The global shortage of Cuban cigars

Strong demand brought on by the “lockdown effect”, combined with a slowdown of production in Cuba and logistic problems caused by Covid-19 mean that tobacconists’ shelves are looking bare. Habanos S.A. calls for patience.

The first to sound the alarm was 5th Avenue Trading, the exclusive importer of Cuban cigars for Germany, Austria, and Poland. When it published its annual results back in January, the distributor already noted that “although Cohibas, large cigars, and limited editions have become increasingly difficult to find over the last few years, stockouts on the standard range are now also becoming more common.” Less loquacious now, the German group carefully referred us to Habanos S.A. when we ask for explanations about this unprecedented situation. But the observations made at the start of the year still hold true for the majority of European countries.

“90% of the Cuban catalogue is out of stock,” the owner of one of the largest tobacconists in Paris told us. “For the remaining 10%, you can get deliveries every day if you want, but essentially small formats – smaller than the robusto. There are no robustos or anything larger than that.”

The situation is affecting every market to varying degrees, in particular the more mature markets in Western Europe, where Cuban cigars are most popular. “There has been a shortage in supply for premium cigars (Behike, limited editions, etc.) for several years,” explains Nicky Meire, the marketing director of Cubacigar, the importer for Benelux. “But this year, shortages are also sometimes affecting standards, like the Partagás D4 or P2, and all robustos more generally. We even sometimes run out of José L. Piedras or Quinteros! Deliveries still arrive on a regular basis; we receive cigars – just not enough of them.” The president of Italian importer, Diadema, Andrea Vicenzi concurs: “There are issues on all types of products, but shortages are more frequent on large formats.” “I think the word ‘shortage’ is a bit strong,” counters Juan Giron, the communication manager of Spanish importer, Tabacalera. “But we do occasionally run out of stock on certain lines, which obviously represents an inconvenience for our customers.”

Under-production and logistic problems
Several factors have coalesced over the last few months for us to reach this point. First of all, for several years now, there have been difficulties at agricultural and “pre-industrial” level (drying and fermentation) getting sufficient quantities of the large wrappers that are needed to craft the largest and most attractive cigars. Habanos S.A. and its Cuban operational wing, Tabacuba, have therefore been suffering from under-production issues on big cigars (double corona, churchill, salomones, etc.) for several years.

This situation, which predates Covid-19, has been exacerbated by disruptions to long-distance transportation and supply chains caused by the pandemic, which have still not been completely resolved. Air traffic is still operating at approximately 50% of its pre-Covid capacity. In these conditions, air freight is still a rare (and expensive) commodity, and whatever cigar lovers may believe, when a freight forwarder has to choose between several types of cargo, cigars are not considered priority goods.

And finally, there is the pandemic situation in Cuba. It is true that fewer factories closed in Cuba than in other cigar-producing countries, but the big La Corona factory in Havana has been closed for two months for health reasons. Viewed as fundamental for Cuba’s economy, the tobacco industry has been exempted from the lockdown measures imposed on the island; strict hygiene and social distancing measures were quickly implemented in all factories as of March 2020, and they stayed open for business. But production is still disrupted, not to say seriously hampered. Schools are still closed in Cuba, which means that part of the workforce has to stay home to look after their children. The confined spaces in certain factories (like in El Laguito, where most Cohiba products are made) does not allow for distancing while maintaining the same level of output (only one in two workstations are occupied in production areas) – even by rotating teams and getting rollers to work on Saturdays – which is now the rule in the majority of Havana’s biggest factories. And whereas Cuba was mostly spared by the first wave of the pandemic in the spring of 2020, the number of positive cases has been growing since the start of the year, forcing the authorities to take strict preventive measures, including in factories. “When a positive case is identified in a galera, four lines around the infected individual – that’s 25 rollers – are immediately sent home to isolate for one week,” explains Nicky Meire, who recently returned from a trip to Cuba. Off the record, another expert on these issues admitted that “in 2020, Tabacuba met 70 or 80% of its production targets [90 million units according to ADC’s information]. But since January 2021, rolling workshops have been at 50% capacity or less.” And rollers aren’t the only ones affected; the same type of issues present themselves at every stage of production (boxing, adding the band, packaging, etc.). “The cigar is an artisan product,” explains Juan Giron. “This is not an industry where you can increase output at the push of a button.”

Increased demand
Several factors are thus interacting to compress supply at a time when demand has rarely been so high. Of course, the duty-free market, and sales related to tourism (Cuba, Latin America, Middle East) are practically nil. But Europe, which still represents 60% of Cuban cigar sales worldwide, has seen demand for puros increase due to the effect of successive lockdowns; stuck at home for several weeks, Western cigar lovers have increased their cigar consumption. Importers don’t all report their turnover, but 5th Avenue (Germany, Austria, Poland), for example, posted record sales in 2020 – up 27% compared to the previous year. And this trend shows no signs of letting up in 2021. In regions where the distributor and/or tobacconists have stocks, the situation remains manageable, notwithstanding stockouts on certain lines. “It hasn’t affected our turnover yet, because we can dig into our stock,” explains Andrea Vicenzi for Italy. “But we may feel the effect more strongly in the coming months.” “A few years back, we took the position of keeping a year’s stock of all lines, in our main bonded warehouse,” relates Jimmy McGhee, communication manager for Hunters & Frankau, the exclusive importer of Cuban cigars to the United Kingdom. “This policy may have preserved the British market to a certain extent.”

Rumours… and a run on cigars
However, on markets where supply is more strained – like in France, Benelux, Switzerland, and Spain – the equation is easy to understand. With an increase in demand, a decline in supply, and limited stocks, tobacconists’ shelves are now looking bare. And as often happens in such situations, the shortage is self-perpetuating; seeing that retailers are less well-stocked than usual, cigar lovers (and indeed the retailers themselves) rush to buy products as soon as they appear or reappear on the market – and people stockpile. That’s what happened with Por Larrañaga’s Galanes, launched just a few weeks ago in France with good levels of stocks, but which has already sold out in most retailers.

The shortage also enables all sorts of rumors to spread. The most popular one at the moment – with its undertones of the “yellow peril” – is that the Chinese are buying up all the stocks. Although it is true that the new joint shareholder of Habanos S.A. (50-50 with the Cuban state) is a mysterious consortium registered in Hong Kong, we have no idea of how it is made up. It is also true that Habanos S.A. announced a 15% increase in sales on the domestic Chinese market in 2020 – but that increase only represents a few hundred thousand cigars and would not be enough to cause a shortage on other markets. And finally, it is certainly also true that some tobacconists in Paris, on the French Riviera, in Switzerland, and in Benelux are regularly visited by Chinese buyers with wads of banknotes ready to relieve them all their Behikes, the best Cohibas, and their limited-edition cigars or special boxes (jars, etc.) – but this doesn’t explain the shortages on a great number of less prestigious cigars. A simpler explanation – the concomitant deregulation of supply and demand – is certainly the correct one, as detailed by Habanos S.A.’s communication department: “Covid has affected supply chains (availability of sea and air transportation) and, consequently, caused delays in deliveries.” Tabacuba, meanwhile, which manages agricultural and industrial processes, points out that “Covid and the American embargo have not allowed us to reach adequate levels of production.”

An imminent return to normal?
“We will never sacrifice the quality of our cigars to meet demand,” continues the group’s spokesperson, in answer to L’Amateur’s questions. “Because we know that when our aficionados smoke a habano, they are looking for a unique, high-quality experience, and our main objective is to give them that experience. We are convinced that once the global situation has returned to normal, supply will become more stable.”

“Of course, we would love to be able to supply the whole catalogue,” acknowledges Juan Giron, “but I insist on the fact that there are many alternatives that enable us to provide solutions so consumers can continue to enjoy Cuban cigars, at least until we return to levels of supply that are more in line with demand.” But the alternative is sometimes also to look to… other cigar-producing countries. Space inside small retailers’ humidors doesn’t come cheap, and missing habanos run the risk of being replaced (permanently?) by other products. A European importer that also distributes Vega Fina has seen demand for the Dominican brand double concurrently with the dwindling supply of Cuban cigars. It didn’t take him long to work out that the competition is benefiting proportionally from the shortage of habanos.

Potential shortage on Cuban cigars and important stock-outs on other prestigious terroirs such as Dominican Republic, Nicaragua or Honduras.
In 2016, on a summer evening, sitting on the terrace of a famous golf club in the Lake Geneva area, I shared my concerns about the cigar market with the aficionados with whom I shared this beautiful evening.The impact of multiple factors such as the strong demand from the so-called emerging countries, the lack of qualified labour in the producing countries, the possible political instability of these countries, the boom of the online trade, the high value of the Swiss franc and the important craze of a new European clientele could, I told them, deeply impact our business.
We were living in a period of abundance of cigars on the market, without any apparent problems, but we underestimated the possibility of endemic problems and preferred to postpone to the Greek calendar possible actions that would be difficult to take but would save our industry, so that it would be more sustainable in the medium and long term. These considerations being more upstream of the distribution and of course of the final consumer, the aficionados surrounding me during this evening looked at me with a mocking air, circumspect, sure of their facts and almost embarrassed in my place for my remarks.They were so far from imagining that the situation could change so quickly, only 3 years after that meal. The aficionado could still enter the cigar shops and “play” the competition, challenge the merchant’s margins against the public selling prices imposed by the importer and leave satisfied with his purchases, the quality of the cigars acquired, the service, and the know-how of his specialist.
“It was a great time”, a cigar-loving friend told me later, to whom I had to announce a few weeks ago that this time was over, that it belonged to the past and that the return to a “certain normality” would not be for tomorrow, far from it!

In fact, for more than fifteen years, the price of cigars in Switzerland had reached extremely low public sales prices. So low, in fact, that more than thirty specialised shops had to close down, lay off their staff and lose their life savings without being able to repay the bank loan taken out a few years earlier.

“Once an entrepreneur, always an entrepreneur’, a maxim with which I absolutely agree. Taking risks, understanding the business in detail, managing the work and the staff, controlling, checking, travelling, analysing the determining factors, making friendships, making them grow, investing, starting again. These are the basics of being an entrepreneur.

“If you talk the talk, you have to walk the walk! “If you talk about your projects, your ambitions, your dreams, you have to do everything to achieve them! Another well-known maxim in the United States; true mojo of Carlito Fuente, fifth generation of the famous Fuente family, one of the most famous and prolific families of the last sixty years in the world of premium cigars.

So, almost a year ago to the day, I shared with you my concerns about a potential shortage of Cuban cigars in the world. That day has now arrived. The industry is facing its biggest challenge in over 50 years. High demand due to the lockdown effect, the slowdown in production in Cuba and the logistical problems caused by Covid-19 mean that, worldwide, the shelves of specialised cigar shops are almost empty and Habanos S.A. is calling for patience.

5th Avenue Trading, the exclusive importer of Cuban cigars for Germany, Austria and Poland, was the first to sound the alarm. When publishing its annual results in January 2020, the distributor already noted that “while Cohibas, large cigars and limited editions have become increasingly difficult to find in recent years, stock-outs on the standard range are now a daily reality”. Not only is this observation made at the beginning of the year now valid for the whole world, but it is now September 2021, more than a year after these statements, and the situation has clearly worsened since then.

“90% of the Cuban catalogue is out of stock,” the owner of one of the largest tobacconists in Paris told us. “For the remaining 10%, we can get delivery every day if we want, but mainly small formats – smaller than robusto. There are no more robustos; nor, for that matter, any modules larger than that. This statement by the Parisian cigar specialist is no longer even relevant. The entire catalogue of imported Cuban cigars is now under individual allocation for Swiss specialists, and the situation is even more complicated in neighbouring countries such as France, Italy, Spain, Holland and Germany.

The situation affects each market to varying degrees but is particularly acute in the more mature Western European markets where Cuban cigars are most popular. “There has been a supply shortage for premium cigars (Behike, limited editions, etc.) for several years,” explains Nicky Meire, marketing director of Cubacigar, the importer for the Benelux. “But this year, the shortages sometimes affect the standards, like the Partagás D4 or P2, and more generally all the robustos. Sometimes we even run out of José L. Piedras or Quinteros! Deliveries remain regular, we receive cigars, but not in sufficient quantity. The president of the Italian importer Diadema, Andrea Vicenzi, agrees: “There are problems with all types of products, but shortages are more frequent with large formats.”

Underproduction and logistical problems
Several factors have come together in recent months to bring us to this point. Firstly, for several years now, there have been difficulties at the agricultural and “pre-industrial” (drying and fermentation) level in obtaining sufficient quantities of the large wrappers needed to manufacture the largest and most beautiful cigars. Habanos S.A. and its Cuban operating branch, Tabacuba, have therefore been suffering for several years from problems of underproduction of large cigars (double corona, churchill, salomones, etc.).

This pre-Covid-19 situation has been exacerbated by the disruptions to long-distance transport and supply chains caused by the pandemic, which have not yet been fully resolved. Air traffic is still only operating at about 50% of its pre-Covid capacity. Under these conditions, air freight remains a scarce (and expensive) commodity, and, whatever cigar lovers may think, when a freight forwarder has to choose between several types of goods, cigars are not considered a priority.

Finally, there is the situation of the pandemic in Cuba. Although it is true that fewer factories have been affected than in other cigar-producing countries, the large La Corona factory in Havana has been closed for two months for health reasons. Considered fundamental to the Cuban economy, the tobacco industry was exempted from the lockdown measures imposed on the island; strict hygiene and social distancing measures were quickly implemented in all factories from March 2020 onwards, and these have remained open. Despite this, production is still disrupted, not to say seriously hampered. Schools are also closed in Cuba, which means that some workers have to stay at home to look after their children. The cramped conditions of some factories (such as El Laguito, where most Cohiba products are manufactured) do not allow for acceptable distance. Only every second workstation can be occupied in the production areas. As a result, even with rotating shifts and Saturday shifts, which is now the rule in most of the large factories in Havana, the level of production has fallen sharply. And while Cuba was largely spared the first wave of the pandemic in the spring of 2020, the number of positive cases has been rising since the beginning of 2021, forcing the authorities to take strict preventive measures, including in factories. When a positive case is identified in a galley, four lines around the infected individual, i.e. 25 rolls, are immediately sent home to be isolated for a week.”

Since January 2021, the rolling mills have been at 50% of their capacity, or even less. “And it’s not just the rollers who are affected, the same type of problems occur at every stage of production (boxing, adding the band, packaging, etc.)”. Cigars are a craft product,” explains Juan Giron. “It’s not an industry where you can increase production by pushing a button.

In El Laguito, as in all other cigar factories, one out of two jobs is occupied.

Increased demand
So several factors are working together to squeeze supply at a time when demand has rarely been so strong. Of course, the duty-free market and sales linked to tourism (Cuba, Latin America, the Middle East) are virtually nil. But Europe, which still accounts for 60% of global Cuban cigar sales, has seen demand for puros increase as a result of successive lockdowns. Blocked at home for several weeks, Western cigar lovers have increased their consumption of cigars. Not all importers report their sales figures, but 5th Avenue (Germany, Austria, Poland), for example, recorded record sales in 2020, up 27% on the previous year, and this trend shows no sign of abating in 2021. In regions where distributors and/or tobacconists have stocks, the situation remains manageable despite stock-outs on some lines. “This has not affected our turnover yet, because we can draw on our stock,” explains Andrea Vicenzi for Italy. “But we may feel the effects more strongly in the coming months. “A few years ago we took the position of keeping a year’s worth of stock of all lines in our main bonded warehouse,” says Jimmy McGhee, communications manager for Hunters & Frankau, the UK’s exclusive importer of Cuban cigars. “This policy may have preserved the UK market to some extent.

Rumours… and a cigar rush
However, in markets where supply is tighter, such as France, Benelux, Switzerland and Spain, the impact of this situation is significant and its equation is easy to understand. With increased demand, reduced supply and limited stocks, tobacconists’ shelves now look empty. And as is often the case in such situations, the shortage is self-perpetuating: seeing that retailers are less well stocked than usual, cigar lovers (and retailers themselves) rush to buy the products as soon as they appear or reappear on the market. Laurent Mimouni

Customers no longer ask the question “how much can you offer me for these 5 or 10 boxes of Cuban cigars” but “do you still have this or that box of Cuban cigars in stock? “. If the answer is negative, the customer will eagerly ask if his name can be put on the waiting list!

This 180° paradigm shift has taken place in less than a year for Cuban cigars. There is a very strong chance that it will also occur for cigars from the Dominican Republic, Nicaragua or Honduras. In fact, it has already started for the most emblematic brands such as Davidoff, Arturo Fuente, Ernesto Perez Carillo, Plasencia or La Flor Dominicana.

In a way, the cigar has regained the place it has had since its beginnings. A luxury product, a rare product, made by human hands and a secular vector of gestures repeated many times. A product that perpetuates tradition and conveys simple and fundamental values, family values, friendship and sharing.

We all suffer from this shortage. We have all had to give up a lot for more than a year. Some have lost loved ones, some have lost their jobs, some have become seriously ill. But rest assured that we are doing everything we can to stay the course and weather this storm. We owe it to the cigar, this product that is so ephemeral, so futile; this product that nevertheless crosses the ages and is so important in our lives.

“There have always been times when similar situations have occurred in the past, due to an increase in demand, because of the issues related to the products’ artisan nature, or due to delayed launches; things always go back to normal,” Juan Giron reminds us.

Written by Alexis Aazam Zanganeh. To find out more visit News from Havana on Alp Cigars, the leading Swiss Cigar Specialist.