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By Kevin Drawbaugh
LONDON, February 26 (Reuters) - The lunch-hour crowd of cigar-puffing Americans is a hazy memory
at Shervington's, a time-honoured London tobacconist that has seen smoking fads come and go.
All was quiet in the shop's humidor where cigars are stored one afternoon this month, evidence
of the swift evaporation since last year of a world cigar boom fuelled by a U.S. craze for stogies.
``It's slowed down quite a lot over here,'' said Phillip Shervington, owner of the aromatic
135-year-old shop, where the cigar trade over the past 12 months is down by about 20 percent.
In the aftermath of the boom, the $6-billion world cigar industry is now working through a huge
inventory overhang and consolidating rapidly in a wave of asset deals driven largely by acquisitive
European tobacco groups.
Seita SA, of France, and Spain's Tabacalera have led the way, analysts said.
Both have snapped up some of the world's best-known cigar brands, along with their U.S.
corporate parents, in rival campaigns for leadership of the fragmented global cigar market.
``The feeling generally is that the world market is now in decline, so the battle is on for
share,'' said Simon Chase, marketing director at Hunters & Frankau, exclusive British
distributor of Cuban cigars.
A passion for premium cigars was ignited in the United States in the early 1990s by images of
Hollywood celebrities and sports stars like Michael Jordan chomping on massive Churchills.
As the world's best cigars are Cuban, however, and cannot be bought legally in the United
States, demand soon crossed the Atlantic, pleasing tobacconists in Britain, France and Spain.
Supplied in part by European sources, U.S. premium cigar consumption tripled from 1992 to 1996,
analysts said.
Cigar makers in Cuba, Honduras, the Dominican Republic and elsewhere were overwhelmed by demand.
Distributors inflated their orders in the hope of receiving partial shipments. Output soared and in
1996 and 1997 at least seven cigar companies were floated on the bullish U.S. equity markets.
But by last year, just as the fad lost momentum, the industry had flooded the market, resulting
in overstocking, retail discounts and profit contraction. A shakeout has followed, with the share
prices of the seven new public cigar makers off between 30 and 95 percent since February 1998,
compared to gains in share prices for most cigarette makers.
ACQUISITIONS
Sensing a buyer's market for assets, Seita last month grabbed U.S. market leader Consolidated
Cigar Holdings Inc. and its noted brand line-up -- including Montecristo, H. Upmann, Dunhill and
Dutch Masters -- for $730 million with debt.
The deal involved a share price of $17.85 for Florida-based Consolidated, which went public in
1996 at $23 a share.
Tabacalera, whose home base is a strong cigar market, has made key cigar acquisitions as well.
The Spanish firm bought the cigar unit of Havatampa Inc. of Florida and two major cigar makers in
Nicaragua and Honduras for $367 million in 1997, as well as a small Dominican producer last year.
When it made the Havatampa purchase, Tabacalera said its aim was to become ``the top cigar
multinational.'' That goal may since have been adopted by Seita, best known for its pungent
Gauloises and Gitanes cigarettes, industry analysts said.
Around 15 billion cigars are sold around the world every year, tiny compared to the trillions of
cigarettes sold annually and too small to interest cigarette giants such as Philip Morris
Cos. Inc. or British American Tobacco Plc.
But cigars command a steady customer base, even without a hot fad, and may look attractive to
mid-sized tobacco concerns as a niche market, analysts said.
``These medium-sized European groups are a bit snookered because they'll never have the clout to
compete with the giant multinationals, like Philip Morris or BAT,'' said a tobacco analyst who asked
not to be identified.
While diversifying into specialities such as cigars, pipe tobacco and rolling papers may offer
growth prospects, some analysts questioned the timing of Seita and Tabacalera's decisions. Others
argued the acquisitions may prove far-sighted.
``The driving force there is what happens in the U.S,'' said Andrew Darke, industry analyst at
Williams de Broe. ``Like all fashions, this one comes and goes.''
01:08 02-26-99
Copyright 1999 Reuters Limited |