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Cigar sales: Smokin'!
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August 1, 1996: 6:04 a.m. ET
New generation pays a high price and demands high quality
From Correspondent Carmine Gallo
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NEW YORK (CNNfn) - Caribbean Cigar, the Miami-based maker of premium handmade cigars, is expected to price Wednesday night at seven dollars a share to begin trading Thursday.
The initial public offering comes at a time when the cigar industry is making a comeback.
Fifty years ago, raising a nickel cigar by one cent could wipe out a business. Now, demand for premium cigars priced as high as $20 apiece has caused a boom in high-quality cigars.
Not too long ago, it was considered a dying industry catering to elderly men with unyielding tastes for a particular brand. What a difference a generation or two can make.
"The consumer is much, much younger and wants only the finest quality that they can find and they are not as brand loyal. They will shift around as long as they have a good cigar." said Bruce Goldstein, of Arnold's Tobacco.
Setting sales figures on fire
Last year, unit sales for premium handmade cigars jumped more than 30 percent. In the first four months of this year sales soared nearly 50 percent. Four out of every five of those were imported from either Honduras or the Dominican Republic.
Premium brands make up just six percent of the volume of cigars sold, but this segment accounts for more than 30 percent of the $1 billion industry.
Eric Newman, president of M&N Cigar Manufacturers, noted the industry's return to its origins. (181K WAV) or (181K AIFF)
Newman should know. His grandfather founded M&N Cigar more than a century ago after hand rolling his first cigar for the family grocer. Back then there were 40,000 cigar manufacturers in the country. Newman said his company is among the ten that remain today.
Popularity has created shortages
While the field is likely to get more crowded, times are good now. The only problem is keeping up with demand. Shortages are creating backorders that won't be met for years. So M&N is not accepting any more clients until it can satisfy its current customers.
It might be expected that more cigar manufacturers would step up to meet that need, but according to Norman Sharp, president of the Cigar Association of America, that's not the problem.
"There's a critical worldwide shortage of quality cigar leaf tobacco and second, there's only so much skilled labor available for making cigars by hand. Depending on who you talk with, it takes a year or two to train somebody to make cigars. So, those two constraints will hold the availability of premium cigars down in the foreseeable future"
M&N's Newman said these constraints raise concerns that poorer quality and less-aged tobacco leaf cigars may start pouring into the country. "What's happening is a lot of new companies are starting up, using cigars that have not been aged for three years. That is a problem. We have all these new cigar smokers coming into the market and maybe they don't like the taste because it's raw or un-aged tobacco"
Smoking in style
While that is a potential risk, those who are now experimenting with cigars are doing so in style. From buying expensive humidors, ties, and jackets, cigar accessories make up 40 percent of Arnold's sales.
Goldstein said that's a key difference in today's cigar smokers. "In the old days, the older customer was not buying the fine cigar cutters, the humidors, the lighters. They just bought cigars. The young people in the market place today, they want the best the best humidors and they go into thousands of dollars. They want it as part of their ensemble and that's another industry that's going through the roof."
M&N's Newman speculated on his grandfather's reaction to the cigar smokers of today. "It's incredible. I think my grandfather would be rolling over in his grave if he knew what was happening. In fact, I think he probably is watching what's happening."
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