial's stake in 2020 has been to do more with less - higher prices across the board, and increased focus on specialties. It's worked fantastically well, and their revenues keep growing while their costs keep shrinking. At current production levels and pricing they are unable to meet the demand, so if anything the logical thing for them to do is increase prices further.

Production for the foreseeable future will be constrained by Cuba's economic issues, and seems more likely to fall than it does to grow. In the unlikely event that somehow gets sorted out and supply starts to exceed demand... well, firstly they'll start rebuilding stockpiles which will take several years, but if they have a decade of great harvests, and they somehow manage to fill every rolling desk in all the factories, it still seems more probable that they'd limit production artificially than drop prices. If anything, I think they'd introduce some new lower priced lines before they'd lower the prices of their premium brands.

Demand at the moment is high because there is a cigar boom. That won't last forever. The Chinese market might go away if the government there decides to kill it off (they have been making some moves towards this for years to boost their own cigar industry, and there may eventually be a public health drive against smoking). There is still the Indian middle class yet to come into the market in a big way. Plus, there is always the question of the eventual end to the embargo and the US market coming for Cuban cigars. In the short-medium term demand seems like it will still be there.

There is a rumour going around that Allied Cigar is looking to sell their stake, or in some tellings already has sold part or all of it. So, I suppose there is some chance that a new owner might come along with some radically different strategy that involves lowering prices. Seems unlikely though.

[zeedubbya]

@ATGroom is a legend. What a wonderful writeup on the subject. Best I’ve heard. Habanos man of the decade if I had a vote!  👏 

[Darco]

A decade ago, cigar supply was roughly X3 of today’s levels. Back then, every store has abundance of cigar laying around sometimes for years, while new shipments are constantly coming. Also back then, there is no urge for consumers of fresh cigars to build their stock, they can simply pick whatever they want whenever it suits them. Aging culture was there of course but I would argue not at today’s levels. 

Now, on the other hand, with supply at 1/3 of normal. On the demand side:

- there is a demand growth, particularly developing nations

- the effect of social media, which played a big role in romanticizing Cuban cigar smoking and arguably the culture of aging

- the panic consumers have on not finding their cigars make them grab the boxes whenever they found them, which is in turn further fueling the shortages. 

So, unless there is a buildup of stocks to first calm down the panicked post-COVID cigar smoker, and then to fill shelves, and then to pressure sellers as new shipments coming in fully stocked markets; there is no hope of price decline.

The above is unlikely for at least 4 to 5 years. Why at least 5 years? Because if suddenly the production level came back to previous levels from today (almost certainly unlikely), it will take few years to go through the 3 steps mentioned above. 

Nevertheless, the premium production (Cohiba, Trinidad, ELs, LCDH, etc) will face pressure if regular production is increasing significantly. Habanos will either limit its production of premium cigar to preserve rarity, or decide to lower the prices. I think they will limit the production.

[ha_banos]

Not sure if the premium production will suffer if regular production lines stage a significant production come back. Feels like different markets to me now. 

The only way to feel like there's any kind of price reductions is to make more money than the Habanos inflation rates to be honest. I don't see a policy change coming. There are local sales and discounts, but things are still super duper pricey.

[Vetteman]

China enacting no smoking laws

[BrightonCorgi]

Sounds like new part owners might be our best chance at lower prices should they want to go that direction.

[Darco]

2 hours ago, ha_banos said:

Not sure if the premium production will suffer if regular production lines stage a significant production come back. Feels like different markets to me now. 

By now, you can find the premium lines almost everywhere (like RyJ Linea de Oro, Cohiba Robustos, all Trinidad except the Fundadores, premium LCDHs). In many times those are sold just because there are no other cigars to buy. Even the more sought after cigars like Siglo VI & Behike started to reappear.

I think those items will feel the pressure once more options are available to buyers. 

[LordAnubis]

It’s supply and demand in my book. Cuba is aiming for the high end price point which an argument can be made is where their product should have been all along. I think the most painful thing is those who know what the prices used to be. I wonder if you grabbed a new cigar smoker how they feel about the Cuban price point. I mean everyone complains about it, but here we still are right. 

We’re already seeing price points dropping and it’s partly come from slightly increased supply, but for the most part to me it’s demand. The best way you can get prices down is to tell all your friends that Cuban cigars suck and Nicaraguans are way better. 

To me a market indicator of how the cigar smokers desires are going is by looking at what Cuban cigars are in stock and what’s on special and comparing to what NC cigars are available and on special. There’s a bigger trend of traditionally Cuban centric retailers stocking NCs. They go where the market and the money is. 

One of my predictions is Cuba will come in with a “el cheapo” line. Cuba is facing a generational loss of market. At the moment there’s no real competitor as “seed pathway” for Cubans. Fuente as an example have a pathway from low end cigars to ultra premiums. The new cigar smoker will not go to Cubans first with everything (even short fillers) being more than 10 bucks a stick. Cuba will need to release a gateway drug line that’s premium enough and cheap enough and available enough to lure in the new smoker. 

[VeguerosMAN]

If China's economy goes under during ongoing trade wars then the luxury of cigar smoking will be the last thing in their minds... then perhaps the prices will go down. 

[Chibearsv]

8 hours ago, Darco said:

By now, you can find the premium lines almost everywhere (like RyJ Linea de Oro, Cohiba Robustos, all Trinidad except the Fundadores, premium LCDHs). In many times those are sold just because there are no other cigars to buy. Even the more sought after cigars like Siglo VI & Behike started to reappear.

I think those items will feel the pressure once more options are available to buyers. 

I think this is exactly the marketing plan and I believe it's working well. If $2700 Siglo VIs are sitting on the shelf, the $950 Monte 2s sure look more enticing.  

[JohnnyO]

Chinese economy goes bankrupt. Supply is increased, too much on the shelves.

Habanos SA has a change of heart and decides $125 boxes of HUp No 2 should be the norm. Hot Tub Time Machine to 1993 to convince the Clintons that Globalization will screw up the US economy and make China too fat and powerful.

[BrightonCorgi]

How is the cigar business doing beyond Habanos? Are sales increasing or decreasing?  Is the consumer base growing? I would consider the business as a whole and they drill into Habanos. If cigars are a sinking ship, keeping prices high could be their only hope.

[Hammer Smokin']

China's economy going down is as likely as the cost of Cuban Cigars going down. 

[JohnnyO]

4 hours ago, JohnnyO said:

Chinese economy goes bankrupt. Supply is increased, too much on the shelves.

Habanos SA has a change of heart and decides $125 boxes of HUp No 2 should be the norm. Hot Tub Time Machine to 1993 to convince the Clintons that Globalization will screw up the US economy and make China too fat and powerful.

 

[Çnote]

Let's look at other top tier adult luxury consumables:

• 1er Bordeaux & Napa Cult - not coming down, only going up
• Tete de Cuvee Champagne - not coming down, pretty stable 
• Grand Cru Burgundy - not coming down,  only going up
• Macallan & PvW - not coming down, only going up and fast

The value of my scant CC purchases in 21-23 is up 75%.

The few solid boxes remaining from 2019 and 2020 up 300%+

This is success, prices will only go up unless there is a systemic market correction. The rising prices accelerate demand.

A whisk(e)y price correction is probably coming, but you won't notice looking at the top end.

Given the inefficiency of Cuban agriculture, there's not enough product to spread along the bottom of the market, so the ever decreasing amount of high end product will just be more expensive. Vicious.

 

[Çnote]

4 hours ago, BrightonCorgi said:

How is the cigar business doing beyond Habanos? Are sales increasing or decreasing? Is the consumer base growing? I would consider the business as a whole and they drill into Habanos. If cigars are a sinking ship, keeping prices high could be their only hope.

The metrics aren't great for long term success. More occasional smokers joining ranks, but the lifestyle to smoke 4 a day is expensive and perhaps not in the culture for today's 20-30 somethings.