Smoke 'Em--If You Can Get 'Em Forget the 10-cent cigar. Drew Estate's stogies are so hard to find, they're practically collector's items. And that's a red-hot business model.
(Business 2.0) – They have trippy, hip-hop names like Def Sea, Star Monkey, and Extra Ordinary Larry. They're infused with unlikely concoctions of coffee, herbs, and essential oils. And as cigars go, they look, well, peculiar: Some are small and wrinkly, others have the tapered contours of a parsnip. One cigar, the Egg, looks as if it has swallowed a golf ball. ¶ No, Drew Estate Cigar Co. doesn't make the stogies you find at your local drugstore. Though they're after the same crowd that smokes Swisher Sweets and Phillies Blunts, these cigars are hard to find and relatively expensive when you do encounter them. And that's precisely the point. Co-founders Jonathon Drew and Marvin Samel intentionally limit production of their three cigar lines--Acid, Natural, and Ambrosia--to keep quality high while giving buyers a little "thrill of the hunt" and keeping the smokes scarce enough to command upmarket prices, in the range of $10 per stogie. It's a timely strategy that many companies are taking advantage of--keeping margins up in a down market.
Drew Estate's founders, New York City-area natives who first smoked cigars while playing cards as college frat brothers, started the business in a World Trade Center mall kiosk in 1995. They've since opened an office in Newark, N.J. (soon moving to Miami), and their own rolling factory in Nicaragua, but they say any attempt to go mass-market would blow up their business plan--especially in a low-riding economy. "Even as we grow, we want to stick to who we are and where we started," Samel says. "We're small. We're family. We don't plan on going 'corporate.'"
Scarcity has been a dependable marketing tactic from the early Timbuktu salt trade through the Beanie Baby present. When demand exceeds supply--even if the supply is artificially low--prices go up. Barry Bonds may be the best baseball player ever, but few of his trading cards are worth much; there are too many of them. Instead, collectors speak reverentially about a 1909 Honus Wagner card, produced by a tobacco company, that was pulled from distribution after devout antismoking advocate Wagner protested. One of the 50 or so in existence sold for $1.3 million in 2000.
The Internet boom tried to kill scarcity by suggesting that consumers could get any product at any time, simply by logging on. But these days even big companies are trying to sell small. In Napa Valley, vineyards created a bull market in the 1990s by producing small quantities of products with high cachet. The wines became so popular that growers planted grapes all over the valley--and now both Trader Joe's and Beverages & More sell $2 bottles. To keep margins up, even behemoth Gallo has branched out with smaller-production wines that command a hefty premium compared with the company's jug-based bottlings.
Drew Estate's owners have few concerns about leaving money on the table, saying they always go out of their way to service regular customers, but production continues to intentionally lag behind demand. Some economists suggest that this may actually be a great time for others to follow suit by reining in production and selling upscale. "There are always the people who are above the fray--or want to be, at least," says Don Lehmann, Columbia University professor of marketing and executive director of the Marketing Science Institute. "So you figure, what the heck--we can always launch a down-market version later."
If nothing else, Drew Estate's 30-something owners have sent a ripple through the stodgy cigar market. Their Nicaraguan rolling factory--they call it a "secret laboratory"--where tobacco is fermented in homemade sangria, is off-limits to the public. The company's color-splashed do-rag marketing emphasizes atypical blends of tobacco from places like Cameroon, Cyprus, and Indonesia.
Drew and Samel began to sense the possibilities when their first creation, La Vieja Habana, became a smash hit at a 1998 cigar trade show. "From then on we were off to the races," Samel says. Drew Estate outgrew a small rolling outfit in Manhattan, prompting Jonathon Drew to move to Esteli, Nicaragua, to build a production facility. Drew Estate started its Acid line there in 1999, and the specialty cigars have been coming north at a steady, calculated trickle ever since. "The thing that satisfies us the most," Samel says, "is getting an e-mail from someone who brought a box of our cigars to his high school reunion and was a hit because no one else there knew about them."
The company is even taking scarcity to the limit with an upcoming website at Homegrowncigars.com, where visitors will be able to custom-blend their own batch of 100 cigars for the ultimate in exclusivity. And Drew's first store and nightclub, Acid Lounge, opens this month in Miami.
Is the concept sustainable? "It's a hunch thing," says Kenneth Gartrell, a Boston-based strategic business consultant. "It's not as frivolous as the pet rock or hula hoop. People do smoke, so there is a market for that. And in this case, it's probably about being cool and being chic, and there's a market for that too."
That's Drew Estate: cool, chic...and probably not in a cigar shop near you.