Cigar Weekly

Cigar Weekly: From where you sit, how are things in the cigar industry both from the manufacturing perspective and the end user, the consumer?

Charlie Toraño: On the manufacturing side, I think it is extremely healthy and positive. At the end of the day, the smokers we have today are the serious cigar aficionados who enjoy the experience of smoking a good cigar and I think these are real smokers that are going to continue to smoke and they will bring others into the industry, helping bring growth to the industry. I think we are done shaking out the fad smokers we had and the economic consequences of it like excess supply and excess distributors and manufactures. At this point, if you ask me I think our business in the last seven or eight years is healthier and the prospects are better than even during the boom time. Even though the boom created a lot business and things were good, there was this uncertainty and nervous anticipation as to when the bubble would pop and when it did, within a matter of three months, everything just completely collapsed on itself. Now I am very positive about the future from a manufacturing side. We in the Toraño family get to view the cigar industry not only from the manufacturing side, because we manufacture cigars for ourselves but also other brands, and that gives us a change to see growth from the eyes of our clients, but also our own brands. We've seen in the last two years some very healthy growth and projecting ahead into the future we see continued, strong growth. Are we seeing a 10% growth annually? I don't think so, but we are seeing a greater demand by the consumer and they drive the business. They want better cigars and I think we're trying to give them good value. The consumers today appreciate the artistry involved and like to experiment with new tastes and I think smokers are open to trying cigars that they hadn't tried before. Frankly, I'm very positive about the industry.

CW: How significant is private labeling to your business?

CT: Probably 75%... I would say to you maybe as much as 80% of our business is manufacturing cigars for the distributors we have the pleasure of working with. It's a very big part of our business and a big responsibility that we have. And it's a great part too because you have to participate with these distributors and it's a significant part of what we do. Then the other 20% to 25% of our business is manufacturing our own cigars for our brands. Our philosophy is that if you are going to hold yourself out as making cigars for other companies as we do; we try to make cigars for a select group of companies and we don't want to manufacture for everyone in the industry, so we work with a core group of people we know are serious about the business and that will give them room to grow with us. We are privileged to work with some of the finest companies in the business right now, companies that we have a history of working with and all in all, we are very pleased.

CW: Since the boom, which everyone considered a short-lived trend, how has the demand from the consumer side been for cigars in general?

CT: I think we're seeing a little growth. It's always difficult in total numbers despite the efforts by the various industry associations that try and keep track the best they can, sometimes it's a little up and sometimes it's a little down; it's pretty tight. I tend to see, but remember some of it is antidotal, when you go round the country and do different cigar events, on the Internet and what have you, you see new smokers coming in and I see the veterans teaching these folks about the product and how to truly enjoy a good cigar and I personally think demand is growing a little but it's a health pace for our industry. I remember when I was growing up in this business and I would ask my father if he ever thought I would have the chance to work with him in this business and his answer was clearly "No". This was a dying business in the 70ies. This was a dying business in the 80ies. They were literally loosing 5% a year. My father was in the leaf business and he couldn't get rid of premium wrapper bales. Hit literally had tons of them in storage in Miami. And when you use that as a reference point, we are beyond healthy now. When you use 1990 as a reference point of double-digit growth, the industry is at a very healthy state of affairs. But there is a threat and that's the various regulations States are passing and taxes. I think taxes are almost as damaging as regulations or bans.

CW: Because of the state legislatures constantly imposing bans on smoking across the country, do you think this will drive smokers to the underground or exclusive, private club?

CT: I think we're starting to see it here in Florida. Any bar that sells more than 10% food items can't have smoking; only a stand alone bar. I think you're going to see more and more establishments that will cater to those people (smokers). Not just cigars but truly smoking venues because there is still a huge part of the American population that goes out at night and wants to have a good time to include smoking. I think history shows us that when you try to take away some of these basic vices, for lack of a better word, things people enjoy, people will find a way of doing it, some more creative that others. I do think we'll see them (smoking clubs) pop up everywhere but I'm starting to see cigar dinners come back. They fell out of fashion a few years back but people are starting to bring them back because of the lack of venues to enjoy a good cigar. And I do think we'll begin to see the formation of more smoking clubs.

CW: What is your prognosis for lifting the Cuban embargo and allowing cigars into the US?

CT: I'm one of the people who believe that we won't see Cuban cigars in this market until Castro and his regime dies a natural or unnatural death. For the last several years there have been those who were thinking the lifting of the embargo was eminent. That hasn't happen but we all know that Fiedel Castro could die tomorrow so we all have to look to the future. We have to envision competing against Cuban cigars in this market. If the embargo were lifted tomorrow, Cubans would have product in this market immediately. But if I wanted to go to Cuba and set up my own factory and employ Cuban works, I couldn't do that without having the Cuban government as my partner. I can go to Nicaragua or Honduras or the Dominican. I can buy land and employee workers set up a business and compete. If the embargo is lifted tomorrow, the Cuban government can flood this market with product and all I can do, and that's most of us in this industry, is sit back and watch. I don't think there would be any way I could go there (Cuba) and buy tobacco or set up a factory under the present structure. And I think it would be ludicrous for those of us who have been here in the States all these years building our businesses, paying taxes, promoting the product to allow a few major companies in the world have the ability to flood the market with Cuban product while the rest of us sit back. When the present systems dies or is eliminated in Cuba and all of us have a chance to buy product, I think there will be a renaissance and we'll see the demand for product increase and I think it will be great for cigar smokers to smoke that so-called "forbidden fruit". That way the consumers will appreciate just how far we've come when they compare the Cubans with the product available on the market today.

CW: For those who have been out of the country and purchased Cuban cigars, then know they are pricey. If they American market opens up to Cuban product, what do you think it will do to the price points of cigars in general?

CT: Simply because of the worldwide demand for Cuban cigars and the availability of product, particularly at first, I think the prices will be through the roof. I don't think for those of us who don't have a Cuban product, it would really effect the price of our product because the one way we could compete would be on price and value and taste. I know the Cuban brands would come in very high but I don't think the non-Cuban brands would follow. That would be my educated guess right now.

CW: Are there any countries in the world other than the major players today, you see emerging in the near future to try and enter the cigar market?

CT: I don't see any other countries stepping up to become a well-respected cigar rolling state. I think it takes to much time and to many years to develop skilled rollers. With regards to the manufacturing side of the business, I don't see any countries trying to find a place in the market. With respect to growing tobacco, I do think there will be other countries emerge with good crops of tobacco. We're just now starting to buy Peruvian leaf. You'll see we're going to be using this tobacco in a blend for one of our clients and we think this is very good tobacco. If we would have had this conversation three years ago, you would have seen we weren't using the wrappers from Brazil. I think we came out of the box pretty early with our signature collection and we opened the map on Brazil by calling their cigar Brazila. There were those in the industry who thought we were insane to talk about Brazil having some kind of good tobacco. It's interesting how well this wrapper has caught on and done. I think there will always be regions in the world that will develop product and surprises us in the future.

CW: What do you think about Cameroon wrappers?

CT: I personally like Cameroon wrappers. A few years back we took a serious look at Cameroon but passed on it because we didn't thinks we had a good blend for Cameroon wrappers. And this past August we introduced the Carlos Toraño 1916, that is a Cameroon cigar; 1916 being the date the Toraño family got into the cigar business in Cuba. I now think there is enough appreciation in the market for Cameroon product for them to continue producing over there.

CW: Look into your crystal ball and tell us what's next for the cigar lover, both for the manufacturer and for the consumer.

CT: For one thing, I think the blends are getting more complex. At least from our point of view, the taste is much less one-dimensional. There was a time when it was simple to say this is a Dominican cigar and you knew what the taste is like with a Connecticut seed wrapper. I think our Exodus 1959 is a bit of an example of what I'm talking about. There's a lot of blending going on right now and it's more important where you're making the cigar rather than what's in it. I don't think it's that relevant regarding where you're making it but more importantly the tobacco going in it. You get your leaf from so many places in the world and it's good quality and available. I personally think these tastes and profiles should come from the natural tobacco as opposed to adding different additives or flavorings. Clearly there is a market for that product but we aren't participating in that market but I do find it interesting. The complexity of blends is what people will see more of and, at least we at Toraño, are moving in that direction and I hope the consumer will begin to appreciate these products as they see what we can do.

CW: Thanks to Charlie Toraño for answering our questions.