Market
Swedish Match estimates that the global market amounts to approximately 15 billion cigars, with North America and Western Europe being the two largest markets, accounting for more than 90 percent of global cigar sales. Handrolled premium cigars account for less than 3 percent of global volume but account for more than 25 percent of the total sales value.
Premium cigars are produced mainly in Latin America and the Caribbean with about two-thirds of this production estimated to be sold in the US. Outside the US, other important premium cigar markets are Spain, France and Germany.
The market for machine-made cigars in the US is estimated by Swedish Match to amount to more than 7 billion cigars, and has been growing at an average rate of 2 percent per year in volume terms over the past several years. In 2008, the US machine-made cigar market is estimated to have grown by more than 8 percent in volume, with fastest growth coming from the little cigar segment.1) The European market is estimated by Swedish Match to amount to more than 5 billion cigars, and is estimated to have declined by less than 3 percent in 2008. The decline in Europe is partly due to the enactment or expansion of smoking bans, most notably in the Netherlands and France.
Over the course of 2008, Swedish Match strengthened its presence in both Europe and the US through the 2007 acquisitions of the Bogaert cigar business in Europe and the Cigars International Inc. business in the US. Bogaert is a manufacturer of both branded and private label machine-made cigars whose brands include Hollandia and Bogart. Cigars International Inc. is a fast growing provider of high quality premium cigars which caters directly to consumers via mail order and the Internet.
North America - Premium cigars
Main brands
Macanudo
The leading brand in the US is Macanudo, produced in the Dominican Republic by Swedish Match. Other major Swedish Match Dominican and Honduran premium cigar brands in the US include Partagas, Punch, Hoyo de Monterrey, Cohiba, La Gloria Cubana, Don Tomas and Helix, as well as 5 Vegas and CI Legends, available through Cigars International Inc.
Market
Premium cigars on the North American market accounted for 41 percent of the Group’s total cigar sales in 2008. Swedish Match estimates that the North American market for premium cigars declined by approximately 5 percent in volume terms during 2008, to approximatelly 270 million units. The trend in the US has been toward a higher percentage of smaller premium cigars. Swedish Match is the market leader in the US, with a market share estimated by Swedish Match to be in the range of 30 percent, measured in number of cigars sold. While cigar volumes fluctuate from year to year, over time the US market has been generally stable in volume terms. During 2008, premium cigar tobacconists, many of which are small family owned businesses, were faced with the negative impacts of the US credit markets, necessitating tighter inventory controls and in many cases inventory reductions.
Consumers of premium cigars in the US are brand loyal, but enjoy trying new varieties of their favorite brands. Continuous new product development and line extensions are therefore very important in this category. The Group has a number of large competitors, including Imperial (Altadis USA), Fuente and Davidoff.
Point of sales
Premium cigars are typically sold in fine tobacconist shops where the interaction between the consumer and the cigar expert is very important. A large and growing portion of premium cigar sales takes place through mail order or on the Internet.
North America Machine-made cigars
Main brands
While Swedish Match is a relatively small player in the US, it has strong brands in both the natural wrapper machine-made cigar segment, (with its Garcia y Vega brand and its popular Game assortment) and the HTL (homogenized tobacco leaf) and flavoured cigar segments (with brands such as White Owl). Machine-made cigars on the North American market accounted for 21 percent of the Group’s total cigar sales in 2008.
Market
During 2008, little cigars continued their upswing in popularity in the US, while there was continued movement away from certain flavored cigars, toward natural wrapper and lightly aromatic cigars. As natural wrapper cigars tend to sell at higher retail price than these flavored cigars, this trend has positive impact on sales.
In the US, manufacturers typically introduce several new products using wellestablished brands every year. During 2008, Swedish Match launched a number of new products under both the Garcia y Vega and White Owl brands using its Foilfresh® concept. Foilfresh® cigars ensure that consumers can always find a softer, “fresher” cigar.
Point of sales
Machine-made cigars are primarily sold in gasoline stations and convenience stores, as well as in supermarkets and tobacco sales outlets, and on the Internet.
Competitors
Imperial (Altadis USA), Swisher and Altria (Middleton) are the major competitors to Swedish Match on the US market for machine-made cigars. Imperial (Altadis USA) is the largest competitor in sales terms. Swedish Match’s market share by volume in this sector is close to 6 percent.2)
Europe
Main brands
La Paz
Swedish Match has a number of well known brands in Europe, with many of the brands being particularly strong in their local market or country. Among these brands are La Paz, Willem II, and Justus van Maurik. In the Netherlands, Hajenius and Oud Kampen brands are particularly strong high-end brands. With the acquisition of the Bogaert business, the Bogart and Hollandia brands were added to the Swedish Match portfolio, and these are especially strong in the Benelux region.
The Company has a limited but growing presence in the hand-rolled premium cigar market in Europe.
Market
The European machine-made cigar market is estimated to have declined slightly in terms of volume during 2008, following a similar decline in 2007. During 2008, market declines in France, Belgium, and the Netherlands were partially offset by market growth in Spain, Italy, and Finland. Sales of machine-made cigars in Europe accounted for 36 percent of the Group’s total cigar sales during 2008.
Swedish Match estimates that its market share grew in most European markets during the year, driven largely by the full year impact of the Bogaert acquisition. Countries in Europe where Swedish Match sells the most cigars include the Benelux countries, France, Finland, Spain, and Germany. Restrictions on smoking in public places in the Netherlands from July led this market to decline nearly 7 percent in 2008 in terms of volume.
Swedish Match owns 40 percent of Arnold André, a German company with production units in Bünde and Königslutter, Germany.
Point of sales
Cigars are sold in Europe mainly through tobacconists but also through supermarkets, gasoline stations, convenience stores, and specialty stores.
Competitors
The European market for machine-made cigars is fragmented. The Group’s largest competitors are ST Winterman’s, Imperial (Altadis), and Burger which are all similar in size within the EU. There are a number of privately held cigar companies that are strong in their respective home markets.
Other markets
Swedish Match has a small presence in various markets outside the US and Europe. Swedish Match is the market leader in the Australian market with its best selling cigar brand Wee Willem. Swedish Match also sells cigars in parts of Asia. Cigar volumes are small in Asia and Eastern Europe but there is growth potential in countries with increasing purchasing power in these regions.
Production and distribution
For the US market, premium hand-rolled cigars are crafted in Santiago in the Dominican Republic and in Danli and Cofradia in Honduras, using the finest quality tobacco from around the world. Machinemade cigars for the US mass market are produced both in Santiago in the Dominican Republic and Dothan, Alabama, in the US.
For the European market, cigars are manufactured in Houthalen in Belgium as well as in Pandaan and Pasuruan in Indonesia. Some hand-rolled and machine-made cigars from the American production units are also sold in Europe. In Europe and other markets, cigars are delivered from Houthalen in Belgium to local warehouse units in the different countries.
In the US, premium cigars are mainly shipped directly on a daily basis to individual retailers as well as distributors, Internet/ catalog retailers, and wholesalers across the country from the Company’s New Jersey distribution facility. Premium cigars destined outside of the US are also shipped from the factory in the Dominican Republic. Cigars International Inc. ships premium cigars directly to consumers from the Company’s Pennsylvania distribution facility. Swedish Match ships US machine-made cigars daily to wholesaler and selected retailer locations throughout the country direct from its production facilities and through both owned and third party warehouses.
Swedish Match also has a limited number of stand-alone retail locations, including the exclusive Hajenius Cigar Store in Amsterdam and stores operated by Cigars International Inc. in Pennsylvania. The Company also has a strong presence in its exclusive Club Macanudo stores in both the US and abroad.
1) Volume share based on ACNielsen (US machine-made) or Swedish Match estimates (other businesses).
2) Source: ACNielsen.