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December, 2007

BMJ

Small Dutch Cigars:
A Boom
Under
Any Name


By Jonathan Bell

A look at the world of small “Dutch-style” cigars, which is steadily growing beyond the borders of the Netherlands.

The ‘Small Dutch Cigar’ - or most especially the minis / cigarillo / small senorita sizes - which make up for the great majority of current production and sales of cigar units in Europe and throughout the world has actually far outgrown the word ‘Dutch’ except to describe its general styling, which is also now varying widely from what has been traditional.

In other words, although ‘Dutch’ still indicates a good percentage of the national origin of minis / cigarillo / senorita production and for a major volume of export sales, increasingly Dutch-style small cigars are made, consumed, or exported from other nations, most particularly and increasingly from Belgium.

This explanation is requisite to understand how the volatile growth in the ‘Dutch’ style small cigar market worldwide as a major new phenomenon in smoking consumption, while under the control of five major companies - 4 based in the Netherlands, 1 in Belgium - is not any easy cat to put into a bag. Statistics are difficult to find, even more difficult to read as the shifting sands of production sites worldwide serve to mask actual ‘Dutch’ style small cigar production/consumption on a global basis.

This flux in national production and export figures of minis, cigarillos, and small senoritas will continue as the Dutch companies move onwards to increase their production capacities outside of The Netherlands. Exemplary of this, Henri Wintermans has built the largest cigar-cigarillo factory in the world in Belgium. Agio has also completed the expansion of its Belgium factory into a technologically elite wonder. Also, in times past Belgium facilities for cigar/cigarillo production often passed much if not all of their production - this was true for Swedish Match Cigars, foremost - on for either finishing (packaging principally) and/or distribution from Holland headquarter facilities.

This has been changing recently and will become a more significant factor in time as the production/distribution from Belgium Dutch-owned factories becomes discrete. To this of course one must add the production of J. Cortes, the Belgium-owned company that in itself is a major producer/exporter of ‘Dutch’ style small cigars.

Acquisitions in recent months have further integrated Dutch-Belgium production of small cigars. This by the acquisition by Henri Wintermans of the BAT cigar brands and productions (including Schimmelpenninck most notably in Holland, and of the Vander Elst brands in Belgium - including Mercator among other famed labels). As well, Swedish Match has acquired Bogaert Cigars in Belgium, a major Belgium producer of own labels and private label cigars, and increasingly of small cigars.

Yes, emphatically, Dutch-Belgium factories continue to produce the traditional range of Dutch style cigars - cigarillos, senoritas, wilde Havannas (senoritas with an uncut tip), tuitsenoritas (tuit is a traditional Dutch senorita that looks like a torpedo), panatelas, and coronas. But note that change is rapidly on the march; the ‘small Dutch’ cigars sector now includes minis and an ever widening range of flavored and filtered models.

In sum, the small-cigar category now represents more than 90% of Dutch style production - the majority still made in The Netherlands but now also in a finished format in Belgium and elsewhere.

For an idea of growth in small Dutch style cigars, recent production figures for the Dutch cigar industry by itself show that annual volumes climbed rapidly in the past decade as global demand for the cigars soared. Production by factories in Holland rose to a level of 2.5 bn units per year, but have remained virtually constant at this level for the past few years. Meanwhile production/finishing outside of The Netherlands has been greatly expanded.

Production volumes are, of course, but one side of the coin, value considerations in commercial terms are the other. Given the pace of significant investments in increased production capacity and of acquisitions, it would seem certain that the small Dutch cigar is not only increasingly popular but profitable as well.

Key growth segments for small Dutch cigars sales in volume terms are for aromatized and filtered formats and in the smaller sizes of the small cigar sector, i.e. in minis and cigarillos. Also, if to a lesser degree in product disappearance, upscale or 100% tobacco small Dutch cigars are also gaining, and too most particularly in profit share.

Return from sales of larger Dutch cigars remains an obvious profit motive even as their number is eclipsed by those of the smaller units. This explains the expansion of some of the Dutch companies into longfiller products, often made in Central America, and too to the recent acquisition of one of Americas most highly touted quality brands, CAO cigars, by Henri Wintermans.

So it is that production and value of production in a frame of ever increasing worldwide demand remains a strategic juggling act for the five main players in the Dutch style cigar/small cigar industry. These players, in order of production/sales volumes, are Swedish Match Cigars, Henri Wintermans, Royal Agio, J. Cortes (Belgium), and Ritmeester (Holland).

2007 marks the 100th anniversary of the Dutch Cigar Manufacturers Association, an organization of continuing importance to its small but powerful membership. Has concentration occurred? Rather; there were once some 200 members of the Association. And now there are four.


Tobacco International - December, 2007

Essentra


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