A New Era for Cuban Cigars?
The top two executives of Habanos S.A., Oscar Basulto and Jaime Garcia-Andrade, are sitting in a boardroom at their offices on Third Avenue in Havana's Miramar neighborhood, smoking huge cigars. In their hands, they clinch dark brown Salomons that measure just over 7 inches long by a 57 ring gauge. The cigars resemble small mortar shells more than superbly aged, handmade Cuban cigars. The room fills quickly with rich, pungent smoke as the perfecto-shaped cigars produce perfectly formed white ashes.
"Does it smell bad?" Basulto asks, only half-joking. The straight-talking Cuban has tly headed Habanos, the global distribution and marketing organization for his country's cigars, with Garcia-Andrade for almost three years. Basulto also serves as the head of Tabacuba, the umbrella organization that oversees all Cuban tobacco interests, from growing to production.
"No, it's fine," I say. I'm pondering my next question, a possible curve ball that will make them focus on the American cigar market. "Are there plans for when the American market opens to Cuban cigars?" I ask, not wanting them to relax too much with their cigars.
"Yes, the idea exists, but it remains to be seen when this will happen," Basulto says, just a hint of impatience creeping into his answer. "But what do you think of the cigar?"
Garcia-Andrade, a Spaniard, also ignores the U.S. market question, and comments, "A bit of patience is required with this format." He takes a deep draw and blows out a huge cloud of smoke across the table toward me, finally getting to my question. "The idea is to sell good cigars to the American consumer. It is as simple as that."
Basulto adds, "In any case, we can produce whatever they want…don't you think this cigar is perfect for after dinner? Does it draw OK?"
Despite recent discussions in the U.S. Congress about loosening travel restrictions to Cuba or even dropping the embargo, Cuban cigar executives seem focused on one thing now: the quality of their cigars. Whether they are Habanos officials, factory managers, rolling room supervisors, rollers or even tobacco growers, nearly everyone in Cuba involved with cigars wants to discuss quality. It's not just lip service. The Cubans have built new cigar factories in Havana, created stocks of aged tobacco, and established rigorous quality controls as well as focused attention and resources on the best tobacco plantations in the Vuelta Abajo, Cuba's prime cigar growing region.
These moves signal a complete change in the attitude in the cigar industry in Cuba. Many interested parties, especially Garcia-Andrade and Basulto, acknowledged that the former structure of cigar making was not conducive to making a high-quality product. They it that previous goals of producing hundreds of millions more handmade cigars had been ill advised and that the cigars' quality had suffered. Their goal now is simple: create a new era for Cuban cigars.
"We don't want to talk about production figures or numbers anymore," says Garcia-Andrade. "We are only interested in quality. That's what matters above all to us."
Walking the streets of Havana and talking to the locals, I found it almost hard to believe the positive changes that have occurred in the last two years with the Cuban cigar industry. For most Cubans, life continues to worsen, or at best, remains stagnant. The island's economy is sluggish: tourism, one of the country's biggest revenue sources, is down 10 to 15 percent according to international press reports, although some tourism executives in Havana privately put the decline between 25 and 35 percent.
Fewer visitors means fewer cigar purchases, among other things. According to Habanos, the sales of cigars in tourist shops declined much of the year, although sales in July and August were more buoyant. "We might be back at last year's sales levels for August," Basulto says. Sales in tourist shops are normally counted as exports, and usually for 10 to 15 percent of the total number of cigars Cuba sells each year.
As head of Tabacuba, Basulto is leading the restructuring program of the Cuban cigar industry. The organization controls everything concerning tobacco, from growing to production to research. Tabacuba, which was created in 2000, has a workforce of more than 250,000 people and manages the annual production of between 280 million and 300 million cigars -- about half for domestic consumption and half for export. In addition, Tabacuba, which generates about $240 million in annual revenue, oversees the production of about 10 billion cigarettes and the export of 12,000 tons of bulk tobacco.
Moreover, Tabacuba shares an interest in Habanos, so there is a direct connection between the production and marketing of cigars. The integration is aimed at ending a legacy of poor communication and coordination among the various segments of the cigar industry. In the past, separate organizations oversaw the agriculture, production, and sales and marketing components and there was little or no working together. "Everything was done separately -- finances, commercial objectives, etc. -- there was no integration at all," says Basulto. "There was no way to put together, in an organized way, all the needs and requirements.
"But now, I, or whoever comes after me, is in that position to make sure that all stages are integrated: production, research, development, application, production and exports."
Basulto believes that the integration will solve old problems that made it difficult to meet the needs of Cuba's cigar clients, and the market in general. For instance, some markets like the United Kingdom might have had a huge demand for robusto and double corona cigars, but the Cuban cigar factories were producing primarily coronas and petit coronas at the time. The smaller cigars were shipped to Britain even though there was no market for them. That shouldn't happen anymore, according to Basulto and Garcia-Andrade.
"I believe that the tobacco sector is one of the most completely integrated businesses in the world right now," says Garcia-Andrade. "We have everything together, from the tobacco seed to supplying the end consumer, even in such faraway places as Hong Kong. Am I wrong?"
Moreover, Habanos is gathering information on its primary markets and tailoring production, distribution and marketing to each one. The new strategy has led to a recent barrage of new products in selected markets. The approach is also aimed at all price and quality levels of each market. There will be more limited-edition humidors and reserve cigars with aged tobacco, new sizes in established brands, and better high-production machine-made cigars.
One example of the new strategy surfaced in September. Guantanamera, a machine-made brand, was launched in . The short-filler cigar, made in the modern ICT factory in Havana, primarily contains tobacco from the Vuelta Arriba region. The global rollout should range from 5 million to 8 million cigars in a sector of the market where the Cubans have been weak. In , Guantanamera sells for an average price of about $1.35; the typical hand-rolled Cuban cigar sells for between $5 and $7.
"What we really want to do is to focus on quality, but when thinking of increasing production, we're focusing on a different segment of the market and a totally different product, like Guantanamera," explains Garcia-Andrade.
Habanos can track and evaluate the success of Guantanamera in its various markets. In the past, Habanos relied almost entirely on its agents for information and orders, reacting to its clients' wishes rather than acting more proactively. Now, Basulto and Garcia-Andrade say that Habanos officials are visiting markets on a regular basis, compiling information and developing strategies for the future.
"All this information will result in a high-quality product," says Garcia-Andrade. "We have people that have the knowledge and they are coming up with new ideas, but there will also be a very important filter, such as asking the people that are in direct with the market if clients will like the product or not."
If the quality of cigars in Havana's shops and factories is any indication, the new strategy is working. Unfortunately, Cigar Aficionado's recent tastings of Cuban cigars contradict that rosy assessment. But there's a good explanation. A large percentage of Cuban cigars on retailers' shelves were made from 1999 to 2001, and many of those cigars were mediocre. Cuban cigars made this summer and beyond, with codes such as JUN02, JUL02 and AGO02 ( June 2002, July 2002 and August 2002) printed on their boxes, should be much better than those currently on retailers' shelves.
The quality focus also was on display during a recent visit to Havana's top cigar factories with Fernando Lopez, head of all export cigar factories, and Evis Placer, the vice president of logistics for Habanos. The mood of the workers and supervisors in such factories as Partagas, H. Upmann and Por Larrañaga is more positive than in years past. The workers are being more closely supervised, and every phase of production, from the preparation of tobacco for rolling to the rolling and packaging, is more focused.
For instance, all the cigars rolled in key export factories are routinely inspected for quality, not only by supervisors but also by suction machines introduced this summer that check how partially made cigars draw. The workers apparently appreciate the machine's confirmation of their craftsmanship; they call the machines a chupa-chupa, after hard candy sold on the streets in Havana. "The rollers like the machine," says Armando Rodriguez, manager of the La Corona and Por Larrañaga factories. "They know that the machine is accurate in evaluating their work and they know right away if something is wrong."
Tabacuba also has consolidated the production of various brands in key factories, a step that is viewed by industry officials as a major improvement. For instance, all Bolivar, Ramon Allones and La Gloria Cubana cigars are now rolled in the Partagas factory. La Corona makes Punch, Hoyo de Monterey, Diplomatico and San Cristobal de la Habana, among others. Under the old system, the production of most brands was spread out among various factories; maintaining consistent blends and quality was extremely difficult. "We can't have large brands, such as Montecristo, with an annual production of about 30 million, produced in only one factory, but the smaller ones, yes," says Lopez, as he visited the rolling rooms of Partagas. "The quality is much better with everything in one factory, not to mention the consistency."
In addition, Tabacuba is closing a number of older factories and reestablishing them in renovated, modern facilities with the latest equipment. The first major moves will be the José Martí ( H. Upmann) factory's transfer to Nuevo Vedado ( in the former Partagas mini-factory) and the consolidation of the La Corona and Por Larrañaga factories into an upgraded building in Nuevo Vedado ( an H. Upmann cigarette factory). Most of the ventilation, humidity and temperature controls, and lighting are already installed in the two buildings, which are expected to open early next year. The organization is also building new humidity-controlled facilities in Havana to store and age large quantities of tobacco.
"We are not taking a thing with us from these old buildings," says Emilio Borrall, head of quality control for the José Martí factory. "Everything is going to be new, and the workers are very pleased to be moving." Factory manager Fernando Peraza Dib adds, "The quality of cigars from my factory should be even better than before because the working conditions will be even better. If the workers are happier, then they should make even better cigars."
Consolidation and the drive for efficiency also have come to the tobacco fields. This coming harvest, Tabacuba will give priority for resources to the best growers in the Vuelta Abajo. Whether state-run or privately owned, plantations with the best soil,"principally in and around the towns of San Luis and San Juan y Martinez, and the highest yields of sun-grown and shade-grown tobacco will get sufficient gasoline, fertilizers, pesticides and other necessities, according to Habanos's Placer. Whether the new policy works remains to be seen. Some growers are not happy, especially those who will not be allowed to grow tobacco, according to a number of conversations in the Vuelta Abajo this September.
But Placer and others believe that Tabacuba will receive higher quality tobacco because of the change. That's the primary goal for the Cuban cigar industry at the moment. "All these improvements are for our cigar customers of today, and those of the future," Placer says following a visit to the partially completed José Martí factory. "We want to make them the best cigars possible."
The day before the visit to the new factory, the changes aren't obvious. Basulto and Garcia-Andrade seem more interested in how their well-aged Salomon cigars are smoking. But both men insist the changes are designed to produce great cigars, such as the Salomons.
"At the end of the day, it's the tobacco, the materia prima, that is the most important thing for making exceptional quality cigars, and we are working on that," Basulto says. He smokes his three-year-old Salomon with enjoyment, and as he examines the fine white ash protruding from the end of the cigar, adds: "All these changes should mean better cigars in the future."
