F#%k the LGC Revolution where's my regular production at?

[El Presidente]

Well, simple - vastly expand the cultivated area...

Agreed!

From the early 2000's to today, there is roughly 9000 hectares that was previously used for tobacco that is being used by farmers on other crops.

Farmers can keep a % of their crop but there is only one major buyer for 90% of it and that is the State. Tobacco is a high risk labour intensive crop. Farmers need to be paid more and have some financial guarantees against crop failure/substandard seasons. They also need to be paid on time.

I understand that some of these issues have been addressed this past season and more changes will occur this year in order to encourage farmers to switch back.

[luv2fly]

...brilliant!

-Piggy

Let's make way for the overpriced Donkey Dongers. I can't wait!

[El Presidente]

Storage costs money. Money to build a warehouse, power it up, staff it, logistical support, etc. Money spent on that is money lost from the profit margin.

In the real world it isn't a profit until you realise it.

Those couple of dozen masterases of SP Beli in the warehouse are an asset, but the profit only comes about when they sell.

[skalls]

Thanks Rob for the info and explanation of regionals. Doesn't change my disappointment in the price but it clears up a major misunderstanding about how regionals work.

Ultimately if they sell at that price more power to PCC.

[El Presidente]

Thanks Rob for the info and explanation of regionals. Doesn't change my disappointment in the price but it clears up a major misunderstanding about how regionals work.

Ultimately if they sell at that price more power to PCC.

For the record, my recommendation was a price of $425

Then again, I didn't think the Bushido would sell in volume at $700. I recommended $565 on that one.

Needless to say, my opinion on pricing has lost some credibility

[Fugu]

Agreed!

From the early 2000's to today, there is roughly 9000 hectares that was previously used for tobacco that is being used by farmers on other crops.

Farmers can keep a % of their crop but there is only one major buyer for 90% of it and that is the State. Tobacco is a high risk labour intensive crop. Farmers need to be paid more and have some financial guarantees against crop failure/substandard seasons. They also need to be paid on time.

I understand that some of these issues have been addressed this past season and more changes will occur this year in order to encourage farmers to switch back.

True, but we must not forget that prior to that decline, that was the very period when the area under crop for tobacco had just been expanded tremendously to meet the demand of the boom-era.

So the core question, for me, remains - is that really all "historic" tobacco land we are talking about? Or... putting it more precisely - is there really enough land "in reserve" featuring the soil quality that is needed for high-class tobacco? I am not sure. The best tobacco soil represents a rather confined area that cannot be augmented at random.

That 9,000 ha land could probably again produce tobacco, but with a risk for poorer crop quality, poor crop health, poorer land drainage / more prone to drought, higher susceptability to plant diseases / rott, less resiliance to calamities etc.? So there's perhaps good reason they don't grow tobacco there right now?

[El Presidente]

That 9,000 ha land could probably again produce tobacco, but with a risk for poorer crop quality, poor crop health, poorer land drainage / more prone to drought, higher susceptability to plant diseases / rott, less resiliance to calamities etc.? So there's perhaps good reason they don't grow tobacco there right now?

For every Prieto or Robaina there are a hundreds of smaller fincas no one has heard of.

Many still grow tobacco, they just won't bank on it as their sole crop but rather split the finca into tobacco and the rest vegetables etc. Others just gave up on tobacco altogether.

Much of it is good tobacco land. It has been tobacco land for generations. Just a matter of providing them the necessary incentive.

[Fugu]

Ok, if that's so, good to hear!

[RickHendeson]

Excellent and informative thread!

[shlomo]

Storage costs money. Money to build a warehouse, power it up, staff it, logistical support, etc. Money spent on that is money lost from the profit margin.

Yes, profit is there, but like Rob says, some of the higher profit things keep the overall production afloat. Some of those "past relics" cigars that are there for the connoisseurs, for the "love of it", etc.

Storage? I didnt say anything about storage.....

But since we are on the topic of storage, we are talking pennies here. And nothing that costs extra just bc there are more boxes. They are not running out of storage space. They store the QdO boxes alongside the Monte 2 boxes. They dont have to pay anybody anything extra, the lights have to occassionaly function regardless of what boxes are on which pallete, etc... the only extra cost for 1000 boxes of QdO is the int'l shipping.....and time

Pennies.

[shlomo]

For the record, my recommendation was a price of $425

Then again, I didn't think the Bushido would sell in volume at $700. I recommended $565 on that one.

Needless to say, my opinion on pricing has lost some credibility

Even your recommended pricing is significantly higher than years past. Did HSA up the price?

[shlomo]

In the real world it isn't a profit until you realise it.

Those couple of dozen masterases of SP Beli in the warehouse are an asset, but the profit only comes about when they sell.

BBF anejados.

[El Presidente]

Even your recommended pricing is significantly higher than years past. Did HSA up the price?

Certainly have

[RickHendeson]

BBF anejados.

LOL

[jmg]

i feel like i'm getting smarter. thnx for all the info gentlmen

[Fuzz]

Storage? I didnt say anything about storage.....

But since we are on the topic of storage, we are talking pennies here. And nothing that costs extra just bc there are more boxes. They are not running out of storage space. They store the QdO boxes alongside the Monte 2 boxes. They dont have to pay anybody anything extra, the lights have to occassionaly function regardless of what boxes are on which pallete, etc... the only extra cost for 1000 boxes of QdO is the int'l shipping.....and time

Pennies.

Every square metre in a warehouse costs money. A pallet that doesn't move, is one pallet space that could have been utilised for something else.

If I have a 1000 pallet warehouse, and 25% of it is used for holding stock that gets turned over once every few years, that means I effectively have a 750 pallet warehouse. If a new product comes in, I have to find additional space for it, or cut stock holdings of other lines (possibly effecting supply). If neither of those two options are possible and you have to find additional outside storage (eg 3rd party logistics), that is going to be charged at a much higher rate than it would cost to be in your own warehouse.

[Homer]

I have many boxes of RE cigars, but I am beginning to dislike the RE program. I prefer regular production cigars that I can age by myself. I just bought Lusitanias from Rob and they are much better and cheaper than small RE cigars in Europe.

[shlomo]

Every square metre in a warehouse costs money. A pallet that doesn't move, is one pallet space that could have been utilised for something else.

If I have a 1000 pallet warehouse, and 25% of it is used for holding stock that gets turned over once every few years, that means I effectively have a 750 pallet warehouse. If a new product comes in, I have to find additional space for it, or cut stock holdings of other lines (possibly effecting supply). If neither of those two options are possible and you have to find additional outside storage (eg 3rd party logistics), that is going to be charged at a much higher rate than it would cost to be in your own warehouse.

Oh I completely understand the opportunity cost of using resources for one item and not the other. What I am saying is that it doesnt work the same way in Cuba as everything is controlled by the state and their warehouses cannot possibly be full and bursting at the seems. In fact I doubt there has ever been a time where they got close to running out of room.

[wabashcr]

Oh I completely understand the opportunity cost of using resources for one item and not the other. What I am saying is that it doesnt work the same way in Cuba as everything is controlled by the state and their warehouses cannot possibly be full and bursting at the seems. In fact I doubt there has ever been a time where they got close to running out of room.

I don't think it's the opportunity cost of warehouse space that presents the problem. It's more of a cash flow issue. Having inventory sit around represents cash that could be invested or spent elsewhere. You've spent the money to produce or acquire slow moving inventory, but you haven't recovered those expenditures on the sales side. So you're left with less cash to continue to operate your business (new production, R&D, payroll, etc). For private enterprise, that usually means borrowing money, primarily via lines of credit, to continue to make ends meet. But you have to pay interest when you borrow money. So essentially you're paying interest on the value of your dead or slow moving inventory. The quicker you can turn your inventory, the less interest you have to pay.

Obviously the Cuban government operates a little differently, but the problem of slow-moving inventory still has a negative impact on their cash flow. The money to restore cash flow has to come from somewhere. They may not have to pay interest, but the money could still be better spent elsewhere.

[shlomo]

Again I get it. I doubt the few pennies it costs to produce each box of Cigars amounts to much with sitting inventory. Just opinion though.

Sent from my SM-G530W using Tapatalk

[CanuckSARTech]

In the real world it isn't a profit until you realise it.

Those couple of dozen masterases of SP Beli in the warehouse are an asset, but the profit only comes about when they sell.

Agreed and understood.

[CanuckSARTech]

Storage? I didnt say anything about storage.....

But since we are on the topic of storage, we are talking pennies here. And nothing that costs extra just bc there are more boxes. They are not running out of storage space. They store the QdO boxes alongside the Monte 2 boxes. They dont have to pay anybody anything extra, the lights have to occassionaly function regardless of what boxes are on which pallete, etc... the only extra cost for 1000 boxes of QdO is the int'l shipping.....and time

Pennies.

Nay nay. Not pennies at all.

Every square metre in a warehouse costs money. A pallet that doesn't move, is one pallet space that could have been utilised for something else.

If I have a 1000 pallet warehouse, and 25% of it is used for holding stock that gets turned over once every few years, that means I effectively have a 750 pallet warehouse. If a new product comes in, I have to find additional space for it, or cut stock holdings of other lines (possibly effecting supply). If neither of those two options are possible and you have to find additional outside storage (eg 3rd party logistics), that is going to be charged at a much higher rate than it would cost to be in your own warehouse.

Exactly this...

I don't think it's the opportunity cost of warehouse space that presents the problem. It's more of a cash flow issue. Having inventory sit around represents cash that could be invested or spent elsewhere. You've spent the money to produce or acquire slow moving inventory, but you haven't recovered those expenditures on the sales side. So you're left with less cash to continue to operate your business (new production, R&D, payroll, etc). For private enterprise, that usually means borrowing money, primarily via lines of credit, to continue to make ends meet. But you have to pay interest when you borrow money. So essentially you're paying interest on the value of your dead or slow moving inventory. The quicker you can turn your inventory, the less interest you have to pay.

Obviously the Cuban government operates a little differently, but the problem of slow-moving inventory still has a negative impact on their cash flow. The money to restore cash flow has to come from somewhere. They may not have to pay interest, but the money could still be better spent elsewhere.

And this.

Those two points by Chris and Wabash were what I was alluding to, but didn't communicate well, I guess.

[wabashcr]

Again I get it. I doubt the few pennies it costs to produce each box of Cigars amounts to much with sitting inventory. Just opinion though.

Sent from my SM-G530W using Tapatalk

I won't pretend to know the actual costs. What it comes down to is what proportion of your inventory is slow-moving. Whatever amount that is has to be offset by faster movers, like the REs and ELs, to keep cash flow where it needs to be. I believe you're saying that in this case that's not an adequate barometer as to whether a cigar is commercially successful, and I understand that argument. I think Rob's point is that HSA define success on a sliding scale, so relative to cigars they can't keep on the shelves, some of the slower movers aren't successful. I doubt there are many cigars that actually lose money. I don't think either argument is wrong. We're just quibbling over what constitutes commercial success.

[Orion21]

I have been thinking about this more and the pricing scheme makes more and more sense. Look at how many past regional release cigars from 2009-2013 are currently available on the open market. Many of these cigars are excellent smokes and priced reasonably considering the limited production. For some odd reason the higher the price a cigar is retailed for the more desirable they become. It sucks for the vast majority of the consumers, but at 2,500 boxes PCC has little risk of moving the whole production run by creating this exclusivity based on price. If they had retailed them at $299 per box they wouldn't have been quite so exclusive. I guess it's time for me to go buy up the reasonable regionals I have enjoyed because I think this pricing model is here to stay for a while.

[Fugu]

I don't think it's the opportunity cost of warehouse space that presents the problem. It's more of a cash flow issue. Having inventory sit around represents cash that could be invested or spent elsewhere. You've spent the money to produce or acquire slow moving inventory, but you haven't recovered those expenditures on the sales side. So you're left with less cash to continue to operate your business (new production, R&D, payroll, etc). For private enterprise, that usually means borrowing money, primarily via lines of credit, to continue to make ends meet. But you have to pay interest when you borrow money. So essentially you're paying interest on the value of your dead or slow moving inventory. The quicker you can turn your inventory, the less interest you have to pay.

Obviously the Cuban government operates a little differently, but the problem of slow-moving inventory still has a negative impact on their cash flow. The money to restore cash flow has to come from somewhere. They may not have to pay interest, but the money could still be better spent elsewhere.

"Obviously the Cuban government operates a little differently,"

Why?

All correct and I second what you are saying but why different? You all seem to ignore the owner's structure of HSA. The Cuban govt just holds a 50 percent share. Fifty percent is Imperial-owned, and they work to rather normal "western" economic standards.

Storage does cost of course, whether in Cuba or elsewere. We have seen the results of that in the past, with slow movers and costly lines and marcas having been axed heavily. First, when Altadis came into play, then again with Imperial Tobacco entering stage.

I guess we don't have to debate much on these things - it just happens!