Covid-19 disrupts the cigar supply chain. Several international distributors, retailers, and consumers in the international markets reached out to Ministry of Cigars. With questions about supply and shipping. Consumers are complaining about their favorite cigars not being on the shelves. Retailers are complaining about cigars out of stock at distributors. And distributors asked Ministry of Cigars is it’s just an issue in their market, or globally. So we reached out to a number of cigar manufacturers and cigar brands. In Nicaragua, Honduras, Dominican Republic, and we reached out to Habanos. Thank you to all those that replied to our inquiries.
Reports from European retailers lead the conclusion that the supply chain for Cuban cigars is heavily disrupted due to the covid-19 pandemic. A number of lines and vitolas have been out of stock for months, and the number of SKU’s not being able to be ordered is growing in many countries. Cuba being Cuba is silent about it. But Cuba has been under lockdown twice. Sources in Cuba are telling Ministry of Cigars that at a certain time, 1500 rollers were either sick or quarantined. We haven’t been able to verify that, but different sources mentioned it. That takes its toll on production.
Many brands and factories are low on stock. The pandemic forced factories to close down. Factories are still not working on full capacity. Some operate at 40%, other factories told Ministry of Cigars that they are back at 85% of production. That’s all due to social distancing. Unless barriers are in place, and other measurements are taken, factories are not allowed to open in full.
Increase in demand
Because a lot of people work from home, they have more time to smoke. And without being able to go to bars and clubs, people enjoy an extra cigar and beverage at the house. That creates extra demand. In the United States, internet cigar sales have never been better. The word ‘mini-boom’ is mentioned by several brand owners. That combined with the closure of factories, and the limited capacity on which they operate now add to the supply chain problems.
A few brands, both large and boutique, that we reached out to say they don’t have stock problems. Another factory says their facility has plenty of capacity, so they hired extra rollers and extra hands in the packaging department. The back orders they had are gone by now. One factory owner did express concern about a very large competitor targeting experienced rollers from other factories. That creates issues for the smaller factories, as they are understaffed and have to train new rollers. Training new rollers take time.
The third issue is shipping. Flights are limited. Often cargo travels on commercial planes. So next time you fly from the Dominican Republic, Cuba, Honduras, or Nicaragua, chances are that there are pallets full cigars in the cargo area. Without those commercial flights, shipping options are limited. And prices go through the roof. Some cargo shipping prices went up with 300%. So even if factories and brands have cigars available in the country of origin, it’s hard to get them to their destination.
A few companies use European warehouses, that distribute to the international markets. A few times a year, a large shipment of cigars is transported to those warehouses per sea freight. Think 40 foot, air-conditioned, shipping containers. Those transports are not affected. And within Europe, the orders are distributed by road, so there is no issue there either. International markets outside of Europe are harder to reach even from European warehouses. And more expensive again. Even 5th Avenue, the Habanos distributor for Germany, Austria, and Poland resorted to a shipping container full of cigars earlier this year.
A few private labels decided to boost their sales by offering huge discounts at the beginning of the pandemic. According to some American retailers, the deals were better than ever. Heavily discounted cigars when the demand was down. Those brands are now in trouble. With increasing demand and no stock, they can’t supply. The stock they had was sold with a huge discount. And of course, private labels depend on the production capacity that the manufacturer can allocate for them. Those manufacturers will allocate production for its own brands first, leaving the private labels without stock and income for a few months.
Other small brands played it smarter. They didn’t discount, which may have cost them some sales during the early stages of the covid-19 pandemic. But now, with the demand growing, they can sell their remaining stock, supplying the market, without having to offer discounts.
To answer the question
The question asked whether Covid-19 disrupts the cigar supply chain can only be answered with yes. But not everyone faces the same disruptions. For some brands, the issues are severe with zero stock and no solution within the coming months. Other factories operate on lower capacity and face shortages. Those that don’t have issues with production and stock face the problem of limited shipping options against inflated prices. But the silver lining is the increased demand, so once production, stocks, and shipping problems are solved, the number of cigars sold will rise.