Sunday, July 26 2009
Common sense dictated that cigar imports and sales would crash after the imposition of the SCHIP tax burden on April 1 and the April import figures bore that out. But May looked a whole lot better.
After April import figures showed a stunning – but expected – drop of 57.13% from the 2008 total, May figured to show a smaller downtown in comparison with last year. But instead, the import report circulated by the Cigar Association of America – based on U.S. Customs data – demonstrated surprising strength in the premium cigar market, up 2.63% from May 2008.
Imports of premium cigars was a quite-healthy 21.83 million cigars against 21.67 million in May 2008 and, of course, the figures for the first five months of the year are way up over 2008. Highlights:
=> As usual, the Dominican Republic led the way, rebounding to a powerful total of 14.63 million cigars imported, way up from the 6.95 million imported in May a year ago. For the first five months of the year, Dominican imports have surged by 71% to 68.71 million cigars compared to 40.17 million for the same period in 2008.
=> Honduran imports continued down in May at 4.03 million cigars, off 51% from last year’s 7.92 million total. However, this year’s figure is off thanks to an error in the January reporting when only 154,000 were reported. For the year, therefore, Honduran imports – which have gone up for five consecutive years – are down slightly for the year at 29.13 million cigars, compared with 29.47 million for January-May of 2008.
=> Nicaraguan imports have set records for the past five years, but imports were down again in May, as in April. A total of 3.04 million cigars came in from Nicaragua, about half of the 6.10 million in the same month last year. For the year, however, Nicaraguan imports are still ahead of 2008 at 30.41 million for the first five months, against 26.22 million last year.
=> There were also small amounts of cigars which were reported to come in from Mexico (56,000) and the Bahamas (73,000), Mexican imports have been relatively strong in 2009 at 1.11 million for the five months ended May 31, against just 398,000 reported in 2008.
=> For the first five months, the cigar import total is an impressive 129.66 million cigars, up 33.9% for the year compared to the 98.83 million that came in for the same period in 2008.
Total cigar sales in the U.S. – the world’s largest cigar market – increased significantly in May 2009 over a year prior and that’s also a surprise. After all, the SCHIP tax of 40.26 cents per cigar hurts a low-price, machine-made cigar a lot more than a higher-priced premium. So, the 27.0% increase in total cigar imports in May – premium, machine and little cigars combined – is also a sign of health of the U.S. cigar industry. For the first five months of 2009, the news is also quite good:
=> Machine-made large cigar sales totaled 437.85 million, up 18.4% over the 2008 five-month totals of 369.95 million (this is large-cigar imports less premium imports).
=> Little-cigar imports are down, as expected, for the first five months of the year as the new SCHIP taxes – which treat little cigars like cigarettes. For January-May 2009, some 140.53 million little cigars were imported compared to 163.20 million in the same period in 2008. In fact, in May of 2009, little-cigar imports were only 9.04 million as against 37.37 million for May of 2008.
All told, total cigar imports for the first five months were 708.04 million, up 12.4% from 629.98 million in 2008. That’s good news for the industry, thanks to the continuing support of Americans who enjoy cigars and intend to continue doing so.
>> New Swedish Match chief executive Lars Dahlgren indicated that the expected collapse of cigar sales in the first post-SCHIP quarter wasn’t really happening. And his company’s financial report for the second quarter of 2009 bore out his prediction.
"In the second quarter, we delivered the strongest sales performance and, excluding one-time items, highest operating profit ever," he wrote in an opening commentary to the half-year report issued on July 20. "Compared with the same period last year, sales increased for all product lines, and operating profit increased for all product lines except lights [matches]."
On cigars, Dahlgren added that "Our U.S. mass market cigar business delivered an unusually strong operating margin, as increased demand for cigars in the new ‘foil fresh’ packaging to a large extent compensated for the expected volume drop following the tax-related hoarding in the first quarter." The overview of Swedish’s cigar sector included:
"For cigars, sales increased by 25 percent during the second quarter to [$148.1 million U.S., converted from Swedish Kronor] ($118.7 in second quarter 2008). Operating profit increased to [$36.9 million] ($24.0). U.S. cigar sales grew by 3 percent in dollar terms, with sales basically flat for premium cigars, and up for machine-made cigars. The expected volume decline from the FET-related hoarding in the first quarter was lower than anticipated for mass-market cigars following strong demand for ‘foil fresh’ packaged small cigars Improved pricing and temporary cost reductions in anticipation of weaker volumes resulted in considerably higher margins in the U.S. In Europe, sales declined in local currencies, in line with volume declines. Operating margin for cigars was 24.9 percent (20.2)."
That’s stunning good news as some expected the U.S. cigar trade to essentially implode following the imposition of the SCHIP tax on April 1. The report and accompanying presentation to investors added these details:
=> "During the second quarter, U.S. premium cigar sales, which includes Internet and mail order, were down less than 1 percent from the previous year in local currency." That’s remarkable, consider the heavy ordering of cigars to beat the SCHIP tax increase, but was also aided by price increases.
Swedish Match’s investor presentation also emphasized the "limited availability of credit for small retailers" and the resulting strict inventory management that slowed sales, coupled with a slowdown in tourism that also hurts sales.
=> U.S. machine-made sales were up 11% in dollars in the second quarter on average price increases of 18% (including the inclusion of the SCHIP tax load), while unit sales volumes were down 6%. According to A.C. Nielsen data, Swedish Match continues in fourth place in both mass-market revenue (10.3% share in the first half of 2009) and unit sales volume (5.4%). The leaders continue to be Swisher International (32.7% revenue share), Altadis U.S.A. (25.0%) and Altria’s John Middleton at 23.8%.
=> While Swedish’s cigar sales were up in the second quarter as against the fairly weak second quarter of 2008, they were nearly the same as the stupendous sales in the first quarter. Total cigar-sales revenue in the first quarter of 2009 – reflecting hoarding of pre-SCHIP cigars – was $154.0 million, but the second quarter was down only 3.8% from that at $148.1 million (converted from Kronor). In fact, both quarterly figures are the best for cigars in years for Swedish Match.
=> The sharp increases in cigar sales made that category the top seller for Swedish once more (33% of the total), topping their growing smokeless tobacco division (29%) for the first half of the year. Swedish’s operating profit figures showed a larger contribution from smokeless products, of course, as the margins on those products is much higher (41.8% vs. 24.8% for cigars).
>> Every successful cigar company comes up with a blend which makes its reputation and ensures its place on store shelves and in national catalogs.
For the Alec Bradley Cigar Company, its MAXX line was one of those cigars. Introduced in 2006, it featured a bold blend and extra-large sizes that quickly became a favorite for today’s smokers of ever-wider cigars. The Vice shape was added as the only box-pressed cigar in the line in 2007 in the popular 6 1/2-inch-long size with an expansive ring gauge of 62!
Of course, it’s become one of the best sellers in the MAXX line. So it made sense to create a new blend based on the Vice concept and so the "Vice Press" line of three shapes will be introduced at next month’s International Premium Cigar & Pipe Retailers Association convention and trade show in New Orleans.
The medium-bodied blend is characterized as having a "creamy texture and dense, robust undertones enhanced by a natural sweetness for Jalapa Valley wrapper is known." The dark, Nicaraguan-grown wrapper is supported by a double binder of Costa Rican and Colombian leaves with Honduran, Mexican and Nicaraguan leaf in the filler. The three sizes include 6T4: 5-inch by 64-ring Robusto, offered in boxes of 20; 6T2: 6 1/2-inch by 62 ring Toro, also in 20s and 6T: 7-inch by 60-ring Torpedo, also in 20s.
Like the original MAXX Vice, the cigars are box-pressed. The initial packaging of the MAXX Vice was in chests of 50, but has been changed for the new line. "Though the cigars sold very well," said Alec Bradley founder and president Alan Rubin, "the size of the chest proved to be a challenge for display purposes.
"We remodeled it into a beautiful chest-like display of 20, making it more convenient for both tobacconists and consumers."
- Rich Perelman in Los Angeles
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Reprinted by permission. "Heard in the Humidor" is a publication of Perelman, Pioneer & Company. Copyright 2009; All rights reserved.
