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HABANOS PEOPLE

A look inside the idiosyncratic and arcane world of Cuba's cigar industry

NICK FOULKES dips into the complex web of European/Cuban relationships to explain how the planet’s most famous cigars make their way from the New World to the old

The world of Cuban cigars is one of the most enchantingly idiosyncratic business environments of the 21st century. The Havana cigar is an agricultural product, yet a luxury one (unusual, although wines and truffles render it far from unique in that respect) – the raw material is cultivated and harvested and the finished product produced in a socialist society with a centrally planned economy, yet it is consumed on the whole by capitalists; its chief component, tobacco, is one of the most demonised substances that remains legally available, yet it is regarded as a connoisseur’s product; it is universally regarded as a synonym for the luxury lifestyle, yet it is banned – officially, at least – in the chief market for such goods, the US. To complicate matters further, the Cuban cigar industry is split into two parts: TabaCuba, which is the agricultural arm of the business, and Habanos SA, the commercial and marketing arm.

But wait. There’s more. Habanos is a joint venture with Altadis. Altadis itself is the product of Seita and Tabacalera, the French and Spanish tobacco monopolies, which merged in 1999. Habanos is also a part-owner of various distribution companies around the world; this means that the long-established UK family firm Hunters & Frankau, run by Jemma Freeman – the sixth-generation Freeman to hold this position – has a board of directors filled not only with public school-educated Englishmen but a super-sophisticated Spaniard called Javier Terres, the spirited Cuban Ana Lopez and the Cuban vice-president of Habanos, Manuel Garcia.

A pyramid with power concentrated at the top is just too simple a model to illustrate this structure; one would need something indescribably polyhedral to illustrate how it all fits together. There’s nothing as Byzantine as the arcane processes and rituals of the cigar business – and yet it works. Every year somewhere comfortably north of 100 million cigars (the proper handmade ones – look for “Hecho en Cuba” and “Totalmente a mano” on the bottom of the box) make it from tiny seedlings in the Vuelta Abajo, the finest growing area for tobacco in Cuba, into the humidors of discriminating sybarites from London to Los Angeles. Because they are illegal in the US, Hollywood bigshots apparently have Havana cigar dealers in the same way that lesser scoundrels have drug pushers.

For all this, grateful connoisseurs of the fragrant blue smoke have two men to thank: Oscar Basulto Torres and Buenaventura Jiménez SánchezCañete. Sexagenarian Torres is a former Cuban vice-minister of agriculture; towards the end of the 1990s he was appointed president of TabaCuba and co-president of Habanos. He has been given the unenviable task of integrating these two very different sides of the industry, and on first acquaintance comes across as a stern, no-nonsense sort of fellow. During the morning he works in a Spartan office at Habanos with a photograph of Che Guevara on the wall behind his desk; the afternoon sees him seated behind a desk in a similar office in TabaCuba, this time with adjacent photos of the Castro brothers Fidel and Raul. Sánchez-Cañete, in his late forties, is the Spanish counterpart and Torres’ co-president at Habanos. In a rare interview in Cuba earlier this year, they agreed to speak together to CNBC European Business.

Hitherto, Torres and his corresponding Spaniard (last time it was a former industrial engineer) have only spoken separately to the media, and even then rarely. At first there were difficulties in dovetailing the interests and aims of the Cuban and Spanish sides. It has to be remembered that until the early years of the 20th century, Cuba was still a Spanish colonial possession – and if there’s one adjective that can be applied to all Cubans, it is “patriotic”. For their part, the Spaniards were concerned that it would be difficult for two such different systems – not to mention salary structures – to work together.

Six years into the partnership, however, relations seem to be very cordial between Torres and Sánchez-Cañete. Although they’re not quite at the stage of finishing each other’s sentences, there is plenty of laughter, back slapping, and of course cigar smoking. This pleasant informality speaks more eloquently than any number of carefully prepared press statements; it seems that the Cubans have discovered that their Spanish colleagues are not a bunch of reconquistadors, while the Spaniards have found that their Cuban counterparts are motivated and educated.

It cost Altadis half a billion dollars to buy into the Cuban cigar industry in the form of a half-share in Habanos, and the deal went through at the peak of the cigar boom at the turn of the century. Habanos controls the brands (everything from Cohiba down – there are 32 of them in around 300 shapes and sizes), the marketing and distribution of the cigars, and the factories where they are made. Habanos is a customer of TabaCuba, from which it buys the raw material. Habanos then makes the cigars and sells them to its wholesale customers, who buy them for distribution to the retail trade. Ironically, in Spain this customer is Altadis, even though it owns 50% of Habanos.

To trace the beginnings of this arrangement, one has to go back to the early 1990s and what is known in Cuba by the euphemism “special period”.
The special period was the time of the collapse of the USSR. The sudden and absolute implosion of the Soviet Union took Cuba by surprise and plunged it into an unusually straitened time; there were frequent power blackouts and shortages of every conceivable commodity, from shampoo to toilet paper. As it happens, the 1994 tobacco harvest was crippled by a shortage of string.

“During the special period, Cuba had some shortages,” explains Torres. “That is the reason that Altadis, formerly Tabacalera, offered this opportunity to assist in the commercialisation, sales and marketing of the business.” Sánchez-Cañete insists, however, that the timing of the announcement, almost simultaneous with the making public of the merger between Seita and Tabacalera, was entirely coincidental. “At the same time as Tabacalera was merging with Seita, resulting in Altadis at the end of 1999, we were working with Habanos,” he explains. “Just two months later we reached the agreement with Habanos; while it might have looked as though the two events were somehow related, they were independent processes.”

As far as the cigar smoker is concerned, the joint venture has had only positive results. In the last couple of years the availability of Cuban cigars in popular sizes has improved. Construction is superior; it used to be that at least three or four cigars in a box of 25 were duds, blocked in some way due either to inexpert rolling or insufficient stripping of the leaves.

Experts also note that flavour has changed for the better; not necessarily so that the characteristics of the Cuban cigar have changed, only that the delivery of that flavour is more pleasurable. Cigars from about five years ago had a kick to them – if not exactly harsh, then what the wine trade would call a “cheekiness” – but now they are harmonious; the flavour develops as the cigar burns, but instead of jerky gear changes the power and intensity build smoothly.

These changes are due in large part to the work of Habanos and Torres’ unique ability to unify supply and manufacture and to implement the revolutionary idea of “giving the consumer the kind of cigar that the consumer demands”. Before Torres, cigar production was a quantity-based operation and the market was lucky to get what it was sent in terms of sizes and brands, as factories made what they pleased.

Now cigars are in line with current preferences. “You used to take your time smoking a Montecristo A,” says Torres. “Now you might have 40 minutes, and people have moved to shorter and fatter cigars to give plenty of flavour in a shorter time.” Torres adds that Habanos consults its distributors closely: “We use a network of distributors in 120 countries. We spend time listening to the distributors so we can translate their ideas into a forecast in terms of volume, products and marketing. This enables us to form a global picture of demand for the coming year, to prepare the industrial side to deliver.”

The shift in importance from quantity to quality has served Habanos well, as Sánchez-Cañete explains. “More or less two thirds of our sales are in the European area; this is our main market. Europe is now under this ban process and, as [Torres] told you, there is less time to smoke. Instead of several cigars a day, people may smoke only one – but they want to smoke the best, and normally they consider that to be a Habanos. That is why we are not suffering too much from the ban.” Of Cuban cigar production in general, Sánchez-Cañete says: “There is more volume in handmade now than 25 years ago, but overall we are seeing a decline in volume. If you don’t consider the US market, in the rest of the world total consumption from 2000 to 2004 grew 12 million a year, and handmade Habanos grew by 16 million. Our share of the premium market is 70% in units and 82% in value, and in Europe our sales are flat in a declining market.”

Top-quality Havana cigars are outperforming the market in part due to a concerted move to create another level of quality beyond the standard. Among the new quality-oriented products to have appeared during the period of Spanish-Cuban cooperation are Ediciónes Limitadas, limited runs of cigars in special sizes using aged wrappers and carrying a band signifying the vintage, and Reserva, a super-tier of cigars in which all the tobacco – the filler leaves blended to create the flavour of the cigar, the binder that holds them together, and the wrapper – is aged for up to five years (the filler is normally matured for about a year). So far there has been Cohiba Reserva and Partagas Reserva, and next year will see the arrival of Montecristo Reserva. For the collector there are special cigars like the Cohiba Behike, to celebrate 40 years of Cuba’s premium marque; these are a snip at €15,000 for a box of 40, of which only 100 boxes will be available worldwide – and all of them were sold out months ago.

If the fruits of transatlantic cooperation are much better and more interesting cigars, then this is mirrored by an increasingly integrated Habanos. “The Cuban people know perfectly the raw material, the blend and the production,” growls Torres. “Altadis has helped in terms of marketing, strategy, price policy, an organised distribution network and globalisation.” Sánchez-Cañete is even more upbeat in his appraisal of Habanos six years on. “Today I can tell you we do not speak about Spanish, French and Cuban people – we are Habanos people.”

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March 2007

Tobacco

HABANOS PEOPLE

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