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Commentary: Are Proposed FDA Regulations Pushing Industry Consolidation?

7 Oct 2014

Damocles-Westall

Finalized FDA rules for regulating cigars are many months away, but they still hang over the industry like the Sword of Damocles.

It’s safe to say that looming FDA regulation is encouraging industry consolidation. The risk involved in developing new cigar lines is no longer just that consumers won’t buy enough of your cigars at a price where you can turn a profit.

The bigger risk now is the government might render your product illegal, or at least subject it to an incredibly burdensome, lengthy, and expensive approval process. So if you don’t want to bet the house on the FDA rules not being overly burdensome, now is the time to sell.

Surely impending regulation isn’t the only reason the Toraño and Leccia Tobacco lines were acquired by General Cigar, but it had to have been a factor. I’ve heard Toraño has had success with its value-oriented lines Brigade and Loyal. These are the lines most likely to be hit by FDA rules, even if they include a more reasonable price exemption than originally proposed.

Sam Leccia was critical in developing innovative cigars like Nub and Cain for Oliva, before splitting with the company in a legal spat that went ugly. His new cigars included Leccia Black, which was one of the first cigars to sport fire-cured tobacco. The problem is, under an FDA approval regime, innovation is a risk that would make potential approvals more difficult. (Whether the use of fire-cured tobacco would count as a characterizing flavor under proposed FDA rules is an open question.) And the less money you have for scientists, lawyers, and lobbyists to push a new product through the approval process, the bigger the risk it is.

Which brings us back to General Cigar and other large companies (Altadis USA, Davidoff) who might be buyers. While they all oppose FDA regulation and would likely feel its bottom-line effects, large companies are nearly always better able to adapt to government regulation than their smaller competitors. (Sadly, this is why cigarette giant Phillip Morris broke from the rest of the industry to back FDA tobacco regulations to begin with.)

With the rumor mill churning about other possible consolidations, it’s fair to ask if this is positive or negative for the industry. While initial reactions to a smaller company being bought by a larger one are usually negative, I’d argue on a whole the results have been good.

Perhaps counter-intuitively, cigar industry consolidation has often led to more competition. Large companies have every reason to continue and maintain popular brands they shell out big bucks for. While frequently the seller would use the proceeds to launch a new, smaller, and more niche company (think Ernesto Perez-Carrillo or Christian Eiroa) as their non-compete agreement runs out.

What’s worrisome to me is not that more small companies may be bought by larger ones. Rather, the concern is the talent being bought out may not choose to reinvest in the cigar industry because of FDA rules that favor big companies.

-Patrick S

photo credit: Wikipedia

Commentary: Smoking Older (Cigars)

23 Sep 2014

aging-cigars-rack

With the recent announcement about General Cigar acquiring Toraño’s brands, it seemed like the perfect time to light up the oldest cigar in my humidor: an Exodus 1959 Silver Edition Churchill from 2005.

I didn’t set out to age it. It’s just a remnant from a box I bought shortly after we moved to Florida that I never got around to smoking. There may even be one or two more that I just haven’t run across. Though I enjoyed the Silver a lot, it—like a lot of other smokes—simply fell off my radar as newer cigars came along.

So, how was it? What did all that time do?

Well, as I so often end up with aged cigars, I’m not really sure. Obviously, I like the line. Back in 2006, I gave another Silver vitola four stogies. I liked this one, too. I just cannot say with any certainty that age had a lot to do with it.

I don’t recall enough details from smoking it before to make a legitimate comparison. That’s my biggest problem with long-term aging. I’m not disciplined or detail-oriented enough to do it properly.

In this case, the one thing that stood out was the Criollo wrapper’s pre-light aroma, a warm mesquite fragrance I don’t remember. Otherwise, I can’t say how much difference there was in the mild- to medium-strength and the flavors.

Another cigar I smoked recently had experienced considerably less aging, so it’s easier for me to gauge the impact of time. I have about a third of a box of Jaime Garcia Reserva Especial Toros (6 x 54) coming up on a year of age. I smoked several shortly after buying the box, then occasionally. It has been a few months since I last had one of the Broadleaf-wrapped cigars. As with the Toraño Silver, I like the Reserva from My Father, having awarded it a nearly perfect rating in 2010.

The year of aging seems to have served it well, smoothing out any hints of harshness without reducing the power and melding the flavors into a terrific balance. In short, a great experience.

In this case, the humidor time did improve the cigar. Now, if I could just develop enough self-discipline to age more cigars the right way, perhaps I’d have more great smokes.

-George E

photo credit: Stogie Guys

Commentary: Optimal Conditions for Cigar Smoking

22 Sep 2014

Assuming time is one of your biggest constraints—as it is mine—you likely face a similar tradeoff: smoke more cigars more often, but forgo the ability to seriously appreciate every stick; or smoke almost every cigar under great smoking conditions, but smoke less.

Cigar

As a husband, father of an infant, and occupant of a demanding job that requires regular travel, it’s really tough to find the time to smoke a cigar under (what I consider to be) optimal circumstances. But I think such circumstances are necessary if I’m going to be studying, writing about, and reviewing many of the cigars I smoke. So, when faced with the aforementioned tradeoff, I’m usually erring on the side of smoking less, but smoking under solid conditions. That’s how things have played out over the past few years.

What exactly are these optimal conditions? Like so many things when it comes to cigars, I’d imagine the conditions vary by individual. And that’s OK. For me, though, I tend to get the most enjoyment out of a cigar—and I have the greatest ability to appreciate its flavors and performance—when the setup is as follows:

• A comfortable piece of furniture
• An agreeable temperature, either outside or inside
• No wind
• Little else to draw away my attention
• A carefully chosen drink

Right away, you can probably see that these requirements aren’t easily met in full. Unless, of course, you have a smoking sanctuary at your home, or you frequent a well-run cigar lounge. The kind of conditions that don’t make the cut for deep cigar appreciation include the golf course, the car, a BBQ, or even going for a walk.

Now don’t get me wrong. Do I find myself smoking cigars on the golf course, in the car, at BBQs, or on walks? Yes. But more often I’m on my back patio or (when the weather is less agreeable) in my den. True, some of this is a function of my work for StogieGuys.com, which requires a lot of careful consideration and writing. But I tend to think I’d still fall into the habit of smoking a little less and smoking more attentively even without this website.

That said, in preparation for this article, lately I’ve consciously smoked more often, many times under less-than-ideal conditions. I’ve enjoyed it. And frankly it’s kind of liberating to fire up a smoke at times when I typically wouldn’t.

I’ve learned that, in terms of the tradeoff, it’s probably ideal to have a more balanced approach. After all, some cigars are built for the golf course, just as some demand my unwavering attention.

-Patrick A

photo credit: Stogie Guys

Commentary: Putting Cigar Industry Consolidation in Perspective

17 Sep 2014

On the heels of last week’s news that industry giant General Cigar had acquired the Toraño brands—and that Toraño would be shutting down—seemingly everyone had an opinion to voice. I saw viewpoints ranging from indifference to surprise to downright anger.

There remain many unanswered questions. Why did Toraño make this move now (assuming there is a reason beyond Charlie Toraño wanting to spend more time with his family)? Is General actually committed to maintaining the current Toraño portfolio as-is, or will there be changes to the existing blends? Will new Toraño offshoots/brands be launched by General? And what’s going to happen to Leccia Tobacco?

But whether or not you like this latest consolidation, it’s important to recognize this won’t be the last major deal joining brands that were once distinct. Longtime StogieGuys.com readers may recall several past articles where we’ve explained why:

“There are plenty of reasons to expect consolidation will continue to be a theme in the industry. Via economies of scale, larger companies can better adjust to the many tax and regulatory burdens that cigars now face. Combining sales forces and distribution channels can lower costs, keeping prices down for consumers while keeping profit margins healthy. Increased buying power also ensures access to the best tobacco available, as well as bigger advertising budgets.”

Other motivations behind cigar industry consolidation (though not necessarily motivations behind General’s acquisition of Toraño, mind you) might include:

• Expanding geographical scope/reach
• Capturing new clients and more market share
• Acquiring technology, property, and recipes
• Reviving undervalued brands
• Diversifying the portfolio of offerings

This article in the Harvard Business Review summarizes a study of 1,345 mergers over a 13-year period. It found, “once an industry forms or is deregulated, it will move through four stages of consolidation.” The result is an industry that is balanced and aligned. This final (fourth) state is defined as the top three companies claiming 70% to 90% of the market.

Consolidation Curve

I’ll resist the temptation to try to identify which stage of the so-called “Consolidation Curve” the premium cigar industry currently occupies. If, as I suspect, it’s pre-stage four, we can expect more consolidation on the horizon—like it or not.

-Patrick A

photo credit: Harvard Business Review

Book Review: Unlucky Strike – Private Health and the Science, Law and the Politics of Smoking

4 Sep 2014

unluckystrikeStaddon

If you’re involved in a fight over smoking restrictions or simply want to be well-armed when the topic comes up, Unlucky Strike is a book for you.

Written by Professor John Staddon (above right), a Duke University professor of psychology and biology, his aim is “a re-think and a redress” of society’s current views on smoking. He marshals a lot of argument, replete with footnotes and citations, in just over 100 pages.

That’s fitting for a scholar whose work has ranged from simulated detection of landmines to lectures on traffic control.

But the book is anything but a dry, academic tome. Whether exploring the limitations of epidemiology or dissecting the ins and outs of the tobacco Master Settlement Agreement of 1998, Staddon maintains a sharp focus, a sense of humor, and a conversational tone.

Here, for example, is his take on the effectiveness of banning cigarette advertising: “Dogs like to chase cats. Keeping them away from cats doesn’t help. The first time they see a cat, off they go. The only way to prevent chasing is to expose them to cats and train them not to chase. So it may be with tobacco.”

You’re as apt to run across a reference to comedians Laurel and Hardy as to epidemiologist Sir Richard Doll.

Nonetheless, this is a book that is unlikely to enjoy wide readership. And that might be OK if those who do read it include policy makers, legislators, scientists, and other researchers. Because whether one agrees with Staddon’s views on smoking, there’s no disputing his thoroughness and depth in presenting his case. It would help anyone keep the sort of open mind necessary to reach valid conclusions.

You can order Unlucky Strike online at Amazon.

-George E

photo credit: University of Buckingham Press

Commentary: Innovation Makes Cigars Unique (and Uniquely Vulnerable)

21 Aug 2014

tobacco-sort

On Monday my colleague used a recent review and an old cigar assesment to highlight how individual cigar preferences can change over time. It’s something I suspect all seasoned cigar smokers have experienced.

Individual tastes change, but there are also larger trends among smokers (think Nicaraguan-heavy blends, larger ring gauges, Ecuadorian wrappers, etc.). Fortunately, the cigar industry is well-positioned to respond to smokers’ demands, even if this often goes unappreciated by those of who benefit.

Looking back over the past decade and you’ll see a pattern. One or two cigar makers find a hit with a certain blend, and soon after you see the market flooded with similar blends. The best (both in overall quality and in bang for the buck) stick around, while others fade away into online discount obscurity or are simply discontinued.

Some people might knock this follow-the-leader cycle, but it’s not a bad thing for the consumers who get the benefits of innovation and plenty of competition. Good marketing and brand loyalty only go so far, as eventually the cream rises to the top.

Contrast this with American whiskey, another industry I follow closely. Unlike cigars, the aging necessary for a fine bourbon or rye (four to six years at minimum, but sometimes multiple decades), means that it’s not possible to ramp up supply or introduce a new whiskey with only months or a year of planning.

The result is, for bourbon and rye, demand has recently overwhelmed supply (even the mainstream media has caught on) and brands that were recently staples on every liquor store shelf are now difficult to find, while limited releases are nearly impossible to track down unless you’re willing to pay exorbitant prices on the illegal secondary market. This is compounded by he fact that, unlike a box of cigars, a bottle of bourbon will remain unchanged in perpetuity (at least unopened), which leads people to horde their favorite brands in a way that you would never do with cigars. Plus you can have a decent amount of confidence buying a sealed bottle of bourbon from a relative stranger in a way you never could for cigars due to the importance of storage for cigars. (Consider this: There are brands of bourbon which I would buy a case of if I could find it at regular retail price, but I can’t come up with a single cigar, even those I’d like to find but can’t, that I’d buy more than a few boxes of.)

All of which is to say that cigar smokers have it pretty good. We have a vibrant free market that can relatively quickly produce new cigars to meet demand, with the largest multinational companies competing with small start-up brands on relatively even footing, each with its own competitive advantages.

All this is at risk from FDA regulations.

Pre-approval of new cigars means the introduction of new cigars would grind to a halt. Any cigar that doesn’t meet the FDA’s exemption for premium cigars (and this takes the optimistic view that the FDA will even adopt an exemption) would suddenly require years of work, and likely tens of thousands of dollars or more, to receive approval.

With all the comments now under review, the FDA could issue its final rule in as soon as a few months, though more likely they will take a bit longer than that. And since the regulations will likely retroactively apply to cigars introduced in the past few years, it’s not just future brands that are at risk, but also many of the newer cigars you enjoy today.

There was a time when a cigar smoker smoked one or two brands their entire life. (Think about the elderly guy at your local shop who still buys a box of Punch or La Glorias every month like clockwork, always the same cigar.) If FDA regulations hit in a way similar to how they were proposed, we may return to those days, but not because smokers are loyal to a brand out of choice, but because there are virtually no new cigars (at least those under $10 or some other arbitrary amount) to try.

It’s a scary thought and unfortunately one that probably won’t worry the bureaucrats at the FDA. Let’s just hope enough cigar smokers weighed in to let them know they care.

-Patrick S

photo credit: Stogie Guys

Commentary: Changing (Cigar) Tastes

18 Aug 2014

I was struck by my colleague’s recent review of the Paul Garmirian Reserva Exclusiva Churchill. And it wasn’t the rare five-stogies-out-of-five rating that caught me off guard.

IMG_4400Rather, it was a link he provided in his review to a Quick Smoke I had written over seven years ago. Amazingly, I actually remember smoking that Reserva Exclusiva Robusto and composing my short assessment. It was my first cigar from Paul Garmirian (PG). I purchased it from a tobacconist in Tyson’s Corner, Virginia, and I smoked it while my then-girlfriend (now wife) and I were wasting time before a movie.

As I recall, the cigar was somewhat disappointing, especially considering the lofty price and my high expectations. At the time, I had a small budget for cigars, and I had been hearing good things about PG smokes, which came from a small boutique in nearby McLean, Virginia. So when I found the cigar to be less than exceptional, it was a letdown.

I’ve since grown to love almost all PG cigars, including the Reserva Exclusiva Robusto, and they’ve generally rated very highly on this site among my colleagues and me. Of the nearly 1,000 full cigar reviews we’ve published over the years, only about 40 have earned a perfect rating—and 3 of those have been of the PG variety. I lament not living near the PG shop in McLean anymore, where it’s not only possible to peruse an extensive collection of PG smokes, but you can also find PGs that have been aging for 15 years or more. These days, if I were asked to compose a short list of my favorite smokes, that list would almost certainly include a PG or two.

So it’s amazing to think a cigar I now revere like the Reserva Exclusiva Robusto was once a disappointment to me. It just goes to show how an individual’s preferences for cigars can change with time.

I’m sure you can think of examples of smokes you now like that you once didn’t, as well as cigars you used to love but no longer do. If I were to try to put a finger on how my own preferences have changed in the past seven or eight years, I’d cite the following: less interest in maduros, more emphasis on balance over strength, more importance placed on the ease of draw and smoke production, and more attention to texture.

In thinking about these changes, I can see how a younger me might not appreciate the Reserva Exclusiva Robusto. Like many PG smokes, the focus of this cigar is balance, harmony, and subtlety—desirable characteristics that can be lost on a fresh-faced cigar smoker.

I propose that, in some ways, we’re all dynamic cigar smokers with preferences that shift over time. Take note of how your preferences have changed to better understand your own cigar journey. And don’t be afraid to revisit cigars you tried years ago and didn’t care for. You may find them more desirable now.

-Patrick A

photo credit: Stogie Guys