The Evolution of the Cigar Market

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Cigars have been enjoyed around the world for centuries, but the cigar market has changed and evolved significantly over time. From their origins in the Americas to a near demise in the 1960s to a resurgence in popularity in the 1990s, cigars have seen their fortunes rise and fall. But what has driven these changes in the cigar market? Let’s take a look at some of the key factors that have shaped the evolution of the global cigar business.

Origins in the Americas

Cigars first emerged in the Americas, with tobacco cultivation taking hold in regions like Cuba, Mexico, and Central America. The Mayan and Aztec civilizations smoked early proto-cigars, while the Taino people of the Caribbean are said to have introduced tobacco to Columbus on his first voyage to the Americas in 1492. Cigar manufacturing began during the early 1500s, and by the 1800s, Havana, Cuba had become the epicenter of premium handmade cigar production.

Cigars gained great popularity in Europe during the 19th century. Spanish and French settlers brought cigar smoking back from the New World. Soon cigars were a fashionable indulgence among the upper classes in countries like England, France, and Russia. By the mid-1800s, cigar smoking was commonplace among business, political, and literary elites on both sides of the Atlantic. Famous cigar smokers included Winston Churchill, Ulysses Grant, Mark Twain, and Sigmund Freud. Cuba’s cigar factories boomed as demand soared.

The Early 20th Century

The early 1900s represented the peak of cigar popularity worldwide. In the U.S., cigars flourished during the “Roaring Twenties.” Cigar smoking was associated with power and masculinity, and incorporated into popular culture through media and entertainment. Finely handcrafted cigars were an indulgence affordable to the middle classes.

During this “Golden Age” of cigars, Cuban manufacturers produced many legendary and still sought-after premium cigar marques, including Montecristo, Romeo y Julieta, H. Upmann, and Cohiba. Demand for Cuban cigars grew steadily, with some estimates placing Cuba’s annual cigar exports at over 200 million by the late 1950s. American consumers had a strong appetite for Cuban cigars in particular.

However, two key events severely impacted the Cuban cigar industry. First, the Cuban Revolution of 1959 resulted in the nationalization of private enterprises, leading to an exodus of experts from Cuban cigar factories. At the same time, the new U.S. trade embargo against Cuba cut off the Cuban cigar supply to the all-important American market. Cigar manufacturers in the Dominican Republic, Honduras, Nicaragua, and other countries benefited by filling the sudden vacuum.

The Cigar Downturn

By the early 1960s, the glory days of cigars seemed to be over. Young adult American tastes had shifted decisively towards cigarettes, which were promoted for their convenience and association with modern glamour. Cigars were increasingly perceived negatively as old-fashioned and unhealthy. As large U.S. cigar manufacturers died out or converted their operations to cigarettes, the premium cigar sector languished.

Cigar sales slumped through the 1970s and 1980s. While cigars remained embedded in some subcultures, overall they had become a niche market. Once-legendary Cuban brands were now echoes of their former prominence, available only as counterfeits or on the black market. However, starting in the late 1980s, early signs of a cigar resurgence began to emerge, driven by demographic and cultural changes.

The 90s Cigar Boom

In the early 1990s, cigar smoking suddenly became fashionable again, seemingly overnight. A convergence of factors led to this cigar renaissance:

  • Demographics – The post-war Baby Boomer generation had more disposable income as they entered their peak earning years. This generation was receptive to re-discovering life’s little luxuries.
  • Changing tastes – Cigar smoking came to be viewed as sophisticated, part of embracing adult pleasures. Cigar lounges and events catered to young urban professionals.
  • Celebrities – High-profile cigar smokers like Arnold Schwarzenegger and Demi Moore amplified the glamour. Magazine profiles of stars enjoying cigars made them cool again.
  • Marketing – Cigar makers and media seized the moment, aggressively promoting cigars as a chic lifestyle accessory. Events like the Big Smoke popularized premium cigars.
  • New products – Led by boutique brands like Arturo Fuente and Davidoff, cigar makers focused on excellent, complex new blends to attract aficionados.

As demand swelled, aging factories in the Dominican Republic were rehabilitated. Nicaragua and Honduras became cigar-making centers. Aficionados developed a taste for full-bodied new blends. The cigar wave peaked around 1997, with imports to the U.S. reaching almost 4 billion units. However, reports of the cigar’s demise had been greatly exaggerated.

Recent Declines

By the early 2000s, the 90s cigar craze had run out of steam. Aging Boomers moved on, while stricter smoking regulations and health concerns discouraged new cigar smokers from entering the market. As demand decreased, production capacity could no longer be justified, forcing painful cutbacks among cigar makers.

The 2008 global financial crisis delivered another blow. Seen as an affordable luxury, cigar sales fell as consumer discretionary spending contracted. Rising tobacco taxes have made cigars less affordable over time in many markets. Results have been stark: U.S. cigar imports were just over 200 million units in 2020, off over 90% versus peak levels.

Enduring Appeal

While the market has contracted, cigars still earn over $8 billion in annual global revenue, according to Euromonitor.

Habitual cigar smokers remain loyal to their everyday smokes like Macanudos and Ashtons. Higher-income older consumers see cigars as one of life’s pleasant rewards. Younger smokers continue to enter the market, attracted to the artisanship and sensory experience of premium cigars.

New World Dominance

Cuba has recaptured only a small share (about 10%) of the U.S. cigar import market since the embargo eased slightly in 2000. Once undisputed masters of cigar making, Cuba now competes against New World powerhouses like the Dominican Republic, Nicaragua, and Honduras. These countries account for over 75% of cigars imported into the U.S.

Nicaragua has seen considerable growth recently. Its fertile land grows flavorful Cuban seed tobacco, while labor costs remain modest compared to the Dominican Republic. Boutique brands such as Padrón and My Father have produced complex, powerful cigars that smokers rave about. The Dominican Republic remains the heavyweight, with highly automated mega-factories churning out affordable brand-name cigars like Macanudo, backed by excellent quality control.

Innovation in Blending

Today’s premium cigar landscape encourages innovation in blending. Boutique operations use carefully sourced tobacco, often from multiple countries. Skilled blenders create unique flavor profiles that reflect local terroirs. Consumers can choose from refined Connecticut shade-wrapped cigars to earthy maduros and even fire-cured San Andres smokes. aficionados obsess over complex, powerful cigar blends with notes of espresso, cocoa, pepper, caramel, and cedar.

Big Tobacco Still Looms

Even with multi-generational family cigar makers like Fuente and Padrón achieving cult status, the industry remains dominated by three major players: Imperial Brands, Swisher International, and Scandinavian Tobacco Group. These companies focus on machine-made mass-market cigars, capturing over three-quarters of US cigar sales volumes according to Cigar Analytics.

However, the hard lessons of past busts have taught even large conglomerates not to overtly chase boom times with overexpansion. They benefit from diversified global tobacco portfolios. Strategies include acquisitions of top premium brands like Altadis’ purchase of half of Habanos SA, Cuba’s state cigar company. So big tobacco and boutique players have found ways to co-exist.

Opportunities Ahead

Despite falling from peak levels, the premium cigar market looks stable for now as core aficionados and newcomers support demand. Cigar makers must continue to innovate with quality to justify high prices in the face of electronic cigarettes and anti-tobacco campaigns. Supporters hope that the art and ritual of fine cigars will continue to survive and evolve.

Key Factors Shaping the Future

What key factors may impact the future trajectory of the global cigar market?

Regulatory Environment

The regulatory environment will significantly influence cigars, both premium and mass market. While not faced with the same regulations as cigarettes, large cigar makers must contend with:

  • Advertising restrictions – Cigar advertising is banned on TV and radio in the US and strictly limited elsewhere. Celebrity endorsements are also prohibited. This restricts marketing.
  • Warning labels – Cigar boxes and ads must display prominent health warnings in most countries, discouraging new users.
  • Taxation – High and rising cigar taxes make them less affordable. This impacts casual consumption.
  • Smoking bans – Bans on smoking in public places limit opportunities to enjoy cigars socially.
  • FDA regulation – The Food and Drug Administration now oversees the production, marketing, and sale of cigars in the US. Companies must report ingredients and obtain approval for new products.

So further regulatory tightening may squeeze growth prospects, especially for machine-made cigars. However, premium hand-rolled cigars may be viewed as less risky for moderate consumption.

Innovation

Continued innovation will be vital to attracting new audiences while pleasing existing cigar lovers. Top-tier companies are investing in new fermentation and aging techniques and experimenting with novel wrapper leaves, all to produce unique flavor experiences. They must walk a fine line between tradition and innovation.

Small-batch limited editions that sell out in hours drive buzz and social media chatter. Pairing flavored liquors with cigars also build interest. And elegant new events at luxury venues bring in affluent consumers. Blending tradition with innovation will keep premium cigars intriguing.

New Markets

As smoking drops in the West, cigar makers see opportunities to grow in Eastern markets. Russia, China, the Middle East, and parts of Asia still have low but rising cigar consumption. These regions appreciate premium Western brands as status symbols. Travel retail also introduces international tourists to premium cigars. Capturing new “affluent aspirational” smokers abroad may help offset declining home markets.

However, distribution can be complex abroad with diverse regulations. Counterfeiting of luxury brands is also a concern. Cigar companies must tailor marketing, production, and distribution approaches to realize the potential of emerging international markets.

Millennials

Another key question is whether Millennials will embrace premium cigar smoking. This generation came of age during the anti-tobacco climate of the 1990s and 2000s. Stricter regulation means cigars are less visible and accessible to youth today. However, some evidence suggests that on special occasions like bachelor parties or graduations, Millennials do partake in cigar smoking as a social experience. The key for cigar makers is to make premium cigars attractive for occasional, celebratory consumption while avoiding accusations of marketing to youth. responsible advertising and measured expansion of urban cigar lounges may help major brands connect with Millennials.

Threat of E-Cigarettes

The meteoric rise of e-cigarettes and vaping has already disrupted the tobacco landscape. These alternatives compete directly with traditional tobacco for smokers looking to quit or cut back risk. Their high-tech experience and range of flavors appeal more directly to younger smokers. While the long-term health impacts of e-cigs are still unproven, their novelty challenges old-school cigars.

Some suggest that the artisanship and experiential pleasures of premium cigars will limit consumers from switching completely to e-cigs. However moderate cigar smokers may reduce their consumption in favor of vaping. Cigar companies need a measured response: promote their authenticity and high-quality tobacco while being open to new delivery formats. Companies like Swisher International now offer nicotine vaping products alongside traditional cigars.

The Future?

Forecasting the future of cigars remains challenging. The market has already weathered highs and lows over the past century. While still a niche in global tobacco, premium cigar smoking retains a loyal base, especially among higher-income consumers who consider it an affordable luxury. Small-batch artisanship thrives while large companies supply affordable everyday smokes.

However further regulation and generational shifts could pressure participation. Cigar makers must walk a fine line between tradition and innovation to stay relevant. Overall, the future remains bright for premium cigars, but the cigar experience must continue adapting to survive and thrive.