Why Have Cuban Cigar Prices Increased So Much?

Every year in January, Habanos S.A. updates its sales prices for the distribution network across its entire portfolio. This price increase takes into account the constraints related to the various production sectors as well as global economic indicators. But 2022 saw the price of certain vitolas soar compared with previous years, even as Habanos S.A. was announcing record revenue for 2021 at the same time. One may therefore wonder why the price of Cuban cigars rose so sharply in 2022?

Opening up to new markets

For several years now, Cuban cigars have enjoyed strong enthusiasm among a new clientele coming mainly from Asia and the countries of the Middle East. While Europe and the United States have always been the main consumers of habanos in the world, this trend is beginning to shift with China’s rise in 2020 to first place among the countries importing Cuban cigars.

This trend is the result of a China-focused marketing strategy developed by Habanos S.A. since 2012. With more than 300 million smokers and a favorable economic situation, China indeed represents significant growth potential for the Cuban company. In 2017, exports of Cuban cigars to China thus jumped by 12%.

However, this strong demand was not matched by production volume, which helped create a major imbalance between supply and demand. According to Jose Maria Lopez Inchaurbe, vice president of Habanos, this acceleration in sales of havanas in China contributed to a 5% increase in the luxury market in 2017.

The decline in cigar production

While demand for Cuban cigars has never been higher, production has been declining for several years. Cigar producers have indeed had to face numerous challenges linked to the health crisis and climate change, which has significantly affected their production capacity.

Cuba has always been plagued by hurricanes and other climate hazards, but recent years have been particularly difficult, with a significant intensification of these phenomena and their scale. In 2020 alone, no fewer than 29 cyclones formed in the Atlantic, one more than in 2005, which had until then been the record year. These repeated storms severely damaged tobacco plantations as well as related facilities such as drying barns and storage sheds. According to our information, the 2021 harvest was therefore reduced by around 20%, which had a major impact on 2022 production.

In addition to these repeated climate disasters, Cuba’s cigar industry has also not been spared by the restrictions linked to the health crisis. Many factories therefore operated at reduced capacity during the Covid crisis, and some even had to close for several months. The hygiene and social distancing measures implemented from March 2020 in fact severely disrupted production capacity, with only 1 in every 2 workstations occupied. With schools closed, many workers also had to stay at home to care for their children.

Despite the lifting of restrictions, the situation with air freight and sea freight has still not returned to normal, inevitably causing delivery delays. These logistical problems have also had consequences for the import of cigar boxes and bands, most of which are made in the Netherlands. All of these factors are therefore contributing to the shortage of habanos on the global market, which inevitably translates into higher prices.

The price harmonization strategy desired by Habanos S.A

While rising demand and lower production have contributed greatly to the increase in habanos prices over the past two years, the most decisive factor behind this rise comes from a deliberate change in Habanos S.A.’s overall policy. In 2021, the Cuban distribution company announced its intention to align the prices of certain major habanos brands with the retail prices charged in Hong Kong.

This decision comes as Habanos S.A is now partly run by Hong Kong interests. In 2020, the British company Imperial Brands, formerly Imperial Tobacco, which until then held 50% of Habanos S.A’s shares on an equal footing with the Cuban state, sold its stake to the Hong Kong company AlliedCigar Corp for an estimated $1.04 billion, the largest deal made by players in the tobacco industry in decades.

This homogenization strategy thus comes into play in a context of opening up to Asian markets and reflects a desire to limit parallel markets between countries. It also aims to strengthen the positioning of certain premium cigar brands in the luxury market. The biggest price increases were thus observed on the two flagship brands in the Habanos catalog: Cohiba and Trinidad. Modules such as the CohibaBehike 52, the Cohiba Esplendidos, the Trinidad Coloniales and the Trinidad Fundadores have seen their prices double. For other brands such as Montecristo, Partagas and Romeo Y Julieta, price increases range from 5% to 25% depending on the module.

The consequences of these price increases

These price increases are not without consequences for the premium cigar market. With prices soaring, many consumers are now turning to more accessible brands and/or new growing regions. Cigar shops that had until then built their image around the “discount” model are also finding their place in the cigar market increasingly challenged. As in the wine world, the premium cigar market is evolving and certain cigar brands are destined to become true luxury brands. Cigars such as Davidoff's Winston Churchill, La Flor Dominicana The Bull, Fuente FuenteOpux X, and Pepin Garcia Limited Edicion are thus becoming rare products sought after by collectors around the world.

As we wrote previously: “In a way, the cigar has regained the place that has been assigned to it since its beginnings. A luxury product, a rare product, made by hand and a centuries-old vehicle for gestures repeated time and time again. A product that perpetuates tradition and conveys simple, fundamental values, values of family, friendship and sharing”.