Your thoughts on a "Cigar bubble"

[El Presidente]

 

I was asked for my opinion while at the Dortmund Inter Tabac as to whether the international premium market was in a cigar bubble where prices in the primary and secondary market had reached a peak?

I replied that I have incorrectly predicted a cigar bubble since 2006. 

"Surely prices couldn't go any higher" .....but they did and they continue to do so. 

Is there such a thing?  What are the fundamentals here of supply and demand?

Yes.....flight delayed 

[CaptainQuintero]

  I can't see anything but a continuous rise until sales start to drop. I can't see the latter happening.

  I remember how we used to talk about Europe powering the profits of HSA with the cheapies, but it looks like the swing to premium sales is well on its way to changing that. If HSA can operate on the  premium sales on the backs of the new rising class in China et al then prices are only going to go up. It's a no brainer for Cuba; less product and higher profit margins.

  The moves since 2000 with the deletions and limited/high end/shiny only underline how far HSA will go. Get on board or move out of the way.

[bbguardsp]

On the NC side here in the states at the retail shop I manage it's not uncommon to get the invoice for the cigars and when putting them in inventory I notice the wholesale price is 3-5% above the previous order a few months ago.  Arturo Fuente especially and the larger companies right now - almost every order there are increases for some SKUs.  Smaller companies not as much.  So for us it's been a "steady boom" the last 5-10 years.  Hate to adjust prices in the humidor but after a while you have no choice...

[Lotusguy]

I'm in the same boat as Rob... "It can't possibly go any higher" - until the next increase. The secondary market is even crazier. I have to admit, I'm selling a bunch of stuff once it hits what I consider a ridiculous premium (example, some RE from a few years back that was 110 euros now going for $400+). Psychologically, once a cigar is worth $30+, I am having an extremely hard time cracking the box and smoking them. 

[Derboesekoenig]

Within the last year, secondary markets for most cigars have tanked. From my perspective. I'm getting guys negotiating for well under what I can buy for on the island. I just laugh...

[BeerPimp]

6 minutes ago, Derboesekoenig said:

Within the last year, secondary markets for most cigars have tanked. From my perspective. I'm getting guys negotiating for well under what I can buy for on the island. I just laugh...

I would think the normal production market, LE/RE market, and aged market probably aren't the same.  

[Fuzz]

It's not a bubble unless it bursts.

[El Presidente]

4 hours ago, bbguardsp said:

On the NC side here in the states at the retail shop I manage it's not uncommon to get the invoice for the cigars and when putting them in inventory I notice the wholesale price is 3-5% above the previous order a few months ago.  Arturo Fuente especially and the larger companies right now - almost every order there are increases for some SKUs.  

The major NC's are making a massive push into Europe generally and China specifically. Most are kicking goals to levels that they didn't think possible a few years ago. I suspect that is putting some pressure on domestic supply/pricing. 

Some of the NC brands have "just" discovered the largest emerging middle class the world has ever seen. They want to be part of it even if they are making some missteps. They are learning fast. 

All this at a time when their arch enemy Habanos S.A continues to kick own goals with an inability to consistently supply premium product such as Behike and VI. 

It is an out and out war in the cigar world right now and HSA is taking a bit of a beating. 

AJ's new megastore in London will have two huge walk ins. One Cuban and one "New World".  That would have been unthinkable a decade ago. AJ has called it correctly. 

[MD Puffer]

Ask again in 2020.

 

[BoliDan]

Intrinsic value is a helluva drug.

[PigFish]

I think all markets are prone to bubbles. The cigar market will be no exception. I am not in tune with it 'market-wise' to call it, I am simply betting the odds with an option that does not expire.

I don't have a taste for NC cigars, so the likelihood that I will be won over by them is pretty slim. I don't see the greater cigar buying public as that loyal. These are fickle people and they could be eating Hawaiian ice one day, vaping or smoking cigars the next. This is their market, not mine!

Seeing that Tabacuba has done nothing but piss on me as a client in the last decade or so, I have no sympathy of them. Watching them crash would give me a good laugh.... I have cigars, good ones, to last the rest of my life.

The Cuban cigar was a thing of wonder and mystique 20 years ago. It had a following that were loyal to the bone. Many of us have been hosed by Tabacuba and some of us don't care anymore. Today's cigar people are soldiers of fortune. They are the Beanie Baby hunters of days past. I don't think they will be there in a pinch...

MHO. -the Pig

[GasGuy82]

The secondary market peaked in 2017 to my mind. For the past two years, the resale and flipping markets where the bubble was most apparent have been flat/stagnant.

[nKostyan]

There are several reasons, in my opinion, mainly related to the lack of professionalism of buyers:
- cigar is perceived as a Veblen’s goods;
- limited offer;
- aggressive HSA marketing;
- rapid growth of Asian markets;
- similar hype in related markets (elite alcohol and Haute cuisine's delicacies);
- availability of rarities for which the buyer is willing to pay any price;
- collectors mania effect;
- the buyer does not know the professional market price;
- restriction of tobacco markets in some countries - black market.

[El Presidente]

1 hour ago, GasGuy82 said:

The secondary market peaked in 2017 to my mind. For the past two years, the resale and flipping markets where the bubble was most apparent have been flat/stagnant.

That is about the same time (or a year earlier) where HSA decided to take the flippers premium on specialties. 

[El Presidente]

2 hours ago, PigFish said:

I don't have a taste for NC cigars, so the likelihood that I will be won over by them is pretty slim. I don't see the greater cigar buying public as that loyal. These are fickle people and they could be eating Hawaiian ice one day, vaping or smoking cigars the next. This is their market, not mine!

Seeing that Tabacuba has done nothing but piss on me as a client in the last decade or so, I have no sympathy of them. Watching them crash would give me a good laugh.... I have cigars, good ones, to last the rest of my life.

The Cuban cigar was a thing of wonder and mystique 20 years ago. It had a following that were loyal to the bone. Many of us have been hosed by Tabacuba and some of us don't care anymore. Today's cigar people are soldiers of fortune. They are the Beanie Baby hunters of days past. I don't think they will be there in a pinch...

I don't have too much doubt that Cuban tobacco will remain the holy grail. It is just tastier and more complex when done correctly. 

I don't have too much doubt that Tabacuba/HSA will continue to waste the massive advantage that it has/had. 

The global premium cigar market is in a growth phase and they (HSA) don't appear to be able to supply the growth.  That growth phase will last another couple of decades even allowing for increasingly draconian global legislation. It will also likely underpin the secondary market to some extent as they (emerging markets) become fully engaged with those markets. 

Ray, you hit it on the head in regards to brand loyalty. They (HSA) have done everything possible to antagonise it's hard core supporters and chase  the low hanging fruit.  If they weren't dealing in Cuba and its system, they may have been able to retain both. 

In the end they are a business producing less cigars today than 3 years ago but making a higher revenue. In their eyes they are doing the right thing.  Unfortunately there is a price to pay and they are finding that out. 

 

 

[nKostyan]

I don't have too much doubt that Cuban tobacco will remain the holy grail. It is just tastier and more complex when done correctly. 

You have not mentioned another important advantage of Cuban tobacco - the ability to preserve the taste and strength for decades.

Without the possibility of aging and long-term storage, there was no market for rarities and vintages, there would be no prospects for investing in order to profit from resale after storage.

 

[99call]

To me one of the unique blurring factors of the market is the nature of the Chinese influence, not just money. But the fact that all this stuff is being consumed. I love that when I see on Instagram that whether is be 200yr old wine or 1920s Dunhills, they seem to be putting it all to the sword.   Hats off to them.  I thing us Europeans are a stuffy lot......and are a great deal more on the boundaries regarding something's potential for enjoyment as a consumable, and it's enjoyment converted into cold hard cash.       There is something very sad about a bottle of wine or whatever, that simply just becomes a very expensive ornament, commodity, or device to simply impress kudos on the peers.

Humans are very simply critters, put a red rope in front of the "platinum golden eagle suite" and there is a small percentage that will let you extract their teeth with a dirty spoon, to get in.

Some people are not happy unless they have a sticker to distinguish themselves from cattle class, regardless of weather the experience beyond the red rope is any better.   

Also if some have a billion in the bank. Spuzzing a million up the wall of RE LE cigars, is probably less of a guilty pleasure than their 'bleached, hand tufted swan neck toilet paper' at £1000 a sheet.

[Fabrice]

quite standard to see some businesses that were once considered as old fashioned turned into a very lucrative one. Put a "Traditional", "Artisan" or "Luxury" label on it and you can easily drive prices up.  Wet Shaving, one of my other hobbies/passion is getting more and more expansive ... Same development as for cigars...   Some well established artisans launch some limited editions of their products and can sell them for twice or thrice  what it is actually worth because collectors will pay for it or some other ones will buy them to show the world they have it...Welcome to Instagram/facebook/reddit/Yolo.. driven business model...

[El Presidente]

48 minutes ago, Fabrice said:

  Some well established artisans launch some limited editions of their products and can sell them for twice or thrice  what it is actually worth because collectors will pay

Isn't the above simply an example of "market value"?

[Fabrice]

4 hours ago, El Presidente said:

Isn't the above simply an example of "market value"?

It is indeed but these niche productions and their prices tend to drive up regular production prices too

[anacostiakat]

I too don't have much of a taste for NC cigars.  There are a few that I will smoke on occasion or if I come across them.  In the past on of the factors steering me away from NC cigars was cost.  In general they were/are priced higher.  Especially the more exclusive brands whose products are pretty good.

While this hasn't proven out yet.  I think Habanos is making a big mistake raising prices continuously and making their products increasingly out of range more and more.  But supply and demand holds sway and for now that is the way it be. 

[Puros Y Vino]

5 hours ago, 99call said:

There is something very sad about a bottle of wine or whatever, that simply just becomes a very expensive ornament, commodity, or device to simply impress kudos on the peers..

Couldn't agree more.  I've overheard wine connoisseurs (the ones who "invest" in stuff like Rothschild, Y'Quem, Chateau du Merde, etc) talk about getting their prized bottles holding them for a while to show off, etc and then flipping them for a profit.  They pretty much admit, there's a good chance the actual contents aren't really drinkable as there is too much uncertainty with flipped bottles and storage conditions.  I myself have cigars from the 1920's and onwards. None will be spared the flame AFIAC. They are meant to be enjoyed and personally for me, as accents on milestones or whenever I feel like it.   

My eyes tend to be locked on CC only sites, whether they be FOH, FB or others and from what I see, the mania for > double banders continues to rise.  People head to the Island multiple times and bring stock home to flip.  I can only imagine what the Novedosos are going to go for once they hit LCDH shelves in good quantities.  Already the Punch La Isla's are a hot commodity.  HSA keeps appealing to the collector class of cigar smoker who wants a cigar for the prestige it brings.  While many of us here just want to go deep on regular production stuff before it gets the axe.  I enjoy EL's and RE's too, but I hate that tobacco for those programs result in the lowered production or cessation of other cigars.  I know Cuba has had some crop issues thanks to various tropical storms over the past 5+ years and the EL/RE offerings can make for great margins vs regular stock.  But I believe this thinking will hurt them overall.  I don't think I will turn to NC's as a result given how much inventory I have and the rate I smoke it at, but it will influence those who are starting out or don't go deep on stock.

[BrightonCorgi]

Habanos prices will continue to rise.  Population grows, retail prices increase due to taxes and wholesale cost.  Laws restrict smoking and lower retail stock investment in cigars.  When do prices on any luxury item ever go down?  If so, that is seldom at best.

[Cairo]

8 hours ago, nKostyan said:

There are several reasons, in my opinion, mainly related to the lack of professionalism of buyers:
- cigar is perceived as a Veblen’s goods;
 

Veblen's goods--new term for me--I looked it up--thanks for a really interesting post--they never taught about that in B school.  ?

[SCgarman]

This whole conversation can also apply to Rolex watches, the shortage of steel sports models and the ridiculous grey market premiums buyers are having to pay because many authorized dealers sell a good quantity of them out the back door. And what social media has also done to hype up the Swiss watch industry. There are many parallels between these cigars and Swiss mechanical watches.