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Cuban cigar sales hit record as China demand surges


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http://usaweekly.com/2018/02/cuban-cigar-sales-hit/

Cuban cigar sales hit record as China demand surges

 
  
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Montecristo cigars are displayed during the opening ceremony of the XX Habanos Festival in Havana

By Sarah Marsh

HAVANA (Reuters) – A surge in sales of Cuba’s legendary cigars in China helped manufacturer Habanos S.A.’s global revenue rise 12 percent to hit a record of around $500 million last year, the company said on Monday at the start of Cuba’s annual cigar festival.

Habanos S.A., a 50-50 joint venture between the Cuban state and Britain’s Imperial Brands Plc <IMB.L>, said sales in China, its third export market after Spain and France, jumped 33 percent in value in 2017.

“Without doubt, there is potential for China to become the biggest market at a global level,” Habanos Vice President of Development Jose María Lopez told Reuters after the company’s annual news conference, while puffing on a smoke.

The Cuban monopoly cigar company’s hand-rolled cigars, which include brands such as Cohiba, Montecristo and Partagas, are considered by many as the best in the world, and the festival attracts wealthy tobacco aficionados and retailers from all over for a week of extravagant parties and tours of plantations and factories.

Lopez said that growth in global sales of Cuban cigars last year outpaced the luxury goods market, which expanded 5 percent, according to consultancy Bain & Co. He put sales growth down to several good tobacco harvests and new products.

The Habanos executive said the outlook was also positive, given solid demand and “excellent” climatic conditions. Hurricane Irma, which wrought havoc throughout much of Cuba last year, left the western, prime tobacco-growing state of Pinar del Rio mostly unscathed.

Cigars are one of the top exports for the Cuban economy, which is otherwise struggling with decreasing aid from key ally Venezuela, a cash crunch and a pushback against market reforms.

However, the Caribbean island cannot sell its signature export to the biggest market worldwide for cigars, the United States, due to the decades-old U.S. trade embargo.

Improved U.S.-Cuba relations under former U.S. President Barack Obama stoked a boom in international travel to Cuba and boosted cigar sales on the island, with American visitors able to take home as many cigars as they wanted.

Lopez said U.S. President Donald Trump’s more hostile policy toward Cuba, including tighter restrictions on U.S. travel, did not appear to have impacted sales so far. Domestic revenue rose around 15 percent last year.

“We trust that despite Trump’s measures the Cuban market will continue to grow in 2018,” he said.

Cigars have been Cuba’s signature product ever since Christopher Columbus saw natives smoking rolled up tobacco leaves when he first sailed to the Caribbean island in 1492.

Late revolutionary leader Fidel Castro was often seen puffing on his favored kind, the long and thin ‘lancero’, until he quit in 1985.

 

(Reporting by Sarah Marsh, Editing by Rosalba O’Brien)

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52 minutes ago, El Presidente said:

You have to give them some credit: Making more $ with less product is excellent ROI. 

I agree. Credit given where credit is due. Very impressive to increase revenue after admittedly poor 2013 & 2014 crops.

These excellent last two crops (2015 wasn't bad either) should blow revenue through the roof while resuming production for many of our MIA cigars. 

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3 hours ago, JamesKPolkEsq said:

Hope you like more “exclusive” offerings with big price tag... they’re a comin’!

No doubt. Let's hope they bring back the missing as well as some excellent common man releases. 

No doubt also  that they will sell every single one of their Super Premiums  and with a waiting list. The China demand is likely a 20 year run. It hasn't touched the surface yet.  

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6 hours ago, El Presidente said:

You have to give them some credit: Making more $ with less product is excellent ROI.

That was the plan. ("positioning in the luxury segment"....)

Still with China I expect it taking a similar route as for the Bordeaux market some ten years back. After a surge, eventually posers will lose interest and the market will consolidate.

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6 hours ago, NSXCIGAR said:

I agree. Credit given where credit is due. Very impressive to increase revenue after admittedly poor 2013 & 2014 crops.

These excellent last two crops (2015 wasn't bad either) should blow revenue through the roof while resuming production for many of our MIA cigars. 

 

1 hour ago, Fugu said:

That was the plan. ("positioning in the luxury segment"....)

Still with China I expect it taking a similar route as for the Bordeaux market some ten years back. After a surge, eventually posers will lose interest and the market will consolidate.

I think crops were just a small part of revenue increase reason.

Most of new smokers have no clue about quality, crops, box codes, aging... They want BANDS, DOUBLE BLINGY BANDS!

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Stating the obvious, but there are a few of ways get to a revenue increase:  sell more units at the same price, sell more at a higher price or sell less at a higher unit price.  I suspect I know the answer, but I would be curious to see the unit numbers behind the revenue increase.  Are they selling more cigars or simply selling less, more expensive cigars.  If Habanos' goal is to increase its consumer base the answer to that question should be very important.  Prez, any chance you have some insights on the actual sales volume increase/decrease year over year adjusted for pricing changes?

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11 hours ago, Fugu said:

That was the plan. ("positioning in the luxury segment"....)

Still with China I expect it taking a similar route as for the Bordeaux market some ten years back. After a surge, eventually posers will lose interest and the market will consolidate.

Luckily the Chinese only go for top segments and whilst we then move away from these for obvious reasons we discover the true gems. I’ve been into wine for more than 30 years and since I moved away from Bordeaux more than 20 years ago, I’ve found so much more pleasure, and at great value. So let them come.

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1 minute ago, Hookmaker said:

I’ve been into wine for more than 30 years and since I moved away from Bordeaux more than 20 years ago, I’ve found so much more pleasure, and at great value. So let them come.

Unfortunately, the Cuban cigar industry is a monopoly....

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1 hour ago, Schumi5 said:

Are they selling more cigars or simply selling less, more expensive cigars.  If Habanos' goal is to increase its consumer base the answer to that question should be very important.  Prez, any chance you have some insights...

Rob already answered the question for you:

18 hours ago, El Presidente said:

You have to give them some credit: Making more $ with less product is excellent ROI.

Or to translate the answer to my wording: They give a fig about broadness of their consumer base - what they are looking for is suckers (in the very sense of the full array of its meanings!)....
 

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10 minutes ago, Hookmaker said:

Luckily the Chinese only go for top segments and whilst we then move away from these for obvious reasons we discover the true gems.

Only problem is - they killed the true gems. So tell me - where to move?

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Just now, Hookmaker said:

Well they can’t can they, since there is only so little crop they can use for the ultra premium segment.

Sorry to say mate, but you have no clue of the Cuban cigar industry...:rolleyes:

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21 minutes ago, Fugu said:

Only problem is - they killed the true gems. So tell me - where to move?

I would agree with you that they killed gems. 

Outside of the Upmann PC, I am not sure which gem they killed off that was selling in commercial quantities (not even sure about the Upmann PC). 

You could have brought back the RA 898 this year but globally people would still line up to purchase the next  Cohiba LE  50:1    If it were your enterprise, where would you park your leaf?

They could and should do both. simply a matter of a release every 5 years for the "killed gems". 

You are correct in that they really don't care about any specific individual. They care about "market segments" and "product positioning".  There may be six market segments and right now we are at the very bottom of the totem pole. 

China, Eastern Europe, Middle East is booming.   RA 898 and Dieux are not on their radar.  Big dollar, big ROI, big cigars are. Safe bets, maximum return.  Our market segment can grumble and go try some NC's. We are welcome to stay there. 

 

 

 

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32 minutes ago, Hookmaker said:

Well they can’t can they, since there is only so little crop they can use for the ultra premium segment. And my experience from wine is, that they will not be interested in much other than that.

They will use the crop for what sells. Right now, Ultra Premium is selling like half priced beer at the football  

 

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1 hour ago, El Presidente said:

I would agree with you that they killed gems. 

Outside of the Upmann PC, I am not sure which gem they killed off that was selling in commercial quantities (not even sure about the Upmann PC). 

You could have brought back the RA 898 this year but globally people would still line up to purchase the next  Cohiba LE  50:1    If it were your enterprise, where would you park your leaf?

They could and should do both. simply a matter of a release every 5 years for the "killed gems". 

You are correct in that they really don't care about any specific individual. They care about "market segments" and "product positioning".  There may be six market segments and right now we are at the very bottom of the totem pole. 

China, Eastern Europe, Middle East is booming.   RA 898 and Dieux are not on their radar.  Big dollar, big ROI, big cigars are. Safe bets, maximum return.  Our market segment can grumble and go try some NC's. We are welcome to stay there. 

 

Fully agree with you Rob. That's what we do observe since more than a decade now. It is so. They are surging up prices in a big move and are positioning the habano more and more in the luxury department (while not providing a better product, but that's for another day....). Fine. But.... from a consumer's perspective I don't necessarily have to agree with it nor do I have to like it.

It seems alluring to do so, and it seems to work out pretty successful so far. But this game is a risky one, when allocating a big part of my ressources and market share on a certain segment that is more craze-driven, while neglecting, no - cannibalizing on my loyal-follower's market. Leaving the question aside whether or not this is a good move (for them) and whether their laid-out plan will come out even long-term (and I have little doubt it will - anti-smoking legislation will reduce the number of items actually consumed, so you need to up single-unit prices and rely on stuff accumulating in collections). Fact is, they are slowly losing a part of their loyal long-standing consumers. However, who cares, us few hardheads will die out eventually anyway... :cigar:

Just to get that right - I don't blame HSA (I almost never do, as you might know, I even defend them against good ol' Piggert), I blame those who fall for it.

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From the Chinese side of this, I really think it's a testament to their booming economy and a rise in what they are considering the 'middle class.'  More people are entering the market for luxury goods, like cigars, now that they have access to a little bit of disposable income.  I am by no means an expert on global economy, but I think the growth for Habanos in the Chinese market will continue as this emerging middle class continues to grow.  As was said before, a great return on investment for Habanos.

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36 minutes ago, Fugu said:

It seems alluring to do so, and it seems to work out pretty successful so far. But this game is a risky one, when allocating a big part of my ressources and market share on a certain segment that is more craze-driven, while neglecting, no - cannibalizing on my loyal-follower's market. Leaving the question aside whether or not this is a good move (for them) and whether their laid-out plan will come out even long-term (and I have little doubt it will - anti-smoking legislation will reduce the number of items actually consumed, so you need to up single-unit prices and rely on stuff accumulating in collections). Fact is, they are slowly losing a part of their loyal long-standing consumers. 

The problem is that they can have their cake and eat it too. 

Should the booming markets fall back (and we haven't even factored in the US) then they could re-release RA898, Partagas Corona, Upmann Super Corona, connie 1/2/3, Dieux in 50's and most of us will all be running back like Pavlov's dog. 

For those lost to NC's ....I think Altadis is the number 2 player in the US?  Altadis USA for those that do not know is owned by Imperial tobacco  50% owners of HSA. 

The prime market for HSA is the new wealthy in those boom markets + the USA. It is the same markets where tobacco laws are moderate if not lax. 

4 countries will fall this year to plain packaging, a dozen in the next 5 years? In many countries cigars are  being taxed out of existence while retail displays are being banned/placed under the counter or behind blocked glass.  Whereas a small tobacco retailer would once carry maybe 20 lines of cuban cigars they now carry 5-6 because of display restrictions.  it is a miracle that brands such as Sancho Panza, Rafael Gonzalez and Vegas Robaina exist at all. These retailers carry Cohiba/Monte/R&J/Upmann/Hoyo as that is what the casual client want. Those seeking VR Unicos will go to a specialist of which there are sometimes one -  two in a city of 4 million people or they will go online. 

When our members travel to say italy....what do they ask for?  Regionals. 

Regionals, LE's, Specialties are simply where the moola resides at the moment.  

My fear is that when the tide changes and they re-release some of the cigars we love, they will be repackaged as "super premiums". 

I don't blame anybody. Simply economics and human nature. :cigar:

 

 

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5 hours ago, Fugu said:

It seems alluring to do so, and it seems to work out pretty successful so far. But this game is a risky one, when allocating a big part of my ressources and market share on a certain segment that is more craze-driven, while neglecting, no - cannibalizing on my loyal-follower's market

I agree, and I'll also say that I'm not naive as to how HSA is increasing their revenues. Special production and price hikes are surely the main components. My point was that the tobacco has to come from somewhere and I don't think quality overall has really been that bad, and while there are some MIA cigars and there have been some cuts, outside of those we've been able to pretty much get what we want outside of some Cohiba, and even then the shortage wasn't really that bad. 

If regular production had been gutted and revenue increasing I would not be giving HSA any credit for that. Some may argue that it has in fact been gutted but I would push back on that, and again, what has been available has been fairly good over the last 24 months. So while their strategy is certainly aligned with higher-end cigars with higher margins they have had a general lack of raw materials in the last few years that they've managed to do quite well with in my estimation. 

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23 minutes ago, NSXCIGAR said:

I agree, and I'll also say that I'm not naive as to how HSA is increasing their revenues. Special production and price hikes are surely the main components. My point was that the tobacco has to come from somewhere and I don't think quality overall has really been that bad, and while there are some MIA cigars and there have been some cuts, outside of those we've been able to pretty much get what we want outside of some Cohiba, and even then the shortage wasn't really that bad. 

If regular production had been gutted and revenue increasing I would not be giving HSA any credit for that. Some may argue that it has in fact been gutted but I would push back on that, and again, what has been available has been fairly good over the last 24 months. So while their strategy is certainly aligned with higher-end cigars with higher margins they have had a general lack of raw materials in the last few years that they've managed to do quite well with in my estimation. 

No Siglo VI for coming on 18 months. 

No Behike over the same period. 

Two no brainer behemoth cigars for HSA......and they still increased revenue. :rolleyes:

 

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