Theory on Cuban pricing

[havanaclub]

Not so sure Cohiba and Trinidad has missed the mark...  2 days in a row I saw here of Cohiba selling at the new prices, sold out.  Same with Trinidad Esmeraldas today.  And this forum is made up of mainly regular Joe buyers... 

How can you be so sure this forum is mainly regular joe buyers?
I would venture to say it has all walks of life from very wealthy to regular joe to flippers.
But you can certainly see if you have been here for over 5-6 years that the espi didn’t sell out in seconds.


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[Bigkahuna]

These are but 3 small examples of why the pricing will continue to climb. Supply will drop and profits will increase.  You can argue all you want and say people will walk away. The truth is for every person who walks there are 2 more to take their place. Forced exclusivity and supply issues will only feed that cycle. Pricing *may* level off after a few more hikes but it will never retreat. 

[El Presidente]

5 hours ago, havanaclub said:

How can you be so sure this forum is mainly regular joe buyers?
I would venture to say it has all walks of life from very wealthy to regular joe to flippers.
But you can certainly see if you have been here for over 5-6 years that the espi didn’t sell out in seconds.


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We run the entire gamut of Cuban buyers from billionaires to broke (Ken says hi! and will be back next week). 

If sales on Cohiba are slowing....but are still clearing....then it would mean that HSA has just about got it right. 

Of course, you need to look at markets such as Spain. Then again, how much Esplendido were actually being sold in Spain and how many were moving to OS markets because of the arbitrage? 

This game has a full two quarters left to play. It is line ball right now but the lopsiderd result I was expecting hasn't eventuated to date. 

[mprach024]

I saw this with Bordeaux after the 2010 vintage release.  Killer vintage with lower yields back to back years.  Vineyards were double/tripling their normal costs even after the stellar 09.  For a while, the wealthy bought the product and the prices stayed very high.  What happened?  Average Joe consumer got priced out, moved on to drinking what was at the time underpriced California’s and Italians.  Several years on, Bordeaux lost an entire generation of Bordeaux drinkers who were priced out.  California costs skyrocketed, and Bordeaux dropped.  To the point where stellar vintages like the 16 were half the price of the 10.  Bordeaux pushed the panic button and prices plummeted.  

Forget valuations, how much something is worth is how much someone is actually will pay for them which is why I’d rather look at recent auction prices for values of art/cars/wine etc etc.  Bond Roberts for example, has shown the market real valuations of these products.  Sure there’s a premium for age, but not that much, people are willing to pay extra to guarantee getting a good looking box.  Are Espys worth $2500 a box?  Right now they are, maybe more apparently as they sold out.  

It will grow tiresome and unsustainable at Uber luxury levels eventually, because more and more the prices go higher, more and more people like me will move our everyday smokes away from M2 and BBF and smoke Nudies or Tatuajes instead, and save our stock of Cubans for treats.  Where the tipping point is only time and the market will tell.  

Load up where you can, board up your windows, batten down the hatches, and hunker down for a long winter.

[HarveyBoulevard]

6 minutes ago, mprach024 said:

1.  For a while, the wealthy bought the product and the prices stayed very high.  What happened?  Average Joe consumer got priced out, moved on to drinking what was at the time underpriced California’s and Italians.  Several years on, Bordeaux lost an entire generation of Bordeaux drinkers who were priced out.  California costs skyrocketed, and Bordeaux dropped...Bordeaux pushed the panic button and prices plummeted.  

2. Forget valuations, how much something is worth is how much someone is actually willing to pay for them...

3.  It will grow tiresome and unsustainable...

4.  Load up where you can, board up your windows, batten down the hatches, and hunker down for a long winter!!!!!!!

Excellent points and exactly how I see it.

[vladdraq]

Puro cigars are a rare find. Maybe price will shift the "average Joe" from cubans to non cubans, but non cuban puros are also expensive. Like a single malt compared to a blended scotch. 

[DaBoot]

21 hours ago, cgoodrich said:

As much as I hate to agree it makes sense. The question is will they get to a point where they’ve gone too far and they can’t move product?

That is when you reverse trend and lower prices till product moves at the pace of production.

[helix]

Been all CC's for me but the price increase has made me curious about NC's. Quite pleased with NC's I have been trying.  $100 for 20 premium cigars , nothing close in Habanos at that price point. For example: Flor De Las Antillas  , Espinosa #4 etc. Lots of fish in the sea. 

[NSXCIGAR]

11 hours ago, rp99pts said:

Quit paying these ridiculous prices and they will eventually come down.   Anyone paying $2500 for a box of Esplendidos needs to have their heads examined....

Anyone pricing Esplendidos at $2,500 needs to have their head examined. There will always be people for whom money is no object but there aren't enough of them to support HSA. 

As I've pointed out they seem to already be hitting a wall with $2,000 Siglo VI. 

[Monterey]

57 minutes ago, NSXCIGAR said:

Anyone pricing Esplendidos at $2,500 needs to have their head examined. There will always be people for whom money is no object but there aren't enough of them to support HSA. 

As I've pointed out they seem to already be hitting a wall with $2,000 Siglo VI. 

Except that Pres did yesterday and they sold out.  If people are willing to pay it, it seems like you need your head examined if you don't price it that way!  Free market, love or hate it.

[mprach024]

1 hour ago, helix said:

Been all CC's for me but the price increase has made me curious about NC's. Quite pleased with NC's I have been trying.  $100 for 20 premium cigars , nothing close in Habanos at that price point. For example: Flor De Las Antillas  , Espinosa #4 etc. Lots of fish in the sea. 

Nudies are pretty good 😀

First NC I’ve enjoyed in a long time

[NSXCIGAR]

1 hour ago, Monterey said:

Except that Pres did yesterday and they sold out.  If people are willing to pay it, it seems like you need your head examined if you don't price it that way!  Free market, love or hate it.

He's only pricing it there because HSA is pricing it there. And again I ask how many boxes sold? All the Cohiba being sold is going to those who aren't price conscious. There are not that many of them. Esplendidos, Lanceros and Siglo VI are readily available right now from several well known vendors. They're not moving for a reason. The few that move here do so because Rob has the best prices. 

Once again I point to the stacks of Siglo VI currently sitting in Havana ostensibly not being requested by distributors and the consistent price cuts over the last two months. 

[potpest]

Except that Pres did yesterday and they sold out.  If people are willing to pay it, it seems like you need your head examined if you don't price it that way!  Free market, love or hate it.

I bet aged Sancho Panza Molinos and Vegas Robaina Classicos would sell out here pretty quick but even with the supply isssues I know of a retailer that isn't shifting these in the UK at a price less than a robusto currently is. I don't think foh is reflective of a worldwide market. If it was the discontinued list would be a very different beast.

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[El Presidente]

2 hours ago, potpest said:

I bet aged Sancho Panza Molinos and Vegas Robaina Classicos would sell out here pretty quick but even with the supply isssues I know of a retailer that isn't shifting these in the UK at a price less than a robusto currently is. 
 

Please feel free to pass on my details 😁

[SRH1]

One can’t help but wonder if cigar smokers will pay significantly higher prices for CC’s while Cuba still has serious QC issues.  It’s always been part of the game and a bit of a gamble, but the ante keeps going up, up, up….

[KCCubano]

49 minutes ago, SRH1 said:

One can’t help but wonder if cigar smokers will pay significantly higher prices for CC’s while Cuba still has serious QC issues.  It’s always been part of the game and a bit of a gamble, but the ante keeps going up, up, up….

Totally agree and valid points. It has certainly affected my buying decisions. The way I  see things is they will only get worse and not much chance of them getting much better at least in the next several years. Who knows what the labor market landscape will look like down the road. Guessing pretty bleak with the current infrastructure issues with no signs of improvement. I dont care for NC's all that much except for a select few but 90% of the time construction is spot on. 

[havanaclub]

We run the entire gamut of Cuban buyers from billionaires to broke (Ken says hi! and will be back next week). 
If sales on Cohiba are slowing....but are still clearing....then it would mean that HSA has just about got it right. 
Of course, you need to look at markets such as Spain. Then again, how much Esplendido were actually being sold in Spain and how many were moving to OS markets because of the arbitrage? 
This game has a full two quarters left to play. It is line ball right now but the lopsiderd result I was expecting hasn't eventuated to date. 

I knew Ken was a billionaire!!


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[benfica_77]

This is a very interesting subject here's my take...

Cuban Cigars are fairly price inelastic as has been shown by the current buying habits. That being said it's not perfectly inelastic which means no matter what the price people will pay. 

Habanos S.A. are not economic geniuses and have not priced it at perfect equilibrium i.e. that the production decrease is being offset by the price increase. Therefore I am almost certain they are losing money with this new reality. 

Some global macro economic trend that will impact the success of these price increases..... 

- Inflation around the world will impact the purchasing power some of the CC consumers since discretionary spending will decrease 

- Market booms that created wealth quickly are beginning to pop...i.e. crypto...real estate..stock markets...luxury items like watches etc. This will impact/shrink the "elite" group that can afford to spent 2K on Cohibas 

- I don't expect China in the medium-term will be able drive demand and help prop/sustain these super high prices. China's GDP growth has been artificially propped up for a long time and it's catching up to them. Local banks are defaulting and creating credit crises in local regions, enormous real estate developers are going bankrupt etc. I also think that the EU / the west is realizing they need Africa (natural resources to minimize dependency on Russia) and going to fight back China's belt and road initiative which will stifle growth for China since they will have a harder time exploiting Africa like they have been. 

My prediction 

3-5 years and I expect price drops and a new pricing strategy for Trinidad, with Cohiba last a little while longer before prices either drop or are frozen for a decade plus. 

[NSXCIGAR]

On 8/24/2022 at 12:33 PM, Bigkahuna said:

Supply will drop and profits will increase.

You think production is going to drop below 40%? 

Also reducing supply and raising prices has never historically been a successful business model. If it was all companies would do it. 

24 minutes ago, benfica_77 said:

Therefore I am almost certain they are losing money with this new reality. 

Of course they're losing money. They're attempting to compensate for a 60% drop in production with 60-100% higher prices. I think they have found something of an equilibrium except in the high end but we are only 9 weeks into this pricing scheme. Calling anything an equilibrium right now is pretty difficult. 

24 minutes ago, benfica_77 said:

This will impact/shrink the "elite" group that can afford to spent 2K on Cohibas 

A global recession would destroy their dreams of $2,000 Siglo VI and $800 Esmeralda and seriously hamper every other model. With no room to raise prices they would really feel that 60% drop in production. 

24 minutes ago, benfica_77 said:

3-5 years and I expect price drops and a new pricing strategy

Won't be anywhere near that long. Their pricing strategy on Cohiba is already hitting resistance. Trini isn't feeling it yet due to super low production but it will. 

As soon as there is an increase in production there will be surplus issues at these prices. 

[mprach024]

17 minutes ago, NSXCIGAR said:

Won't be anywhere near that long. Their pricing strategy on Cohiba is already hitting resistance.

I’m curious, where are you seeing resistance and stock pile ups?  I’m looking through a microscope and only see specific vendors, the ones I see can’t keep a stick in stock.  Is it at the B&M retailers?  

[NSXCIGAR]

26 minutes ago, mprach024 said:

I’m curious, where are you seeing resistance and stock pile ups?  I’m looking through a microscope and only see specific vendors, the ones I see can’t keep a stick in stock.  Is it at the B&M retailers?  

Plenty of CoRo, Esplendidos, Lanceros and Siglo VI available at several trusted vendors (at higher prices) since June. Trini as well but less. Massive amounts of Siglo VI has been spotted in Havana since late July. They haven't even been able to sell them because of the computer system issues. They wouldn't be in Cuba if distributors were ordering them. 

Yes, if a vendor gets one or two boxes they're going to be gone quickly. More than what satisfies the money is no object folks piles up. 

[benfica_77]

47 minutes ago, NSXCIGAR said:

Won't be anywhere near that long. Their pricing strategy on Cohiba is already hitting resistance. Trini isn't feeling it yet due to super low production but it will. 

As soon as there is an increase in production there will be surplus issues at these prices. 

Hope you are correct my friend. 

[El Presidente]

9 minutes ago, NSXCIGAR said:

 They wouldn't be in Cuba if distributors were ordering them. 

This is incorrect.

There are no Siglo VI currently available to PCC. Immediate demand would be 25000 sticks minimum.

If they are in Cuba and they are not selling then it is a case of product being in the wrong market and not distributor hesitancy to purchase.  

[El Presidente]

In terms of 21/22 Cohiba and Trinidad, Bond Roberts is providing some real market information.

The results are.mixed with some  boxes  meeting NEW RRP'S and some falling short. Not too short but short. 

Real test on these 21/22 Cohiba and Trini boxes will be in the last quarter of this year.

[Bigkahuna]

1 hour ago, NSXCIGAR said:

You think production is going to drop below 40%? 

Also reducing supply and raising prices has never historically been a successful business model. If it was all companies would do it. 

Psst. Look at the automobile industry, real estate market and others. Have you attempted to place an order for an “exclusive” car lately ? Taken a domestic plane flight ? Reduce supply raise prices. It’s going on everywhere now. Sure inflation is acting as the nuclear moderator but the low supply price raising is occurring in nearly every industry. Heck, buy a smaller box of cereal and pay the increased price. In the end only time will tell.