Answers to "Questions for HSA".

[El Presidente]

I have rolled several questions pertaining to tobacco quality and new sizes/cigars going forward into one answer.

Tobacco Quality.

Much has been made of the accessability of young tobacco/cigars since late 05. In the main they smoke exceedingly well young compared to the first 4-5 years of the decade and the last 3 years of the 90's.

When Altadis took 50% control of the marketing in 2000 tobacco reserves in Cuba were at a very low ebb. The near doubling of cigar production in the late 90's had depleted reserves in an all out assault by the Cubans for foreign currency. We are all aware of the state of the Cuban industry at that time, a litany of poorly constructed poorly fermented cigars rushed to market. As an example the average age of Ligero used was 18 months. Rollers with as little as 3 months training were producing Piramides.

There was a multi pronged approach initiated at that time to repair the Cuban Cigar industry.

1. Reduce production and improve training.

2. Put tobacco aside for proper aging.

3. Inject cash to modernize production (drying barns/dryers, modern centralized sorting and baling facilities, moistening chambers at factories, draw machines, freezing facilities etc).

4. Increase ROI through the LE and specialties program while at the same time increasing interest by producing these benchmark cigars.

5. Re-evaluate what the market sought through an accelaration of "Deletions" and new releases.

It took 5 years to cement all of these features. By late 2005 early 2006 ligero was now aged 36 months before use in all cigars with Seco 18 months. Today, there are three years reserves of well aged tobacco leaf for general rolling. it has taken a decade to reach that point.

This is the primary reason for the change noticed by many cigar lovers in the "smokeability" of Cuban cigars since 2006. In general the seasons have been kind with some bumper quality crops (8 out of the 10 years) with the majority of strains utilized performing well. This years crop has been one of the most challenging with a very cold winter (by Cuban standards) and rain affecting the growing and harvest. It is of little concern given the reserves and the fact that production was down by between 30-50% (depending on who you talk to) in 2009.

New Sizes

Habanos firmly believes in producing cigars that Joe public wants. They point to their successes.

Siglo VI

P2

Edmundo

Petit Edmundo

Magnum 50

Maduro 5 Genios

Even the Monte Open has not faired too badly in 2009 but below expectation (much to my own amazement).

There have been disappointments. Bolivar gold medal and progressively the LE series which has shown market weakness since 2007.

There appears to be a consensus that the next 24 months will be one of consolidation amongst existing lines while they work out what to do with some of their lesser performing marques. They don't have the answer. Caught in a pincer between economic realities and a tie to heritage they don't want to produce cigars that do not sell but at the same time they don't want to alienate core customers.

The letter campaign started in December was the first time they have experienced a consumer backlash. HSA is in many ways isolated with their core market interaction being with distributors and very little to do with end consumers. That is the system they inherited and have continued but it may be dawning (just may) that there needs to be a more holistic approach. Nothing will happen in this area unless there is a concerted effort by retail stakeholders in the market to provide a new medium of information from consumer/retailer to HSA.

While in Havana a group of us have got together to discuss the formation of a Habanos Independent Retailers Association to provide such an organization and a differing perspective. We will see how it goes and if we can bring it to fruition before the next festival in Havana 2011.

So en fin, don't expect a rollback to thin gauge cigars anytime soon. Don't expect too many new 'general" releases. This year and next will be used by HSA to repair balance sheets after a tough 2009. The good news is not to expect a HSA price rise either.

[jquest63]

Thanks for the update!

[OZCUBAN]

Great Post/report,Rob

It would appear that we have made some sort of impact with the" Letter Campaign". Glad to see that habanos is aware that that things are not quite as rosy as they first thought, "the customer is always right" as they say.

Keep us posted as and when developments occur as i am sure you will . good work

Cheers OZ

[Yoruba Hacker]

Appreciate the update. Was worried about an impending price increase given the need for increased revenues and exports.

Thanks man.

[mkz]

Thanks for the update Prez!!

Very appreciated!!

[Tampa1257]

Thanks for the reply Rob. Interesting that you bring up items like the dryers. That was a hot topic when many were wondering if the tobacco was being "cooked", the use or lack thereof of the draw machines, etc.

I am pleased that the letter campaign worked as well as it did. If the Habanos Independent Retailers Association takes off and provides HSA with valuable information about what is actually happening at the retail level, it will provide HSA with true numbers of what is selling where the product meets the consumer level and not a squed representation of what a Distributor buys to fill his warehouse for hopeful future sales. Filling the distribution channals never provides accurate sales figures; so thus far, the only "Sales numbers" that HSA has been using to make decisions on what is selling or not have been artificial numbers representing what the distributors around the world have ordered to fill their warehouses, not what has actually been selling at the retail level.

It is about time that HSA has had their eyes opened to what is really happening with their true customers.

[LeafLover]

Prez, thanks for being an ambassador and champion for our passion.

And thanks to all FOH members who step up to the plate as well.

[riderpride]

Thanks for the reply, and all your efforts!

[Stalebread]

Lots of information gems in your post, Rob. Thanks.

[Padrino]

The good news is not to expect a HSA price rise either.

That's the best news for me so far

THank you for the update Prez.

[cigarros]

Many thanks for update Rob! Great job!

[thechenman]

Thanks for the great info Prez. Appreciate all your hard work in keeping us informed.

[thechenman]

Thanks for the great info Prez. Appreciate all your hard work in keeping us informed.