Hyped MSRP on 'net cigars?

[uvacom]

I've noticed that a lot of cigars available mostly through CI and their sister sites (cigar.com, cbid) tend to sell for way below their MSRP. Take the 5 Vegas Miami knuckle, for example. It retails for $8.50 but is commonly available for under $3 in 1-day/weekend deals and on cbid. There are many, many other examples of this. Gurkha may be the worst offender in this area (sorry s15dk!).

Is it that CI can offer such hypercompetitive pricing? Or is it really that these brands carry an inflated msrp to create the illusion of deep discounts and thus value?

[raralith]

I'm fairly certain that Altadis owns all three of those sites, and Altadis being the largest distributor in the word (along with 50% ownership of Habanos SA), can sell it well below MSRP.

[Totemic]

Originally Posted by uvacom

I've noticed that a lot of cigars available mostly through CI and their sister sites (cigar.com, cbid) tend to sell for way below their MSRP. Take the 5 Vegas Miami knuckle, for example. It retails for $8.50 but is commonly available for under $3 in 1-day/weekend deals and on cbid. There are many, many other examples of this. Gurkha may be the worst offender in this area (sorry s15dk!).

Is it that CI can offer such hypercompetitive pricing? Or is it really that these brands carry an inflated msrp to create the illusion of deep discounts and thus value?

5 Vegas is CI exclusive blend so they can pretty much set whaterver MSRP they want and proceed to sell it at any price point they feel will make money for them. In this case, it's purely marketing.

Gurkha is also in a similar situation. There are a LOT of vendor specific blends for Gurkhas. Ditto with Rocky Patel.

If you look at the non-exclusive blends, you'll see that they still play the same game, but just not as bad (check the relative "discount" for RP Edge vs. RP R4 on CI).

About the only cigars that they don't do this with are those non-exclusive limited release cigars.

[NCRadioMan]

Think of them as the Wal-Mart of cigars. They buy so much volume, they can sell cheaper.

[kansashat]

Originally Posted by raralith

I'm fairly certain that Altadis owns all three of those sites.

Is there any truth to this? I thought TCI & CI were two distinctly different, & seperately owned companies.

[raralith]

Originally Posted by kansashat

Is there any truth to this? I thought TCI & CI were two distinctly different, & seperately owned companies.

It looks like I was thinking of another website, my mistake. Here's the quote from CigarCyclopedia year 2007:

Los Angeles, August 16 – The world’s second-largest cigar company has agreed to acquire one of the world’s largest retailers of cigars.

Swedish Match AB announced yesterday that it will acquire Cigars International, headquartered in Bethlehem, Pennsylvania, in a move which will give Swedish Match its first direct-to-the-consumer channel. The transaction is being made by the parent company in Stockholm and not through either Swedish Match North America or General Cigar Holdings.

The action parallels the 2003 move by Altadis, S.A. to acquire J-R Cigars, the world’s largest cigar retailer with multiple retail stores in major markets, an enormous mail-order and Internet sales presence and a major wholesale operation called Cigars by Santa Clara. Altadis can acquire the remainder of the J-R Cigars shares it does not already own at the end of 2008.

For Swedish Match, buying Cigars International provides it with a small retail store presence (Cigars International has two retail locations), but a mighty catalog and Internet operation that in 2004 was shipping 250,000 packages a year to cigar smokers. Its clientele is highly attractive: a median age of only 40 years old and average household income of $110,000. A wholesale division, called Meier & Dutch, was launched last year.

Cigars International is a young company, founded in 1996 by Keith Meier and John DeMarco. By 2003, sales volume had reached more than $20 million on the strength of eight catalog mailings a year to a list of 400,000 customers and prospects. In July 2004, it received a major financial boost with a reported $12 million investment from the Chicago-based private equity investment firm Svoboda Collins LLC.

And the company was refinanced again in 2005 with $24.75 million in loans and a revolving line of credit of $3.25 million. The result? An even more aggressive marketing approach that has driven gross sales to around $50 million annually, making it one of the largest cigar sellers in the U.S., along with J-R Cigars and Thompson Cigar Company of Tampa, Florida.

Although investment banking advisors Harris Williams had been shopping Cigars International, according to one source, since April of this year, Swedish Match shopped around. Other major mail-order and Internet retailers were queried about their interest in selling to Swedish Match, but Cigars International was eventually chosen.

Said Meier, “We were seeking a new financial partner, and during the process there was strong interest in the company from a number of private equity companies, but ultimately Swedish Match AB won out instead. Fundamentally, it was the quality of their people, and most importantly their commitment to having CI operate autonomously – to continue doing exactly what has made us successful over the years.

“Over the past decade we've been determined to quietly build CI into one of America's top catalog and internet cigar dealers. As you know, we have a wide product selection and competitive prices, and through creative marketing and strong supplier relationships we've been fortunate to have developed a loyal customer base and reach ever deeper into the premium cigar market. Allying ourselves with Swedish Match AB was a natural fit which we believe will further strengthen the Cigars International brand among customers. Again, the best part is simply that we're going to keep doing the exact things we've always done - our commitment to getting better every day, to winning customers through great service, and to continue generating growth remains unchanged. But the advantage is, given Swedish Match AB’s global leadership in cigars, we will be in an even better position to accelerate that growth with a very strong partner behind us.”

Several sources we spoke with, but who asked not to be identified, thought that Swedish Match’s appetite for acquisitions in the cigar marketplace has not yet been sated. Rumors about a possible purchase of Padron Cigars of Miami, Florida and/or Drew Estates continue to circulate.

It’s all part of a wave of cigar industry changes which have been keyed by the U.S. Supreme Court decision in Leggin Creative Leather Products, Inc. vs. PSKS, Inc. on June 28. In that case, the Supreme Court overturned a 1911 decision barring resale price maintenance and now allows manufacturers to set fixed retail prices.

The Leggin decision now allows companies like Swedish Match to create brands and sell them at prices it alone will set, free from worry about discounting either at the retail or mail-order/Internet level. And with Cigars International, it can now sell directly to the public.

Although not as important as establishing a direct-sale presence on the U.S. market, Swedish Match’s acquisition of Cigars International will also give it an advantage some time in the future when the U.S. trade embargo with Cuba is ended and Havana cigars are again able to be sold in the U.S. Although a titanic struggle over trademark rights will ensue when the embargo is lifted, Swedish Match currently holds the U.S. trademarks to Bolivar, Cohiba, Hoyo de Monterrey, La Gloria Cubana, Los Statos Deluxe, Partagas, Punch, Ramon Allones, Sancho Panza and others. By having a direct-sales outlet such as Cigars International, General will – if it can gain the rights to sell the Havana cigars for which it holds U.S. trademarks – be able to get into the market a bit more quickly than if it only had retail store distribution open to it.

As for CBid, Cigar, and CigarsInternational, all ship from the same warehouse and have the same staff support.

[kansashat]

Originally Posted by raralith

It looks like I was thinking of another website, my mistake. Here's the quote from CigarCyclopedia year 2007:



As for CBid, Cigar, and CigarsInternational, all ship from the same warehouse and have the same staff support.

Good research. I remember the Swedish Match acquisition now that you mention it.

[uvacom]

Originally Posted by Totemic

5 Vegas is CI exclusive blend so they can pretty much set whaterver MSRP they want and proceed to sell it at any price point they feel will make money for them. In this case, it's purely marketing.

Gurkha is also in a similar situation. There are a LOT of vendor specific blends for Gurkhas. Ditto with Rocky Patel.

If you look at the non-exclusive blends, you'll see that they still play the same game, but just not as bad (check the relative "discount" for RP Edge vs. RP R4 on CI).

About the only cigars that they don't do this with are those non-exclusive limited release cigars.

This is pretty much what I suspected. Now, it would seem that the reason a manufacturer would want to create a vendor-exclusive blend for a large mail order house is obviously volume, which seems counter to quality (since the very best tobacco is not available in large quantities). On the other hand, keeping the supply chain so short could significantly cut prices, allowing CI, JR, et al to provide a good cigar at a lower price.

What is the take on this from the vets? Are any of the internet cigars much good to you? I have to say that my developing tastes have found some of the "premium" cigars sold by CI to be pretty tasty, like the RP fusion and the aforementioned 5 vegas miami. On the other hand, the cigars available for a similar price from my B&M usually seem to be mediocre to crap. But the top shelf stuff is kind of a wash in that my local B&M is fairly competitive pricewise and offers the advantage of immediacy.

So maybe the situation is somewhere in the middle - on the one hand, you can get a better quality smoke for less money buying online, but there will usually be a quality ceiling for any of the exclusive brands due to the high-volume nature of the product. Does that sound about right?

[PaleRider]

I can't say that I can argue with your logic tree on that point. It comes down to supply and demand.

Should demand outstrip supply (i.e. Premium Uber tobaccos), then yes I would say that definitively a ceiling exists on what is "available" in the chain.

Markets always correct themselves! God I love economics!

[Vinnie]

I'm a drummer and have built several kits using the Internet. My experience says the more brands there are, the better pricing you can get. Competition dictates the pricing overall, the more there is to choose from the better it is for consumers.

I also own a Vette, since it's only one brand, there are no deals, or not many on aftermarket parts. If you want it, you have to pay for it.

There are a lot of dang good cigars to choose from, competition overall is excellent for our hobby.
Vinnie

[BADS197]

Supermarkets do the same thing....


They mark it up... give you a discount for having a "club card" that you don't pay anything for.. only to get a big discount on some items they got in bulk and could pass on a savings.

[Blowin' Smoke]

MSRP can be misleading. Often times a stogie will never be sold at MSRP, so if you pay $4 and it has a $9 MSRP, you are getting a $4 cigar. This isn't necessarily true of closeouts and sales, but usually of exclusive blends and brands.

[macjoe53]

Originally Posted by BADS197

Supermarkets do the same thing....


They mark it up... give you a discount for having a "club card" that you don't pay anything for.. only to get a big discount on some items they got in bulk and could pass on a savings.

Yep. Have you every noticed the price change when they do a "Buy One Get One Free" sale on something like boneless/skinless chicken breast? The same chicken breast that normally sales for $2.39 lb is $4.79 a lb. when it's on sale as "Buy One Package, Get One Free."

With the cigars I think its more of a deal where the dealer can purchase a larger amount at a discounted price and then pass it on to the consumer while advertising an MSRP that is higher.

[Frinkiac7]

All you've got to do is check Perelman's and you'd be amazed at how many brands are actually distributed by Meier and Dutch (the CI people). Not knocking them, cause they do great work, but when you look at the inflated MSRP of M&D brands (Gurkha, for example), it's no surprise that it's really all just an advertising gimmick. Same reason you see 5 Vegas, Gurkha, and other M&D brands pushed so much through CI...they're THEIR brands, essentially (distributor).

CI has pretty decent prices on non M&D smokes as well, so I can't complain!

[DBCcigar]

Originally Posted by raralith

I'm fairly certain that Altadis owns all three of those sites, and Altadis being the largest distributor in the word (along with 50% ownership of Habanos SA), can sell it well below MSRP.

Ditto!