How is a cigar's price determined?
Premium cigar prices can vary considerably from one vitola to another. It is therefore possible to buy cigars for less than €5 each, but also to find cigars that can cost up to €500 or even €1,000 each. But what explains such disparities, and how are cigar prices actually set?
The quality of the tobacco in a cigar
A premium cigar is generally made up of 5 to 8 different long-filler tobacco leaves. First comes the filler, which most often contains 3 leaves but can also include up to 5 for the most complex blends, the binder, and the wrapper. From seed to harvest, including the various stages of tobacco processing (drying, fermentation, rolling, aging), different production costs are added to the making of a cigar. Producers therefore pass on the cost of their labor, raw materials, logistics, transportation, as well as all expenses related to tobacco processing, to the retail price of their cigars.
The price of a cigar can therefore vary considerably depending on the production methods used, the origin of the tobacco, or whether manufacturers integrate the different production tools themselves. Some producers have their own farms and factories, while others rely on subcontractors. Centralizing production generally helps reduce the cost of cigars, as it limits transportation expenses and requires fewer intermediaries. A cigar made with a Connecticut wrapper grown in the United States will thus necessarily involve higher production costs than a cigar rolled from leaves grown locally. Tobacco aged for many years will also entail greater labor and logistics costs, which will inevitably be reflected in its final price.
By the same logic, a large cigar will generally be more expensive than a smaller vitola, since it requires a greater amount of tobacco. The shape of the vitola can also influence its price. Figurados, Torpedos, and Perfectos are indeed more difficult to roll than Robustos or Toros, and therefore require more skilled, and thus more costly, labor.
Supply and demand
As we recently saw with certain major habanos brands, too large a gap between supply and demand can significantly drive up the price of a box of cigars. Last July, Habanos S.A. introduced unprecedented price increases across its entire catalog. Some Cohiba and Trinidad cigars thus saw their prices rise by between 100% and 200%, while the rest of the Habanos S.A. catalog underwent increases ranging from 5% to 20%. If Habanos S.A. explains these increases as a desire to restore high-end products to an exclusive place in the luxury market, this decision comes in a context of opening up to Asian markets, which is translating into a sharp rise in demand.
For several years now, Cuban cigar production has also been affected by various problems that no longer allow it to meet the steady increase in demand. The Covid crisis, weather-related setbacks, as well as the various issues linked to the production of the wrappers needed to make habanos have indeed led to supply difficulties, particularly in European markets. Yet, in accordance with market laws, when demand is greater than supply, prices rise.
In the same vein, the rarity of a cigar affects its selling price. For this reason, Limited Editions, Regional Editions and Special Editions generally carry much higher prices than regular production cigars. Some boxes of vintage cigars can also fetch astronomical prices at auction because of their rarity. Conversely, cigars whose supply exceeds demand can see significant price drops, much to the delight of a few aficionados who have managed to sniff out a good deal.
Taxes and retailer margins
In addition to the MSRP (manufacturer’s suggested retail price) set by the manufacturer or distributor, the final selling price of a cigar takes into account the various taxes (VAT, customs duties, tobacco tax) and retailer margins that apply. In Spain, for example, cigars are subject to the excise duty on tobacco products plus the standard VAT rate (IVA) of 21%. The applicable rates are set by law and reviewed periodically. These figures are updated each year according to the economic context.
Alongside these taxes and duties, the final price of a cigar also reflects the margin set by retailers. This margin represents the difference between the purchase price of the cigars and their resale price. Naturally, it must take into account procurement expenses as well as the various costs involved, such as shipping, storage, and merchandise sales expenses. The retailer’s margin must also allow them to cover general operating costs and generate a profit. Each retailer is therefore free to set their margin according to their own situation. They must nevertheless take into account the prices generally charged by other companies in the sector in order to remain competitive.
At HABANO & ALMA, we guarantee fair and competitive prices. In our view, a fair price must recognize the work of the men and women who contributed to the making of your cigars. It must also allow us to store them and sell them to you under the best possible conditions. Thanks to the trust and respect we have built with all our partners, we are able to offer you high-quality cigars at the best price.