It’s almost 2018, which means it’s time for my annual article of speculation.
For the last eight years, something that actually precedes halfwheel, I will ask ten questions that I am curious about for the upcoming year. In 364 or so days, Patrick Lagreid will revisit these questions and see how I did with my predictions.
The questions aren’t in any particular order, but they are below.
1. Which company will have more changes in 2018: Altadis U.S.A. or Davidoff of Geneva USA?
Competitors and customers rightfully raised an eyebrow when Oettinger Davidoff AG replaced its longtime chairman and very public ceo, particularly after the company’s extremely aggressive tenure with the latter. The changes didn’t stop for the company as it announced that Dylan Austin would succeed the retiring Jeff Lee as vp of sales in the U.S.
But Altadis U.S.A. underwent some massive changes in 2017 as well. The company replaced almost its entire marketing department, this coming after replacing its marketing agency the year prior. It brought in Rafael Nodal of Aging Room, then promoted him less than six months later. While the boss of bosses, Javier Estades, remains the same, much of the rest of the company’s leadership is relatively new. If there was going to be a year when Altadis U.S.A. massively changed, 2018 should be the year.
If you judge a company based on what its competitors think, both Drew Estate and General Cigar Co.—two of the other five largest players—had very good years, something that should and has concerned both.
Prediction: Altadis U.S.A. undergoes the larger changes. Nothing would surprise me in terms of where the company is this time next year, both good and bad.
2. Will there be a resolution to the FDA lawsuit in 2018?
Next month, a ruling on a motion that could suspend parts of the rule is expected. But that’s just a ruling on a motion, the actual trial part that most people think of when you recall Jerry Orbach in Law & Order hasn’t even started.
There’s a lot of variables at play with the lawsuit—just see the next question—but it’s always important to remember that lawsuits aren’t free and I don’t think anyone is advocating a strategy of delay, delay, delay.
Prediction: The lawsuit, or some part of it, will still be outstanding by this time next year.
3. Will the spending bill (omnibus) include an exemption for cigars and/or a predicate date change?
The latest can be found here.
In short, the spending bill that Congress will take up in January could include a provision that would exempt cigars from FDA regulation and/or a change in the grandfather date for all products. There have been attempts at adding both provisions to previous spending bills and they have failed.
Prediction: This is pure speculation: yes to the exemption, no to the date change.
4. Does Imperial or STG buy A.J. Fernández?
At the 2017 IPCPR Convention & Trade Show, Abdel Fernández was telling (some) people that there were offers to buy his company. Sources told halfwheel that he told them the offers were from Imperial Brands, plc—parent of Altadis and JR Cigar—and/or Scandinavian Tobacco Group, parent of Cigars International and General Cigar Co.
Both companies have been mentioned as potential buyers of A.J. Fernández for a while now. Not because either has made offers, as officials from both tell me they have not, but because both are gigantic companies that do a lot of business with A.J. Fernández and so the rumors seem credible enough.
And while officials at both companies tell me they don’t have plans to buy A.J. Fernández, executives at both companies seem concerned about what happens if the other does.
The question for 2018 and going forward is does a classic nuclear warfare scenario play out and the threat of one company buying AJF force the other to pull the trigger? While I don’t think that’s a likely scenario, I think it’s a more likely scenario than one of them just purchasing the company for normal reasons.
Prediction: AJF doesn’t get purchased in 2018.
5. What will Cigars International’s Texas stores look like?
Cigars International is coming to Texas and sure, I’m a bit biased, the retailer is moving 8.8 miles away from our office, from where I am writing this question.
But even if you aren’t in the Dallas-Fort Worth area, this is something to watch. Up until now, or mid-2018 when the first store is expected to open, Cigars International’s physical presence has been located in rural Pennsylvania. Now the world’s largest retailer is going into an established market with ground-up stores. While the company won’t confirm it, these stores will be seen as a model of what inevitably is coming to other states.
The industry has a giant fascination about which cigar brands are acquiring each other and while that’s gone on, Imperial Brands, plc—the largest competitor in cigar retail to Cigars International—has made an incredible push into brick-and-mortar retail, as well as a revamping of its non-physical retail business. Now it’s CI’s turn.
This would be interesting in and of itself, but given how trying of a year 2017 was for CI, it makes the new stores all the more interesting.
Prediction: Mini-versions of the Hamburg store and busy, very busy.
6. Will there be less than 20 lists on the 2018 version of The Consensus?
In 2011, we published the results of a project where I compiled as many top cigars lists from various publications, put them into a spreadsheet, and tried to figure out if there was any commonality.
There are a lot of reasons why the number of lists has been cut in half, including much more stringent requirements about which lists qualify, something that will only get more difficult this year.
Another fact that few people want to talk about is that the number of blogs has declined substantially.
Prediction: There will be more than 20, I’ll say around 26 largely thanks to the four hours I spent scouring YouTube last week for potential new entries. In fairness, I haven’t started compiling The Consensus and haven’t been keeping track of who has published a list this year and who has not.
7. Will the Tatuaje/L’Atelier Imports salesforce be majority in-house by the end of the year?
Five years ago, one of the most common inside baseball conversations amongst those in the cigar industry was when Pete Johnson would bring the Tatuaje salesforce “in house.” At the time—and for most of the company’s history—Johnson has employed a network of independent sales representatives, i.e. brokers, around the country.
That wasn’t uncommon, and plenty of well-known companies do it. But Tatuaje was reaching the point where most companies abandon the model in favor of a salesforce that works exclusively for one company as opposed to representing several brands.
Recently, Johnson has begun to fill vacancies in his salesforce with in-house representatives and the make-up now means there are three in-house sales representatives and six brokers.
Prediction: The trend keeps going. Tatuaje will be majority in-house by the end of next year.
8. Will Davidoff ever do anything in Nicaragua?
A few years ago, Oettinger Davidoff AG began work on a Nicaraguan operation. It found a partner, bought a farm on the side of the Panamerican highway, put up a really nice fence, and bought some building in Condega.
The company has acknowledged the land purchase, or at least a land purchase, but whatever plans existed for a production operation haven’t come to fruition. Nicaragua has been the country to watch for many years now and even companies like Fuente have invested in the area. What’s surprising about Davidoff’s venture is that the company already spent the money, it’s just unclear what it’s getting from it.
Prediction: Yes, Davidoff will do something in Nicaragua, but 2018 won’t be the year it gets done.
9. How expensive will the Cohiba Robusto Reserva be?
I suppose it’s unlikely that we will know the answer in 2018, but I’m curious to see just how expensive the Cohiba Robusto Reserva Cosecha 2004 will be, which Habanos will show off—but probably not release—in 2018.
Limited edition Cohibas are in demand and Habanos S.A. has logically begun to push the boundary on price. A year or so ago, the $200,000 humidors of the Cohiba 50 Aniversario began trickling out to retailers, but that oddly wasn’t the cigar that seemed to really show just how aggressive the company has gotten with the brand.
Last month, the Cohiba Talismán Edición Limitada 2017 showed up in the U.K. with a price of £65 ($86) per cigar, while in Germany, which has some of the lowest prices on Cuban cigars, they sell for €47 ($56). For context, the Montecristo Dántes, a 2016 Edición Limitada released earlier this year, was less than half the price. Reservas are always more expensive than Edición Limitadas, but just how aggressive Habanos S.A. will be interesting to see.
Prediction: In Germany, expect $80 per cigar.
10. When the new IPCPR ceo shows up for the first day of work, how many employees have left the organization?
You like complaining about the IPCPR, he likes complaining about the IPCPR, she likes complaining about the IPCPR, and so do its employees.
The level of discontent within the IPCPR seems to have hit an all-time high. As I’ve mentioned before, the organization has some underlying issues, namely that its board is almost exclusively retailers and the majority of its money comes from manufacturers according to financial disclosures.
There are other issues, but there certainly are disagreements between its leadership, staff and clients that get to boil over once per year when the organization hosts its annual trade show.
Prediction: I’ll set the over/under at two employees leaving, which would be 25 percent of the current staff.