News: Analysis & Commentary: FADS
CIGAR MAKERS ARE ROLLING AS FAST AS THEY CAN
Cigar demand is smokin', and manufacturers can't keep up
Chrysler President Robert A. Lutz has endured his own case of sticker shock lately--on the price of his favorite cigar. Just 18 months ago, he says, La Gloria Cubanas cost $1.75 each. Since then, prices have climbed to $2.25, then $4, and now $5. "If a shortage comes, I'm prepared," says Lutz, who has a huge stock in a walk-in humidor at his house in Ann Arbor, Mich.
Lutz is lucky. "It's terrible," complains Eddie E. Gil, who has been scrambling to keep his three South Florida Cigar Box stores stocked. "You cannot cover the demand for high-quality premiums." Indeed, Ellis Turner, a Washington (D.C.) private school administrator orders his favorite, also La Gloria Cubana, directly from the Miami company. But the normal three-month wait is now six to eight months.
The story is the same throughout the industry. The surge of interest in stogies is straining the supply chain, from tobacco growers and cigar factories to box makers and band engravers. Demand for premium cigars--handmade with long, not chopped, filler leaf and retailing for $1 and up--is fueling the industry. After growing at 2.4% since 1976, consumption on a compound annual growth rate rose to 8.9% from 1991 to 1994 and zoomed to 30.6% from 1994 to 1995. And thanks to the rise of cigar bars, cigar magazines, and Hollywood's preoccupation with stogies, there's no letup in sight.
EVEN BURN. Such popularity has sent stocks of two recent cigar-company initial public offerings skyrocketing. Caribbean Cigar Co. went public on Aug. 1 at 7, doubled on its first trading day, and is now at about 11. Ronald O. Perelman's Consolidated Cigar Holdings Inc., the nation's No.1 maker, opened at 26 1/4 on its first day of trading on Aug. 16, climbed to 28 3/8 by the closing bell, and now trades at about 28 1/2.
Demand has created incredible order delays. Consolidated finished 1995 with a backlog of 4.3 million cigars. Even with production increases, it now has 18 million on back order. "Three years ago, we said this could be a fad and the market can't possibly expand as rapidly as it was expanding," says COO Richard L. DiMeola. "We were wrong."
One problem is that a good cigar can't be hurried. It takes about a year for a cigar roller to become proficient at packing the tobacco: The outer leaf wrapping must not be marred, and the cigar must burn evenly. And increasing the supply of tobacco leaf isn't easy. Miami's Padron Cigars, for instance, ages its tobacco for two to five years. It produces 3 million cigars a year and has 2 million back-ordered. Oscar L. Boruchin, president of Mike's Cigars Distributors Inc. in Bay Harbor, Fla., isn't taking on new customers for the three brands it makes. Mike's can barely supply current customers and has 1 million cigars on back order. Also one of the nation's largest cigar wholesalers, Mike's business has increased 300% in the past three years. "It's a good problem to have; it beats the alternative," Boruchin says. "But it's painful to look for supply to keep the market satisfied."
WORKING NIGHTS. Keeping pace is exhausting for other segments of the supply chain. Guillermo M. Cruz, an owner of Wood Perfect, has added a night shift at his Hialeah (Fla.) cigar-box factory. He's working 16 hours a day, seven days a week, to meet demand. Besides established brands, entrepreneurs launching new brands are asking for 1,000 to 2,000 boxes a week. Bandmaker Enrique R. Carpinteiro, owner of Artistic Engravers, has added night and weekend shifts to try to meet the demand for the 18 million bands on back order--six months' worth.
All of this, of course, has meant adjustments for longtime smokers. Miami audio technician Stephen LoMonaco has successfully taken to the Internet to find stashes of his favorite Honduran. Meanwhile, the cigar craze has made Cuban cigars--illegal in the U.S.--a hot item, even at $20 and more a pop. One Wall Street investment banker says that Cuban cigars are now harder to find abroad because of hiked demand and the island's uneven production.
Yet veteran cigar smoker and Miami journalism professor Chuck Green notes that the newfound popularity of cigar smoking does have its upside. "I don't feel like I'm an outcast," he says. "I'm willing to pay a premium to be able to sit in a restaurant and smoke a good cigar after a meal." Now, if he can just find his favorite brand.By Gail DeGeorge, with Ivette Diaz, in Miami and bureau reports