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SMOKE Magazine
August/Sept.
1999

Finding Strength
in Numbers
by
Bob Ashley

Cigar manufacturer associations in Mexico (MACM) and the Dominican Republic (Procigar) seek to build regional awareness and combat common problems in an effort to gain consumer loyalty and confidence.

As premium cigar imports to the United States have declined over the last two years, manufacturers in the Dominican Republic and Mexico have begun to rely on self-promoting national manufacturers' associations to expand their markets.

A group of major Mexican cigar manufacturers, including the makers of Te Amo, Cruz Real, and Santa Clara brands, has revitalized a moribund national association to fight the perception embedded in the cigar industry that Mexican cigars and tobacco are of poor quality. And in the Dominican Republic, the manufacturer's association is in the fledgling stages of promoting a seal that attests to the quality and origin of a box of cigars - an idea that the Mexican association is borrowing.

"We want to change the perception of Mexican cigars," said Alberto Pedraza of Tobacos y Puros San Andres, manufacturer of Cruz Real cigars.

The Mexican Association of Cigar Manufacturers (MACM), comprised of six cigar manufacturers in the San Andres Valley, the heart of Mexico's tobacco-growing and cigar-making region, displayed their products together for the first time at the Retail Tobacco Dealers of America (RTDA) Trade Show in Las Vegas to show their unity and reach new markets for their cigars. The association passed out sample boxes with cigars from the six factories and distributed a colorful brochure that highlighted Mexico's cigar history. Perhaps more importantly, Mexican factory owners spent considerable time on the trade show floor pitching their premise that Mexican cigars and the tobacco they are made from are as good, if not better, than that which is found in the Dominican Republic, Honduras, or Nicaragua.

George Ortiz, president of MACM and owner of Puros Santa Clara, and son George Ortiz Jr., greeted retailers at the RTDA

"San Andres tobacco is represented in some of the best-selling brands in the United States," said MACM president George Ortiz, owner of the Puros Santa Clara, which manufactures Santa Clara and Aromas de San Andres brands. "The image is that we produce cigars with 100 percent Mexican tobacco. We have some brands that are using Connecticut wrapper and others that are using Dominican or Nicaraguan filler. Even the packaging has improved a lot, but we've never promoted that as an association."

Pedraza said many people think Mexican tobacco is of poor quality because of its strength and full body. "They don't know that good brands like Macanudo, Partagas, and Fonseca use Mexican filler and Mexican binder in their cigars," Pedraza said. "Mexico has good quality tobacco. And some companies like Cruz Real are using Dominican filler to blend their cigars. We are not only using Mexican tobacco. We know that we need to give consumers what they want."

An Idea Whose Time Has Come, Again
The idea of national trade associations is not new. The Dominican Republic has had one since 1992, although some prominent cigar manufacturers, notably Tabacalera A. Fuente y Cia, maker of Arturo Fuente cigars and other brands, don't participate.

A Mexican organization was formed in the late 1970s, but disbanded after a few years. The MACM was formed in 1995 in the early stages of the cigar boom, primarily to stop manufacturers from raiding each other for cigar rollers. "That is over," Ortiz said. "Now we have to look to the future."

"Today, Mexico is the fourth player in the cigar industry," said Pedraza. "We want to be number one And to do that, we need to do it together."

The goal is an ambitious one at a time when demand for cigars has leveled off and imports have dropped following the cigar boom in the mid-1990s. Premium cigar imports to the U.S. from Mexico have plummeted from 3.8 million in April 1998 to 1.2 million through April this year. The same is true in the Dominican Republic, although not to the same degree. Through April, the Dominican Republic had exported 70.3 million cigars to the United States, down from 93.6 million for the same period in 1998. The Dominican Republic's numbers, however, include an unknown number of machine-made cigars that are being produced by Swedish Match at factories formerly owned by General Cigar Corp.

Beside promoting Mexican cigars, MACM intends to lobby the Mexican government to lower taxes on tobacco and cigars and to stop giving favorable tax treatment to Cuban cigars imported to Mexico. To date, the association's efforts have not been successful in that regard.

At the RTDA trade show, the MACM debuted a seal that will be affixed to boxes of cigars manufactured by association members to attest to their quality. "The association will look closely at the quality control in every factory," Ortiz said. "The seal addresses the quality of the tobacco, the quality of the growing and curing processes, and the quality of the construction of the cigar. The tobacco can be different and the taste can be different, but the seal means the quality is there." Factories may choose two brands on which to place the seal, Ortiz said.

Ortiz admits that some Mexican manufacturers brought on their own problems when demand for cigars was at its peak and some manufacturers were rushing cigars to the market. "During the cigar boom," Ortiz said, "many new cigar smokers rejected Mexican cigars because the quality was very poor. They had the bad luck - and we had the bad luck - that they found lousy cigars." The association has brought together manufactures that, only a few short years ago, were fighting among themselves for tobacco, workers, and sales in the U.S.

"We are the oldest Mexican brand in the United States' market, and it is very good that we have a large American company behind us," said Alejandro Torrent, son of Alberto Torrent, whose factory, Nueva Matacapan Tabacos, manufactures Te Amo cigars for Consolidated Cigar Corp. for distribution in the United States. "For some of the other companies, the U.S. market is like a wall. It is impenetrable because the only well-known brand is Te Amo.

"We want to change that by helping each other. For years, it was a very small market. Everybody was trying to sell all the cigars that they could. That was the reason that we were fighting with each other. It is good for everyone, even for us, to have Mexican cigar-makers united."

Pedraza said the association has brought a significant change to the way the cigar business in Mexico operates. "We are marketing together, we are planning together," he said. "After the boom every single factory in Mexico realized that in order to be important in the industry we needed to do something together. Even if Cruz Real or Te Amo is big, they never will be so big that they could do as much as an association can do."

Visitors were enticed to play a round of ProCigar Roulette or enjoy a complimentary espresso at the ProCigar booth at the recent rTDA

Maintaining Market Share
While the Mexican association intends to elevate the status of Mexican cigars, manufacturers in the Dominican Republic are doing what they can to retain their dominance as the growth in cigar demand has leveled off. Dominican manufacturers who are members of the Asociaci-n de Productores de Cigarros de La Republica Dominicana, Inc. - known less formally as Procigar - have been putting a seal on some cigars for more than a year. In part, the seal is intended to fight domestic counterfeiting of cigars to tourists in the Dominican Republic. But also, it is intended to let consumers worldwide know where the cigar is produced, said association President Hendrik Kelner, owner of Tabaco Dominicanos, S.A., which manufactures Davidoff, Zino, Avo, and other brands.

"In the Dominican we have a good name that we want to protect," Kelner said. "Our seal is a guarantee that the cigar comes from a good factory. A lot of manufacturers in the Dominican Republic don't have the quality or cigar-making tradition.

"We made a gentlemen's agreement among the manufacturers to only use the best tobacco and construction methods. The most important aspect of the association is to promote the name of the Dominican Republic as the official country for cigars."

Nine major Dominican factories are members of Procigar, including Matasa, La Aurora S.A., Tabacalera de Espana's Dominican subsidiary, Tabacalera Nacional Dominicana, and U.S.-based General Cigar Corp. and UST Inc., through their Dominican subsidiaries.

The Dominican seal, however, has not met with total acceptance. Some companies, such as Davidoff, prefer to maintain the integrity of the design of their boxes and provide a guarantee of their own, Kelner said. He added that other manufacturers make the same cigar in more than one country and aren't interested in promoting a connection to any one country.

Also, there is not the unity in the Dominican association that there appears to be among major Mexican manufacturers. Notably, Tabacalara A. Fuente y Cia, a founder of the association in 1992, resigned its membership four years ago. Carlos Fuente Jr. said the split resulted from "different philosophies" that he declined to expand on. Perhaps hinting at the differences, Fuente said: "There is nothing that is more self-curing than the free market. Our association is the 2,500 people who work in our factories. The consumer is what we live for."

Nonetheless, Fuente said, he supports Procigar's goals. "Anything that can be done to improve the image of the Dominican Republic and improve the lives of the people, I give it 100 percent support," Fuente said.


SMOKESHOP - August/September 99