InterTabac 2024: Final Thoughts

I feel like I’ve already covered the two most talked-about topics of InterTabac 2024: the impact of Habanos S.A.’s commercial decisions and the potential of a newfound participation by the Chinese. So now, the final major topic, albeit one that was nowhere as widely discussed last week in Dortmund.

The Americans Are Pouncing

American brands didn’t just show up to InterTabac this year. Some of them have been here for decades, plural, but even the recent uptick in interest dates back to pre-COVID-19 times. Every year I’ve been coming since 2011, the participation by Americans has done nothing but increase, though certainly became supercharged sometime around 2019.

This year felt different than my most recent visit in 2022. Not because there were that many more Americans, nor is it because this was the first time smaller American brands were exhibiting. Rather, it seems like the market is wide open in Europe and, to a lesser extent, Asia and the Middle East. This palpable optimism for increased international sales was also amplified by the recent slowdown in the American market in the last 90 or so days. This year, cigar people seemed happier than ever to be in Dortmund. Heja BVB.

There are a couple of different ways that this could go next, but I wonder how seriously the American market will come to Europe and how the Europeans will react. By “market,” I don’t simply mean that the same companies that sell cigars in America will now be selling in Europe. That has been happening for a while now. It seems like the optimism might go too far and lead to an attempt at an American-style sales approach for at least some European countries.

More, More, More

As American companies become more invested internationally, the commercial approach has shifted. Not that long ago, the model was more or less the same for everyone: a company gets some distributors, offers a fraction of its American portfolio to these distributors, ships cigars to those distributors on a semi-frequent basis—though a lot less frequent than to the U.S.—and once or twice per year, a company executive(s) comes over to do some events and go on some form of a quasi-vacation. Now, many companies have their own warehouse somewhere in Europe and increasingly Asia, which means that their products are available to ship a lot more than the older system. When a company has its own warehouse, it probably also has a dedicated person—or persons—living in Europe as opposed to relying on someone in Florida to oversee overseas sales. It also means that the company might be more inclined to offer more of its SKUs and that’s where things will get interesting.

Especially for the companies that have their own warehouses, I wonder how much more product is about to be on the way. Given the recent slowdown in the U.S. market—cigar sales are still way up compared to pre-COVID levels, but the market is at least plateauing—companies might now have extra production that was planned to go to the U.S. that will now go overseas. In the context of the U.S. market, it’s probably not much, but it could be exponentially more cigars than what these companies were selling internationally just a few years ago.

While the largest international cigar company—Habanos S.A.—might be competing less, the competition in other parts of the international market is heating up. Not only are there more cigar companies trying to sell cigars in each of these markets, the distribution segment has been radically transformed in the last decade. Even in Germany, where a decade ago there were multiple good distributors, the competition has ramped up thanks to the Kohlhase & Kopp split and the VCF merger. That’s nothing to say of the younger faces at existing distributors who seem more passionate about selling non-Cuban cigars than many of their jaded American counterparts. And in smaller markets, where sometimes there was only one good distributor, there’s now multiple. Even with the introduction of track and trace, the international market’s inefficiencies are largely being reduced and the competition is clearly way up.

How Will The Retailers React?

All of this will fall onto the retailers, a segment that is only getting more and more competitive when it comes to non-Cuban cigar sales. This is where the rude awakening seems likely.

For many reasons—higher taxes, higher rents, smaller stores, reliance on Cuban products, etc—European stores are much more discerning about the non-Cuban products they carry. Furthermore, the suppliers themselves have historically limited the number of SKUs because of the international market’s smaller size compared to the American market, higher registration costs, trademark issues and infrequent shipments. I get the sense that, at least for a country like Germany, this is about to transform. I don’t think there will be many companies that offer the exact same numbers of SKUs internationally as they do in America, but the gap surely is closing. Europe, especially, is no longer a curiosity; now, it’s a real market where money can be made. And if I know the American cigar companies, my guess is that they are going to see the increased competition and react by just trying to pump more into the international market.

As much as these retailers appreciate the new attention, I wonder how they are going to navigate a world where their existing suppliers have, say, doubled the number of SKUs that they are being offered. The American market doesn’t seem to function all that properly. In many places—perhaps none more than this website—businesses seem more focused on what’s new than what sells. I don’t think new for the sake of new is going to work in Europe because the market probably cannot support it as it does in America, nor do I think retailers will engage in that. For all the optimism there is for increased international sales—and it was all over the place in Dortmund—2024 international is not remotely akin to the 2020 American market, when U.S. retailers seemingly were taking whatever was available. Nor do I think they are going to be motivated to buy something simply because the sales sheet says “new,” at least not for very long. Even though some of these retailers might feel a bit starved for offerings, they aren’t going to buy like their American counterparts. They can’t, especially in some markets—like Germany—where it’s illegal for a retailer to discount slower-moving products.

Doing what the cigar industry does in America will not work in most of these non-U.S. countries. Finding the middle ground will be interesting. Clearly, these markets are no longer simply excuses for cigar executives to take vacations. There’s money to be made, but some companies are going to fall flat on their face trying to figure it how to get it. Capitalism baby.

Coolest Thing I Saw

Just a friendly reminder that our AI overlords haven’t figured out everything, at least not yet.