Tobacco Asia

Volume 19, Number 4

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30 tobaccoasia / Issue 4, 2015 (September/October) Credit photo Norio Hattori Credit photo Norio Hattori Credit photo Norio Hattori Some companies such as Davidoff and Dunhill sold their own Cuban cigars under their labels. But Cubatabaco (renamed Habanos S.A in 1994), under the lead of Fran- cisco Padron, wanted to take a more active role in the distribution. Padron chose the best agent in each market and wanted 50% ownership in the company. A few agents fought and the biggest fallout was with Davidoff of Switzerland, which had become one of the most prestigious Cuban brands in the 1980s. In the early 1990s, Davidoff decided to move its cigar production to the Dominican Republic, claiming it broke the production agreement with the Cuban in order to have a better control on the quality. By the year 2000, exports were 200 million cigars annually. However the quality started degrading, construction and draw became an issue. At the end of this produc- tion expansion, the Cuban government sold 50 % of Habanos S.A to Altadis S.A, later acquired by Imperial Tobacco. Production for export is currently around 90 to 100 million cigars annually. Outside of the US, Habanos cigars are leaders in volumes. Since the announcement of a new era in the diplomatic relationships between Cuba and the US, most are wondering what will now happen. Habanos S.A estimates that, despite the embargo, the US consume around 15 to 20 million Cuban cigars, brought in from Canada or Mexico, or purchased online. Habanos S.A believes it could capture nearly a third of the American market - the world's largest for cigars with 300 million units - selling 50 to 60 million cigars on American soil should the embargo be lifted. They estimate they would reach 25% market share within 3 years and 70% market share within 15 years, similar to the rest of the world. However, removing the embargo would first require an Act of Congress and then the resolution of huge trademark battles: the embargo has created dual trademarks for cigars: Cuban brands are sold around the world but cigars of non-Cuban origin are sold in the US under the same brand names. As an example, a legal dispute over General Cigar and the Cuban's claim for the Cohiba trademark has been dragging on since 1997 and not been resolved yet. Should these two major points of removing the embargo and resolving the legal trademark disputes be solved, there is of course the question of whether Habanos actu- ally has the capacity of such a tremendous increase of its production? We've seen decreasing quality of construction and draw of Cuban cigars when their production was increased to 200 million sticks in the year 2000. Is this avoidable if the production increases dramatically? The other question is whether the production of raw tobacco will be sufficient to cover this additional manufacturing? Additionally, with the strong success of other countries of origin such as Domini- can Republic, Nicaragua, and Honduras (respectively first, second, and third premium cigar producing countries in volume – Cuba being the fourth), consumers have discov- ered and adopted new tastes and discovered new smoking sensations. There is a high chance that American consumers will try the Habanos brands out of curiosity but will revert back to the brands they've learned to know and love. The brands produced in other countries of origin such as Dominican Republic, Nicaragua, or Honduras often have strong Cuban roots (think of the Plasencia or the Padrón families) and are producing cigars of very high quality, excellently built, and showing a taste that is sometimes more appropriate to the current consumer's palate. And even with the rumors (confirmed by Davidoff) that Davidoff could well start again producing in Cuba, this will serve to reinforce the importance of the country of origin… Imaginations have been captivated and opinions diverge on what will happen in the coming few years if or when Cuban cigars become available in the US. It will be an interesting process to watch, but it might still take a while for American consumers to taste the forbidden fruits of Cuba… Additional sources: Trade publications & Cigar Aficionado The band, the cigar Cohiba Robusto Supremos resting... Morning chat

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