Plain Packaging in Canada Update - Also, delisted cigars

[NSXCIGAR]

4 minutes ago, Fugu said:

Well, Spain has about 45 m population and has for very long, and just until very recently been the No. 1 CC market

Yes, but Spain is about the opposite of Canada in every other area. Big smoking culture, very low prices, very few obstacles to smoking, better smoking weather. Spain also has a taste for smaller, cheaper cigars and consume a lot of JLP and Quintero there. So just by sticks imported, Spain is going to put up huge numbers. Total revenue might be a different story. I would expect Europe and Asia to have that cornered for quite some time.

[Bijan]

5 minutes ago, NSXCIGAR said:

Yes, but Spain is about the opposite of Canada in every other area. Big smoking culture, very low prices, very few obstacles to smoking, better smoking weather. Spain also has a taste for smaller, cheaper cigars and consume a lot of JLP and Quintero there. So just by sticks imported, Spain is going to put up huge numbers. Total revenue might be a different story. I would expect Europe and Asia to have that cornered for quite some time.

I believe Spain was by market value not number of cigars. Canada taxing by price and not weight is also a big cheap cigar market. We're probably the number 2 market for Fonseca after Spain

Edit: Every B&M and many convenience type stores here are well stocked in (Quintero, Partagas MF, Super Partagas, RyJ MF and Romeo 1, 2, 3).

 

[NSXCIGAR]

2 minutes ago, Bijan said:

I believe Spain was by market value not number of cigars. Canada taxing by price and not weight is also a big cheap cigar market. We're probably the number 2 market for Fonseca after Spain

The actual numbers are difficult to find. And I would be trying to find out what percentage of HSA's revenue comes from Canada sales. HSA only lists that segment as "Americas" meaning all of S and Central America are combined with Canada, and that's 18% of all revenue. I would expect Central America to be quite high due to tourism and of course, S America is huge so who knows. 

As for Fonseca, I don't doubt you're right, but the last time numbers were released Fonseca was somewhere below 1.5% market share. 

[Fugu]

1 hour ago, NSXCIGAR said:

low prices .......So just by sticks imported, Spain is going to put up huge numbers. Total revenue might be a different story.

You cannot compare retail pricing between markets in an attempt to derive revenue of the producer.

As Bijan said, ranking has always been based on value not on unit numbers.

But, granted, nobody is comparing Spain to Canada. Only your argument is flawed. I personally believe Canada is still of certain value and concern to HSA. And were it just for the fact that it won‘t be the last to implement plain-packaging.

[Bijan]

1 minute ago, NSXCIGAR said:

As for Fonseca, I don't doubt you're right, but the last time numbers were released Fonseca was somewhere below 1.5% market share. 

My remark about Fonseca was kind of an aside about how Canada is weighted towards the cheap and cheerful cigars, especially with regards to B&M sales, since we tax heavily but by price (the reverse of Australia and their taxation by weight).

As to Canada's share of HSA revenue it's anyone's guess but most likely a single digit percentage of all revenue. Still would be foolish for a company to just throw away 1-5% of its sales in perpetuity, let's say.

[NSXCIGAR]

2 minutes ago, Fugu said:

You cannot compare retail pricing between markets in an attempt to derive revenue of the producer.

I'm not. I'm only interested in revenue. Since that's all that HSA cares about and the only metric important in determining large vs. small markets. I was only making the point that Spain imports a lot of sticks despite it's small population.

[Bijan]

Let's put it another way one of Huawei's top executives has been arrested for cheating sanctions against Iran which has a population of 84 million (18th), and roughly 20th or further by GDP too. So for say 5% or so of sales they've done that. And you're talking about giving up a market due to packaging.

[NSXCIGAR]

2 minutes ago, Bijan said:

Still would be foolish for a company to just throw away 1-5% of its sales in perpetuity, let's say.

They could easily disperse those million sticks elsewhere. 

 

2 minutes ago, Bijan said:

Let's put it another way one of Huawei's top executives has been arrested for cheating sanctions against Iran which has a population of 84 million (18th), and roughly 20th or further by GDP too. So for say 5% or so of sales they've done that. And you're talking about giving up a market due to packaging.

Huawei's revenue is 850 billion. 5% of that is 42 billion. Absolute numbers are important here. And Huawei isn't bottlenecked in supply. They need more markets. HSA doesn't. 

[Bijan]

1 minute ago, NSXCIGAR said:

They could easily disperse those million sticks elsewhere. 

True to an extent. But smaller market overall means lower prices, as they shift to the next "highest bidder". Also the cheap and cheerfuls in Canada might not be easy to shift elsewhere, etc.

1 minute ago, NSXCIGAR said:

Huawei's revenue is 850 billion. 5% of that is 42 billion. Absolute numbers are important here. And Huawei isn't bottlenecked in supply. They need more markets. HSA doesn't. 

Absolute numbers don't really matter to a company. I mean the 42 billion does mean that Huawei can spend a few billions in overhead to make the sales. But in terms of the two companies 5% of sales is 5% of sales just the same.

Habanos is roughly 500 million revenue, that puts Canada at 5-25 million perhaps. Still a decent market.

[Fugu]

28 minutes ago, NSXCIGAR said:

I'm not.

Ah ok, seems I’ve been misreading your „very low prices“ point, sorry.

[PigFish]

Plain packaging at its finest. Ditch the box! Display the cigar in a natural brown wrapper!!!

-the Pig

[NSXCIGAR]

42 minutes ago, Bijan said:

True to an extent. But smaller market overall means lower prices, as they shift to the next "highest bidder". Also the cheap and cheerfuls in Canada might not be easy to shift elsewhere, etc.

Normally, yes. But not with CCs. I would argue prices should be higher than they are. Again, HSA sells everything they make. They regularly raise prices. Always have. Even during recessions. And they sell them. All of them. (Except Anejados).

 

50 minutes ago, Bijan said:

Absolute numbers don't really matter to a company. I mean the 42 billion does mean that Huawei can spend a few billions in overhead to make the sales.

In this case, Huawei wouldn't have officially reported where that revenue came from. If at all. That's a lot of money. Who knows to who or where it would have gone. Or to what executives. To say it would just get plugged back into R & D is a bit naive in this instance.

5% is 5%, but not when 5% is $42 billion. 

[NSXCIGAR]

8 minutes ago, PigFish said:

Plain packaging at its finest. Ditch the box! Display the cigar in a natural brown wrapper!!!

-the Pig

I think your cigar is missing three bands and a foot band. I like it. Only thing is the taste of the foot band...

[Bijan]

I agree with both your points above. But I still think that percentage of sales is significant.

I'm in engineering so if someone says some software library we use will be 5% slower or use 5% more memory, I'd shrug my shoulders.

But from my limited dealings with people in sales if you talked about +-5% sales company-wide no one would be shrugging.

[NSXCIGAR]

19 hours ago, Fugu said:

Ah ok, seems I’ve been misreading your „very low prices“ point, sorry.

I'm only referencing low prices' relationship to demand. Lower prices, higher demand. High prices reduce Canadian demand and low prices increase Spanish demand.

 

18 hours ago, Bijan said:

I agree with both your points above. But I still think that percentage of sales is significant.

I'm in engineering so if someone says some software library we use will be 5% slower or use 5% more memory, I'd shrug my shoulders.

But from my limited dealings with people in sales if you talked about +-5% sales company-wide no one would be shrugging.

It is significant, but the size of the size of the pie is also significant. If 5% growth is a, say, $1,000 increase ($20,000 revenue) would you commit 1,000 man hours to it? No. If 5% is $100,000, maybe. 

It's a simplistic illustration, but my point is that when humans are involved absolute numbers matter. 

[Bijan]

1 minute ago, NSXCIGAR said:

Yes, but the size of the size of the pie is important. If 5% growth is a, say, $1,000 increase ($20,000 revenue) would you commit 1,000 man hours to it? No. If 5% is $100,000, maybe. 

It's a simplistic illustration, but my point is that when humans are involved absolute numbers matter. 

As I said I agree with your point about the size of sales, and your point about excess demand for CCs.

But we're talking about roughly 10 million in sales. You'd commit more than 0 man hours to it.

[Shrimpchips]

Not sure if these are wholly complete numbers, but they’re from the Canadian government site showing value of tobacco imports from Cuba over the last 10 years.

Canadian Cuban import value is declared as ~$6MM/year ($4.7MM USD) in 2019.  Would make for <1% of HSA revenue if that’s the case? I guess there’s still money to be made there, but it’s not a very large market.  For what it’s worth, $1.2MMM CAD total tobacco imports makes for a very small market share for Cuban tobacco products in Canada (that figure includes ALL tobacco leaf products though).

[Bijan]

13 hours ago, Shrimpchips said:

Canadian Cuban import value is declared as ~$6MM/year ($4.7MM USD) in 2019.  Would make for <1% of HSA revenue if that’s the case?

Thanks I guessed 1-5% so this is close to the 1%

Searching for Cigars, Cigarillos, Cheroots (but not cigarettes) for 2019 from Cuba yields:

$6,073,945

And here's the top 10 countries for Canadian cigar/cigarillo imports (so that's roughly 15% that comes from Cuba):

 

Dominican Republic	10,853,755
Belgium	10,042,923
Cuba	6,073,945
Netherlands	5,076,987
United States	3,532,254
Nicaragua	1,927,284
Honduras	1,908,564
Italy (incl. Vatican City State)	150,749
Germany	124,755
Philippines	83,595
Sub-total	39,774,811
Others	312,934
Total All Countries	40,087,745

Edit: was $6,626,246 for 2018, so close to 1% in USD.

 

Update this might actually be high.

According to OEC visualization website Spain imported about $28 million of rolled tobacco from Cuba per year:

https://oec.world/en/visualize/tree_map/hs92/import/esp/cub/show/2018/

So Canada is roughly 1/5 of Spain in 2018 which a top market.

Edit: That $28 million includes other tobacco products, and in 2016 cigars were $16 million in Spain.

"The connection between Cuban tobacco and Spain is stronger than any other country and Spain imports over $16 million worth of cigars and takes 30% of Cuba’s raw tobacco exports every year. "

https://www.cardenalmendoza.com/en/blog/spain-cigars-historical-love-affair#:~:text=The connection between Cuban tobacco,raw tobacco exports every year.

 

And as an interesting note here's Cuba's exports of Tobacco to various countries (this only accounts for $277 million whereas HSA supposedly does $500-$550 million a year), and doesn't seem to include Canada):

https://oec.world/en/visualize/tree_map/hs92/export/cub/show/42402/2018/

[Shrimpchips]

Neat viz tool. I was going to comment along the same lines - for 2018 according to that source China only brought in $8.7MM Cuban tobacco vs Germany at $29MM.  If the top market (Spain) only imported $23MM, either there are quite a few similar markets, or there’s some other numbers used to make up that $531MM figure that aren’t captured in the 2018 data from that tool.

[Bijan]

I think that visualization has incomplete data but here's another puzzle piece:

http://www.xinhuanet.com/english/2019-02/19/c_137833485.htm

HSA state $537 million for 2018

"In terms of distribution by geographical area, Europe is in the lead with 53 percent of sales by volume, followed by Latin America and the Caribbean (18 percent), Asia-Pacific (15 percent) and Africa and the Middle East (14 percent)."

Oops I had a long follow up with calculations but that's sales by volume!

 

But also according to that visualization Hong Kong brought in 18% at $50 million of rolled tobacco from Cuba.

But further complicating matters, Hong Kong exported $105 million of rolled tobacco to China

And China exported $260 million of rolled tobacco to Hong Kong.

So I don't think we can make anything meaningful of this fun visualization.

[Shrimpchips]

This article states Tabacuba billed $270MM in exports in 2019, a little more than half the revenue of HSA.

https://oncubanews.com/en/cuba/cuba-increases-export-of-tobacco-products-in-2019-by-almost-10-million-dollars/

Had no idea that 100 million cigars are exported annually, or that 200 million are consumed/purchased domestically in Cuba.  Why are these things so damn expensive if there’s so many of them ?

Maybe the $531MM somehow includes revenues of partnerships as well? I’m no accountant, but the numbers dont quite add up.

In any case, seems any way you slice it, Canada is likely a small CC market, but there’s still some money to be hade, so someone will do it.

[Shrimpchips]

13 minutes ago, Bijan said:

But also according to that visualization Hong Kong brought in 18% at $50 million of rolled tobacco from Cuba.

And Cypress wasn’t far behind either. Wonder how they got those numbers...

[Bijan]

Two more articles:

https://www.reuters.com/article/cuba-cigars-idUSN1E81Q03720120227

from the above: 2017 was $500 million HSA exports, Spain, France, China, Germany then Switzerland

https://www.swissinfo.ch/eng/cuban-cigars_the-swiss-american-love-of-cuban-cigars/42038464

from the above 2013 saw $303 million exports of rolled tobacco from Cuba, Swiss value seems to be either $9 million in 2013

Given a relatively constant value for Canada ($5 million in 2019-2020) and Switzerland ($9 million in 2013) they are not that far off to say that Canada is probably in top 10 markets.

Edit unclear but it might be that Switzerland was $9 million in 1988 and it more than doubled by 2013. This would agree more closely with visualization which gives $31 million for Switzerland in 2018.

 

First off we can get Cigars, cheroots and cigarillos directly here, but it's very close to rolled tobacco (2 million or 1% difference):

https://oec.world/en/visualize/tree_map/hs92/export/cub/show/4240210/2018/

Secondly if we go back to 2016 Canada is listed:

https://oec.world/en/visualize/tree_map/hs92/export/cub/show/4240210/2016/

at 1.8% or roughly UK or France level based on visualization numbers.

In any case these numbers don't agree with HSA numbers or rankings. So either these are trade flows and not final sales, such that Switzerland and Hong Kong for example re-export Cuban cigars to other markets, or some other issue like that.

 

Government of Canada website gives:

$4,554,044 for Cuban cigar imports for 2016 (in USD)

Visualization gives $4.56 million and 1.8% of Cuban exports.

We can at least agree that these two data sources seem to agree.

Edit: Seems that for 2016 we have:

1. Hong Kong 17.7%

2. Cyprus 16.7%

3. Switzerland 11%

4. Germany 10.7%

5. Spain 10.3%

6. Benelux 4.19%

7. Japan 2.5%

8. UK 2.19%

9. France 2.02%

10. Canada 1.8%

Top ten accounting for 79% of exports.

[Fugu]

10 hours ago, NSXCIGAR said:

I'm only referencing low prices' relationship to demand. Lower prices, higher demand. High prices reduce Canadian demand and low prices increase Spanish demand.

Yeah, got that.

Still, the market pricing is also being set in relation to general figures of disposable income (at least holding for similarly taxed markets in Europe). There is a reason for lower pricing in Spain. But the large market volume in Spain is explained by historical reasons (think colonial era) and its traditional cigar culture alone. Neither by total population numbers nor by retail pricing. (a chicken-egg question at most)

But this is arguing for arguing‘s sake. The core of the debate has been whether Cuba (HSA) should care about what’s going on in Canada. And I think they should, and they actually do. But there’s only so much they can do about a de facto prohibition.

I was always buffled about the outcome of theirs and others’ claims when filing cases against plain packaging when they went to law at WTO (that’s what they did, among others). By which crazy argumentation producers’ genuine rights were turned down in favour of a highly patronising and overbearing policy. One of which e.g. being, that a trademark owner would have no inherent right to actually use their trademark. But instead that said trademark would just protect them from others using their trademark. What a piece of .... well, perversion of the course of justice. Any more questions?!!

This and other arguments brought up at court for protection of goods, originality and anti-counterfeiting means were all turned down. It is us, the consumers, who are being duped and whose rights to freely choose are touched, no, breached. We should be highly alarmed about such movements instead of arguing about market volumes. We all could be the next. And not just with cigars....

[Bijan]

@Fugu thanks for taking the discussion back to the real issue.

However I think this is a political issue and not a legal one.

If you accept the fact that the government has the right to ban tobacco (I'm not saying we should, I'm just saying once this is accepted, the cigar companies don't have a leg to stand on), which is essentially what they're doing, although the government is pussyfooting and doing it in smaller steps, then the legal arguments don't hold any water.

A trademark like a patent is a sort of legal monopoly. An exclusive right to sell or market a product or invention. By your logic no government could ever ban a product where some person or company holds a patent or trademark because they have granted the "right" to sell or market that product. As much as we don't like the results in this case, I can probably think of some product or other that is better off banned (like land mines maybe) and trademarks and patents shouldn't enter into it.

Of course in this case it seems the government is just restricting packaging but the stated intent of this legislation is to reduce tobacco use to 5% by 2035 (not sure if 5% of current levels or 5% of Canadians as tobacco users).