Swedish Match estimates that the global market amounts to close to 15 billion cigars, with North America and Western Europe being the two largest markets, accounting for more than 90 percent of global cigar sales. Hand-rolled premium cigars account for around 3 percent of global volume but account for more than 20 percent of the total sales value.
The market for premium cigars in the US is estimated by Swedish Match to amount to approximately 260 million cigars, which has declined somewhat over the past two years. 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 approximately 9 billion cigars in total. The cigarillo and larger cigar markets, where Swedish Match participates, has been growing at an average rate of 2 percent per year in volume terms over the past several years. In 2009, however, this US machinemade cigar market is estimated to have declined in volume, as consumer prices increased, in some cases dramatically, with the implementation of higher federal excise taxes on April 1st.
The European market is estimated by Swedish Match to amount to approximately 5 billion cigars, and is estimated to have declined modestly in 2009, following similar modest declines in 2008. The decline in Europe is partly due to the enactment or expansion of smoking bans in 2008, most notably in the Netherlands and France.
North America - Premium cigars
Main brands
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 Tomàs and Helix, as well as 5 Vegas and CI Legends, available through Cigars International Inc.
Market development
Premium cigars on the North American market accounted for 40 percent of the Group’s total cigar sales in 2009. Cigar volumes in North America fluctuate from year to year, and Swedish Match estimates that the market for premium cigars declined slightly in volume terms during 2009, with a size of around 260 million units. The trend in the US has been toward a somewhat 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.
Swedish Match estimates that more than half of the premium cigars consumed in the US are produced in the Dominican Republic with most other premium cigars being of Nicaraguan and Honduran origin.
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. During 2009, these retailers continued to manage their inventories to improve cash flows while difficult credit conditions persisted. At the same time, larger Internet and mail order companies grew.
While consumers of premium cigars in the US are brand loyal, continuous updating and refreshing of the line assortment is a vital element in marketing to the premium cigar consumer, always interested in a different smoking experience from their favorite brand. Examples of new products for the US market from Swedish Match include Brioso and Punch Upper Cut. The Group has a number of large competitors, including Imperial Tobacco Group (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 businesses whose primary method of distribution is through mail order and the Internet.
North America – Machine-made cigars
Main brands
Swedish Match maintains a small but well established presence in the machine-made (mass market) segment in the US, with such well known brands as Garcia y Vega (and its popular Game assortment) and White Owl. Garcia y Vega cigars provide consumers with a natural wrapper machine-made cigar at a popular price, while White Owl products are offered in HTL (homogenized tobacco leaf) format.
Market development
Machine-made cigars on the North American market accounted for 26 percent of the Group’s total cigar sales in 2009; up from 21 percent in 2008. The US machine-made cigar market is estimated to be approximately 9 billion sticks. It is estimated that the US market declined slightly in 2009 in volume terms. Retail price increases, in many cases as high as 30 percent or higher, were brought on by significant rises in the federal excise tax on April 1st. These tax increases had the most effect on small sized cigars, a segment where Swedish Match does not participate. The cigarillo segment has grown in recent years relative to the larger cigar segment.
During 2009, 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 revenues.
In the US, manufacturers typically introduce several new products using well-established brands every year. During 2009, Swedish Match launched a number of new products under both the Garcia y Vega and White Owl brands using its Foilfresh® packaging 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
Swisher, Altria (Middleton), and Imperial Tobacco Group (Altadis USA) are the major competitors to Swedish Match on the US market for machine-made cigars. Swisher is the largest competitor in sales terms. Swedish Match market share by volume in this sector is approximately 5 percent.1)
Europe
Main brands
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. The largest Swedish Match brand is La Paz. Other important brands include Willem II, Salsa, Hollandia, Oud Kampen, and Justus van Maurik. The Group has a limited but growing presence in the hand-rolled premium cigar market in Europe, with brands such as Macanudo, El Credito, and Don Tomàs.
Market development
Sales of machine-made cigars in Europe accounted for 34 percent of the Group’s total cigar sales during 2009. The European machine-made cigar market, estimated by Swedish Match to be approximately 5 billion cigars, has declined slightly in terms of volume during 2009, following a similar decline in 2008.
The European cigar market is highly fragmented, with brands, pricing, consumer preferences, and smoking behavior differing from country to country. Smoking bans have affected smoking behavior in these countries, leading to greater consumption of smaller and faster smoking cigars often at the expense of more traditional larger cigars. The most recent major smoking ban was in the Netherlands in July 2008, negatively affecting that important market in both 2008 and 2009.
Swedish Match estimates that its market share in volume terms grew or was stable in most European markets during the year. Despite declining markets, the Group continues to increase its sales in countries such as France and Spain. Large European markets for Swedish Match include the Benelux countries, France, Finland, Spain, and Germany. Swedish Match owns 40 percent of Arnold André, a German cigar 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 Scandinavian Tobacco Group (STG), Imperial Tobacco (Altadis), and Burger which are all similar in size within the EU. Other competitors include Agio, Japan Tobacco, and J. Cortès Cigars. There are also 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. Machine-made cigars for the US mass market are produced both in Santiago in the Dominican Republic and Dothan, Alabama, in the US.
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 Group’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 Group’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.
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 (Belgium) and Tubbergen (the Netherlands) to local warehouse units in the different countries.
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 Group also has a strong presence in its exclusive Club Macanudo store in New York City, as well as in Club Macanudo stores abroad.
1) Source: Nielsen.