News: Cigar Companies Implement Price Hikes
19 Jan 2012
StogieGuys.com has confirmed that General Cigar, Altadis, Oliva, and Davidoff have told retailers that prices will be going up on many (though not necessarily all) of their cigars.
Altadis price increases ranged from 2.5% to 5%. Altadis USA makes Montecristo, H. Upmann, Romeo y Julieta, Trinidad, Siglo, Te-Amo, and many other well-known brands. Retailers also have been notified that Davidoff—maker of Davidoff, Winston Churchill, Camacho, Avo, and other lines—is also increasing prices.
General Cigar/STG, the largest producer of premium handmade cigars for import into the United States, raised prices around 3% earlier this week. However, the company’s CAO lines—only recently integrated into the company (details here)—were not included in the price hike. The CAO Cameroon and CAO Maduro cigar prices are decreasing, while the prices of other large cigars sold under the CAO name remain unchanged. According to the company, the increases were implemented “to offset the rising cost of tobacco, manufacturing, and logistics.”
Tobacconists we spoke with didn’t think the price hikes were unexpected. One shop owner felt that many companies had paused normal price increases immediately after the SCHIP tax went into effect to ease the burden on retailers, making the new hike understandable.
Another cigar shop owner was supportive of the increased prices “as long as these companies start committing the necessary financial resources to protect the premium cigar industry from being regulated and taxed out of business by the government.” General Cigar, Davidoff, Altadis, and Oliva are all listed as “friends of CRA” on the Cigar Rights of America website. [Disclosure: StogieGuys.com is listed as a “CRA Partner” on the same page.]
The practical impact of a 5% increase is that a cigar previously sold to the shop wholesale for $3 would now be $3.15, generally resulting in an increase of the retail price from $6 to $6.30. Time will tell whether consumers are willing to absorb the increase without changing their purchasing habits, or if they respond by purchasing less expensive cigars and/or decreasing the frequency of their cigar purchases.
[UPDATE: Originally this article noted a report on another site that Alec Bradley VP of Sales George Sosa said the company was planning a future price increase of an undetermined amount. That story has since been pulled on the basis that Alec Bradley withdrew confirmation.]
photo credit: Stogie Guys
Patrick Ashby
Co-Founder & Editor in Chief
Patrick Semmens
Co-Founder & Publisher
George Edmonson
Tampa Bureau Chief
That's not a bad price hike at all. I'd be more concerned if it was more than 20% and/or if it was a series of planned hikes over the next year or so.
The overall amount of the price hikes is not to be unexpected and probably will not have any large effect on sales. Strangely, though, I had a conversation with someone from General in August/September or so of last year where it was indicated that prices of certain cigars would actually drop. My argument was that most of the General Cohiba cigars are not bad cigars, just too expensive for what they deliver. He stated that a change in the discounted price to shops should cause prices to fall significantly. I guess I won't hold my breath waiting for that to happen.
Seems like this is a natural cycle. Cigars start averaging $10 at the B&Ms, which gives birth to a new crop of bargain $5 offerings. Those get popular and good reviews and slowly increase in price until your average gets back up to $10, which give birth to a new crop of $5 cigars….
I agree, and I think this cycle is healthy for the industry as a whole and cigar smokers. It's a natural tendency for the price of a good cigar to rise until people start buying less of it. At that point, the price can either come back down, or sales will slump. Either way, this rise actually lowers the barrier of entry for new a cigar that will have an easier time getting us smokers to try it as long as the price is relatively low and the initial reviews are good.
Interesting that a price increase ($3 to $3.15) assumes a price increase for the B&M as well ($6 to $6.30). Incrementally, the B&M's cost goes up $0.15, not $0.30, but the B&M's incremental expense related to cost of tobacco, manufacturing, and logistics is not there. Not sure a 100% mark-up is justifiable in all cases. Just saying…
I agree with dmjones, I don't think a 3-5% price increase will affect consumers too much. No one is going to smile about it of course, but it is somewhat expected.
Great story, I always love the industry stories.
Peter G http://www.acigarsmoker.com