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Home » Lifestyle & Culture

Cigar Companies In Trouble

Submitted by Rob on May 28, 2010 – 3:30 am16 Comments

It was the best of times, it was the worst of times…and I guess it just depends on what side of the table you’re sitting on. Despite many of the hardships that the tobacco manufacturers and retailers are currently facing, there seems to be a plethora of smoking options for the consumers. Cigars are being introduced in unique sizes, utilizing special wrappers and introducing intricate blends that make it possible for the smoker to locate at least a handful a cigars they consider to be “favorites”.  In large part this is due to the “boutique” cigar manufacturer who seems to be more receptive in what the everyday connoisseur would like to enjoy. They are able to do this through utilizing the internet, social media networks and hitting the B&M’s one shop, one state, at a time. So with the boutique cigar makers thriving – does this mean that the larger, more established cigar makers are suffering during this time period? Are they in danger of completely going out of business by not adapting some of the tactics used by the “smaller guys”?  Are any of these companies even aware of the changes they will have to bring to their companies?

In no way is the next part of my analysis trying to single out any specific cigar maker or company but rather the top three companies I, and I think everyone else, thought would never face a “do or die” type of scenario (If the conclusion is drawn that such a scenario exists).

Padron, Fuente & General

Padron & Fuente Cigars – The creator of a few cigars that all happen to rank very highly each year in Cigar Aficionado.  Padron and Fuente have done a fabulous job of introducing a cigar that is great to smoke for everyone in every price range. They like to keep their options very simple and even introduce a new limited edition, high priced, cigar every so often to keep the fan base (and I suspect Cigar Aficionado) very happy. However, considering these things, has the Padron and Fuente company structure been too inflexible in working with retailers or becoming personable with the smokers in our community?

From a retailers aspect they have always stood behind their “quality” and refused to offer any great discounts or specials that can be passed on to their patrons through the B&M. The excuse was always made that the true smoker would always be willing to pay their inflated prices for the special cigars like the Anniversary or the Opus X cigar. Furthermore, they tend to abstain from doing live events on a regular basis with the presumption that their name is a known quantity, and no further live promotion need happen .

All advertising campaigns were also primarily reliant on the ratings given to the cigars via Cigar Aficionado and other small magazine publications. Occasionally both companies will publish some full page ads through these same sources. But they have yet to reach out to any alternative methods of advertising – online magazines, blogs or cigar radio programs.  On the same note Padron feels no need to interact through social networking whereas Fuente does run its own cigar forum/community but has shied away from all other mainstream social media applications.

General Cigar Company – Now this behemoth of a cigar company operates in a slightly different manner. They tend to produce multiple cigars, multiple times a year, in multiple sizes, under multiple famous names – and yet always seem to lack in quality and flavor. Their distribution is huge, but seems to rest solely on the established name of their cigars, rather than the quality of their cigars.

It does not take great explanation as to why this is unsupportive of the local Brick and Mortar establishments. General will offer some slight discounts and incentives to purchasing and carrying their products, but it never allows the retailer to price at the same level as most websites or even Generals own online retail website. However, retailers have always been stuck in a corner, almost forced to carry the products, because of the famous names behind the brand. These are the most asked for cigars by the newbie smoker or holiday shopper.

This is a direct indication as to how General Cigar Company has chosen to spend their advertising dollars. Most of the ads that are being placed cannot focus on ratings, because they don’t get any, and are forced to emphasize the “famous” names. General does this by placing most of their ads in men’s magazines or any other publication that is read by the mainstream population who might opt for a cigar during a frequent occasion. It appears as if they haven’t cared about the cigar blogs, review websites, magazines or any medium that a frequent cigar smoker would choose to follow, but rather instead bank on their “famous” name instead. This means that they have also opted out of all social media (Is this a way of hiding from the criticism?).

The Changes Across the Board

During these times of hardship the smoker has to be more specific on his choice and the retailer can be more specific in choosing cigars for his clientele. I can provide some information that the “boutique” cigar market is taking a big piece of the pie both financially and in loyalty of smokers from the large juggernauts who are resting on their laurels. Each company has displayed a change in operation as they have now realized what side of the table they are really sitting on.  While none of these companies will admit that the times are harder for them – I think it is.

Padron has come to the realization that the cigar, despite how great it may be, will not be sold unless the regular consumer feels some sort of bond with the manufacturer. They have now reversed the policy on events and will start doing appearances at local B&M’s across the country.

Fuente used to have the policy of shipping whatever cigars they choose for the specific account to receive whenever Fuente felt the B&M should receive it. This has also been reversed and is starting to ship cigars/orders, even the Opus X, to accounts as they request them.

General Cigar Company tried to appeal to the “boutique” market at the 2009 IPCPR by releasing a cigar that was “not associated” with the General line of cigars. Additionally, anyone who ordered this stick would also be required to place it in the boutique section of the humidor and make a promise to retailers that it would not be sold online. The only downfall was that they again, produced a cigar for the numbers and not for taste or quality. Now General cigars is connecting with bloggers by allowing them to preview and release information on certain products to help connect General back in the cigar community.

While these changes are being made everyone of these three have yet to jump into the social media realm (In Fuente’s case any further).

Are these first steps a sign that changes will be underway on how the companies interact/market/operate? Will they, or do they even have to, transition into the social media environment? Will the big guys really be able to compete with the boutique manufacturers (moving forward)?  And specifically to General Cigar Company – will they stop relying on the “famous” name and start dedicating resources into creating a truly great cigar?  As we have seen there are some like Gran Habano , La Aurora, CAO, Illusione, and Tatuaje (just to name a few), who are doing this already.  These companies are sizable outfits, yet dedicated to utilizing the web and word of mouth for the advancement of their product. Or to put it simply – they are transitioning into the new world of cigar smokers and enjoying sitting on the good side of the table.

So until the big three aforementioned companies decide to hop on the modern technological bandwagon, they are doomed to see diminishing funds and market share.  As many articles have pointed out this year, this will be the first time in history that print media will be eclipsed by online media advertising, shouldn’t the large companies come down off of their high horses and embrace the people and online market which is the cultural nexuses of this age? Or maybe they can keep relying in their name, tradition and … well whatever it is they are banking on.

Editors Note: We here at Puffing Cigars want to assure our readership that we are fully aware that there are indeed many cigar companies on both sides of the good and bad spectrum.  The companies we chose for this article are not a definitive list, but rather a few choice examples in the industry that handily illustrate our point.  You can fully expect in the days to come more articles that look at specific companies in the light of these current issues.  As always we appreciate your commentary, and always look forward to spirited debate when it comes to hot-button topics like this.

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  • Matthew says:

    Great article Rob, some very interesting points.

  • David says:

    Well thought out and interesting. Some factual errors include that CAO IS General Cigar, they actually are one in the same, CAO bought General Cigar and their direct to consumer catalogue companies. As for pointing out General, the same goes for others like Altadis, and Ashton/Fuente. They are all working the end game of direct to consumers.

    Like modern day Politics, its time for a change, the same goes for the wonderful world of cigars.

    • Rob says:

      Thanks for the comments and information some people may not be aware of. I pointed out CAO, and didn’t group them in General Cigars, or a few reasons. One – they just recently acquired the company in what I think was another attempt to connect back with the cigar community. Secondly CAO really started as a grass roots/connect with the people type of organization to help connect their cigars to the consumer.

      Altadis I left out for the sake of keeping the article brief.

      Direct to the consumer with Fuente and Ashton again I left out to just focus on how they connect with the people or have changed their policies as these times transform. Looking back I could have just grouped these into one blob of… Cigar companies I think are in grave danger as they are all practicing the things that ate causing them to loose market share and support of the brand.

      But pointing out the CAO purchase does bring about another strategy. Maybe the big guys will just let everyone else do the hard work and simply purchase them with their mountains of cash.

      Thanks again for the info!

      • dmjones says:

        As pointed out below, the “buyout” of CAO by General is not yet completed. In fact, I’m not sure it is fair to characterize it as a buyout as the parent companies (Swedish Match and Scandinavian Tobacco) of the two companies are merging and the Swedish Match (owner of CAO) is going to be the larger of the two. Having visited CAO HQ twice and having had the privilege of talking to Tim Ozgener and Jon Huber on a couple occasions, I truly hope that whatever does eventually happen will result in CAO being pretty much left alone to do its thing. They have produced some amazing cigars for a full range of palates and smoking experience and the worst thing that could happen is CAO becoming yet another General brand.

        I have tried the newer sticks where General has tried to “reconnect” with the modern smoker (notably, the Upper Cut and the new La Gloria Cubana) and I have not been impressed. They just do not seem to know how to break out of the mold they have made for themselves.

        Overall, Rob, an interesting article that does make some interesting points, even about Padron, a company that most smokers admire greatly. They have stuck to what they do best, but in the end, will that end up hurting them as a new paradigm emerges?

        I also found it interesting that you (possibly inadvertently) pointed out the fallacy of companies “buying reviews” in CA and other magazines. You pointed out that Fuente and Padron “occasionally” buy full-page ads, but this is in direct contradiction to what most people imagine…that the company spending the most bucks gets the best reviews. Simply put, it’s just not true. I don’t always agree with CA’s ratings, but I believe it just comes from different people who have a different set of expectations from cigars. They regularly rate Cubans the highest (no ad dollars) with Padron, Fuente, and Ashton close behind (no mega-bucks, but decent amounts of advertising) and most of the time Altadis and General products are near the bottom of each group of cigars rated (usually lots of ad dollars flowing in).

  • David says:

    Well thought out and very interesting article. A few factual errors including the fact that CAO actually IS General Cigar. Their parent companies bought out General Cigar last year and they are now one in the same including their direct to consumer mail order companies, with its only direction to finish off the brick and motor stores by selling direct. The same goes for Altadas and others. Just like politics in our country, the cigar world need a cleaning up before these Europien giants destroy the flavor and charater of our cigars. Well done Rob!

  • floatdub says:

    Agreed. I like the idea of the article quite a bit.

    Companies need to embrace technology and realize that more influence for their brands are on the web, not in print. Print is dying and even though they won’t admit it, CA subscriber base is dwindling.

    We all know that the money spent in CA by a cigar company is done in hopes of getting a high rating in return. Does it always happen? Nope. But CA are still king makers as of now. That may all change though as we move forward.

    Not sure how you left out the true behemoth Altadis, which is the number one importer in the US. Followed by General and then Fuente. Rocky is now number 4, and will continue to grow after his purchase into EO.

    But let’s face it, Altadis sucks and has no original ideas. They just rip off General brands and market to get a bigger share. All while relying on their subpar, but very popular Montecristo and RyJ brands to makes the majority of their money.

    I’m not sure how Padron ended up in this. I don’t think they’re nearly as big as you think they are. They still don’t even have sales people and are somewhat poorly organized in their Miami offices…no backorders, etc. It is interesting to see that they will be getting out of the office and touring a bit.

    I would say Ashton and Oliva certainly outpace Padron, and I see both of them embracing social media as well. Especially Sam Leccia of nub/Cain.

    The Swedish Match and STG is still in the works but not yet finalized. Most people feel that the deal will go through, probably in the 4th quarter of 2010.

    • Rob says:

      Thanks for taking the time to comment and introduce/inform people on some things that I have left out.

      I know from personally speaking with many cigar companies that the advertisements placed in CA is just money spent to get the ratings. They are still the king but readers are declining, real cigar magazines are starting to grow, and the readers of CA are not the current/new generation of cigar smokers. So let’s see what happens in the years to come.

      Again, I left out Altadis just for the sake of keeping the article short. It would have been a lot of the same verbiage and I just wanted choose three companies. However, General was also choosen out of the two because I think they realize they are in trouble. As you can see by purchasing CAO (a marketing company), trying to connect back with cigar bloggers, and anything else they are trying to do.

      Padron ended up on the list not because they are big, but because they produce some of, if not the, best cigars in the market. And because of that they decided they didnt need to market, connect with cigar smokers, or as you mentioned – even have sales force (which also keeps that presence in local markets). And now we can see the changes the company is going through to try and catch back up with everyone.

      Hope this clears some more stuff out! Again, thank you for the comments.

  • floatdub says:

    I would also add that Camacho and Drew Estate embrace the web and social media more than anyone else. Certainly as much more than the others you mentioned.

  • David says:

    sorry for my double comment, I didn’t think the first one went up so I re-wrote it. Points well taken!

  • Dan says:

    For record, CAO and General have not completed the merge. While it is
    inevitable that it will occur, the deal is still in the works. I just smoked a new
    La Gloria from General called Artesano Tabaquero and think this is a great first
    step in reconnecting with the consumer.

  • Adam says:

    Very good article Rob! I think General is turning the truck around because they are in trouble when the embargo gets dropped. They ripped off the names of famous cuban names, as did Altadis but Altadis is in pretty good shape when the embargo is lifted considering they own majority of the company that owns Habanos SA.I think Altadis is just trying keeping thier head above water till that goes through.

  • [...] just finished reading “Cigar Companies in Trouble” over at Puffing Cigars – don’t worry, it’s not nearly as gloomy as it sounds. It talks about the competition out on [...]

  • Fred Hoyl says:

    Enjoy cigars on social media while it lasts, because the FDA and other government agencies will eventually notice this horrific loophole in promoting cigars to youths, and they’ll be all over it. Cigarette companies, you’ll notice, have stayed far, far away, because they know better.

  • Marco says:

    Fred you are so naive. It’s all a conspiracy to entrap poor young children. So we shouldn’t utilize modern technology. You would prefer we go back to our typewriters and carbon copies. Because cigar enthuiasts share with each other through the use of modern mediums we are evil and kids are going to want to smoke cigars. Really now.

  • Jay Hallon says:

    I love this discussion. Very insightful. But no fun police, please! I will remind you of one of my favorite quotes, “When A annoys or injures B on the pretense of saving or improving X, A is a scoundrel.” ~ H.L. Mencken

  • JNB Cigars says:

    Personally, I blame the public school system.