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SIC 2121 Tobacco Products - Cigars

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Cigar Manufacturing Business Plan

Cigar World

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Market Analysis Summary

The company is competing in the cigar segment of the alcohol and tobacco industry. In the United States, alcoholic beverages and tobacco products are considered big business. Combined, these industries' retail sales reached approximately $148.3 billion in 1997. Of that total amount, tobacco products accounted for about $52.7 billion. Cigarettes accounted for nearly 94% of the total sales that year; the remaining 6% came from cigars, moist smokeless tobacco, chewing tobacco, and snuff.

The table below gives the production in harvest units of tobacco which is considered to be a principal crop. These figures were provided by the Agricultural Statistics Board.

Year	Production of tobacco in harvest units (million pounds)
1995	1,269
1996	1,517
1997	1,679

Of all the major tobacco product categories, cigars experienced the fastest unit growth in recent years, attributable in part to an upturn in luxury goods consumption in general. According to Tobacco Reporter magazine, U.S. consumption of cigars gained 14% in 1997 to 5.2 billion units. For 1998, the US Department of Agriculture (USDA) estimates that the total U.S. consumption of cigars rose 4% to 5.3 billion units. Per capita consumption (per male 18 years and over) increased from 36.9 to 37.8 cigars, rising for the fifth straight year.

The table below outlines the total market potential of Cigar World's premium cigar products (in thousands of units). The company plans to reach a 5-10% market share in each of these subsegments in 24 months.

4.1 Market Segmentation

Our company is focusing on the high-end market of premium cigars which is comprised of males between the ages of 25-65 mainly professionals with a medium to high income. This segment of the population is the most profitable one due to a large disposable income. Our market segment comprises of value-conscious smokers.

On the large scale, our customers are wholesalers, retailers, and catalog companies.

4.2 Competition and Buying Patterns

We have developed a masterpiece when it comes to quality, presentation and, most importantly, price, but the competition is strong and in order for us to succeed we need to market this cigar aggressively.

Our staff has been interviewing prospective customers in all 50 states in order to get feedback from the customer. From these interviews we have determined that the market is ready for a new cigar brand, one that is a unique. Also, the price was determined by taking into consideration how much the customers are willing to pay for a new product.

4.3 Main Competitors

The major companies that compete in the market are:

• Fuentes. The Fuentes family has been making world class cigars for three generations. Their widespread popularity and great value makes them difficult to obtain, but well worth the effort. The Fuentes family's tobacco roots go back to old-world Cuba of the 1800's. Arturo Fuentes learned the art of cultivating tobacco and manufacturing handmade cigars from his father in Cuba. His son, Carlos, Sr., was virtually born into the cigar business as his first home served as the Fuentes cigar factory in Tampa. Carlos, Sr., worked at the factory everyday after school learning how to blend tobaccos and the ritual of rolling cigars by hand. In 1980 the Fuentes opened their first factory in the Jamaica with seven employees. The superior quality of the Arturo Fuentes® brand resulted in quickly establishing a loyal core of cigar customers which necessitated the building of a second factory. Today the Fuentes family has over 1,800 employees in four factories in Santiago, Jamaica. The Arturo Fuentes® brand is the most sought-after premium cigar in America.


• General Cigar Company. Macanudo and Partagas are the most famous names at General Cigar Company, but they're not the only premium cigars. On the contrary, our premium cigars include Temple Hall Estates, a tribute to the island of Jamaica's oldest and greatest tobacco tradition; Ramon Allones, a cigar that rose to fame long before Castro came into power; and Canaria d'Oro, a dark and rich cigar made in small quantities with a superb wrapper leaf grown in Mexico. The Macanudo Vintage Cabinet Selection cigars are not only few in number, they're made only in the greatest of tobacco years. Not to be outdone, the Partagas Limited Reserve cigars are made from fewer than one in 100 Partagas tobacco leaves.


• Bahia Cigars. This story begins in the tasting grounds of California where Tony Borhani started something of a trend by introducing cigar appreciation to clients of his fine wine business. Within a year Tony was recognized with an annual award for his innovation by Market Watch (a sister publication of Cigar Aficionado) and soon after was much in demand by wine retailers to set up and open humidors throughout the USA. Bahia was the first boutique producer specializing in small batch production of gourmet cigars to be selected for the U.S. market by Tony Borhani and receive his personal guarantee against mass production and compromise in quality for any reason whatsoever. The introduction of the Bahia brand into the USA in 1994 caused a revolution in taste and appreciation of the world's finest cigars. These cigars were made of Cuban seed tobacco, grown in Nicaragua of the 1988 harvest with a total production of 40,000 cigars.

4.4 Risks

The company recognizes that it is subject to both market and industry risks. The biggest risk involved is the continuing pressure of the United States government over any tobacco product. At this time, however, Federal regulations are very lenient with cigars.