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Los Angeles, March 4 – Desmond Sautter is one of the most respected cigar merchants in the world. His Sautter of Mount Street shop in London is a destination for enthusiasts and collectors, as he stocks not only an outstanding selection of Havana cigars, but also a remarkable variety of vintage cigars rarely seen elsewhere.
So when Sautter told William Lyons of The Scotsman that prices for Havanas will rise by 60% in the post-Castro era, it’s worth listening.
“Under the current American embargo, the largest market in the world is effectively cut off,” he told Lyons. “[W]hen the embargo is eventually lifted, and we do not know when this will be, and America starts importing cigars the consensus in the industry is that there will be a large correction in price.
“The second factor is that production costs in Cuba at the moment are minimal.
“The farmer grows the crops and then sells it to the factories. All along the line the production costs are tiny as they are subsidised by the state. But if and when Cuba adopts a free market system then wage scales along the line will increase.
“By the time the cigar leaves Cuba and enters the UK market the production costs will have risen from pennies to pounds.”
The story notes that the current “average” price for a Havana in Britain is between £12-18 (about $23-34). But it goes on to quote Vimal Shah, the owner of Burlington Bertie in London, about the worries of all European tobacconists:
“The main problem we face is one of supply. Will we able to get enough cigars? Can we get what we need? There could be a situation where America moves in and says to the Cubans we will take the full production of all your Montecristos and pay you 5% more. In that situation we will be starved of cigars and will end up paying top prices.
“[T]here are enough people in America that will buy Cuban cigars that will wipe out what we sell.”
The sky is falling! The sky is falling! Both Sautter and Shah are auditioning for roles as Chicken Little in the next theater festival in the West End. Consider:
• The company which distributes Havanas to wholesalers is Habanos, S.A., which is half-owned by Altadis S.A., a French-Spanish company. There’s little chance Altadis will allow its core markets in Europe to implode because of American interests.
• In a great year for cigars, American imports rose to about 308 million in 2004 with average import prices of 82.6 cents per cigar. There is little chance that the U.S. market can or will swallow even 20-30 million additional Habanos, all at high prices.
Even at the peak of the Cigar Boom, imports reached 418 million and we’re not likely to see such a frenzy again, especially for very high-priced cigars.
• Even today, despite careful controls by Habanos and its distributors, prices vary widely worldwide. In Britain, one website sells boxes of 25 at well below the “average” price:
> El Rey del Mundo at £8 (~ $15) for Lonsdales (6 1/2 inches by 42 ring) and £11.80 (~ $22.50) for Tainos (7 x 47);
> H. Upmann at £9 (~ $17) for Magnum 46s (5 5/8 x 46) and £11.40 (~ $22) for No. 2 (6 1/8 x 52 torpedo);
> Romeo y Julieta at £11.40 (~ $22) for Churchills (untubed, 7 x 47)
Moreover, prices elsewhere are much less. In the Havana cigar hotbed of Hong Kong, a website which promises free worldwide shipping offers:
> H. Upmann Magnum 46s at $10.40 and No. 2s at $10.60 in boxes of 25 . . .
> Romeo y Julieta Churchills at $11.20, and
> Montecristo No. 1 (6 1/2 x 42) for $8.80 or $220 the box of 25!
Think Americans won’t be buying from these folks? Guess again. That will help to keep prices under control.
• Sautter and Shah make an assumption that production will remain constant or only slightly increased from today’s 120 million sticks when open-market forces impact the cigar industry in Cuba. This is a leap of faith that does not square with history.
If allowed, new capital will be plowed into all facets of the Cuban cigar trade from farms to factories. When this happens, a complete renovation of the production process will get underway and the costs of production and distribution will not rise as much as feared.
Most interesting will be the decision on how much leaf Cubans will sell to producers who serve the American market. Altadis, General Cigar, Davidoff, Fuente and everyone else will look to blend their existing tobaccos grown elsewhere with Cuban leaf, whether from the Pinar del Rio region or other farming locations on the island. This will give brands such as Macanudo, Fuente and Padron additional cache and will stall any stampede toward Havanas from brand-loyal Americans.
• Finally, exactly how Cuban cigars will enter the U.S. market is far from clear. Altadis has clear rights to Gispert. H. Upmann, Juan Lopez, Montecristo, Por Larrañaga, Romeo y Julieta, Saint Luis Rey and Trinidad, but the other 25 brands are up in the air. One can only imagine what the negotiations will be like for Bolivar, Cohiba, Hoyo de Monterrey, La Gloria Cubana, Partagas and Punch, all owned by General Cigar.
The rights mess and issues of distribution will slow the entry of Cuban cigars into the U.S. and keep the Brits in Havanas. Cheers!
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