Spotlight

Tabacon Cigar Co.

Year Founded: 1995

Core Business: Importing and selling hand-rolled cigars

Top Executives: Douglas Chu and Scott Samet, co-owners

Revenues in 1995: $750,000

Revenues in 1997: $4 million

Employees in 1995: 2

Employees in 1998: 4

Goal: To further establish brand-name recognition and loyalty for the company’s cigars

Driving Force: Strong demand for quality cigars

By DANIEL TAUB

Staff Reporter

Douglas Chu and Scott Samet want you to forget everything you’ve heard recently about the cigar business having peaked out.

They want you to forget that several cigar companies that went public during the height of the craze have seen their revenues flatten in recent months. They want you to ignore the fact that Hollywood celebrities are no longer being photographed with stogies clenched between their teeth as frequently as they were just a year ago.

Chu and Samet, co-owners and founders of Tabacon Cigar Co., a cigar importer and distributor formed two and a half years ago, say they are not in denial. Sure, they realize that fewer people are trying cigars for the first time suggesting that the popularity has dropped off.

But they quickly add that most of those who have gotten into cigars in the last several years are going to keep puffing away trendy or not.

“We don’t expect growth to continue the way it has,” conceded Chu, 30, who graduated from the Wharton School with Samet, 29, eight years ago. “We do realize that trends and fads have a lifeline to them.”

Chu added that cigar smoking is not a fad, but more akin to coffee consumption something that has spikes of popularity, but always has a steady customer base.

“It’s not like people are going to stop drinking Starbucks all of a sudden,” Chu said. “It’s just become more of a constant level.”

Gordon Mott, managing editor of Cigar Aficionado magazine, said predictions about the death of the cigar business both for Tabacon and for larger companies are premature.

“This is a market that has increased approximately 400 percent in five years,” Mott said. “So to say that it has tailed off a little bit is to negate the fact that it is much bigger than it was in 1992. Has the growth rate slowed down? Yes, that is true.”

Mott said he expects the growth rate for cigar sales nationwide to be 10 percent to 20 percent in 1998 down from its recent peaks in the 80 percent range.

As growth slows, “it has become increasingly difficult for small companies with new brands or unknown brands to break into the market,” he said.

Chu and Samet hope to establish Tabacon’s six varieties of cigars permanently in the minds of regular cigar smokers. Those brands are Rosa Blanca Reserva, Don Jivan Limited Edition, Nivelacuso Private Reserve, Tabacon Vintage Selection, Del Valle and La Diabla.

“Whether it’s a fad or not, if you create a great company you’ll create a lot of loyal customers,” Samet said.

Tabacon has made some inroads in developing a loyal customer base.

At Remi Restaurant on Santa Monica’s Third Street Promenade, some customers come in specifically to buy Don Jivans, which are named for Remi owner Jivan Tabibian and which are the only cigars the restaurant sells. On an average weekend, 50 to 60 Don Jivans are sold at Remi, Tabibian said.

“If there is nice weather and an event is going on (at Third Street), or it’s a long weekend, it could be as many as 100,” he said.

Steven Lovotti of Sacramento-based Lovotti Brothers Distributing Co. Inc. said he sells each month between 30 and 40 boxes of Tabacon cigars (each box contain 25 cigars).

“We’re getting a little cult following of them,” Lovotti said. “People know and respect the label.”

Tabacon which is housed in a 2,000-square-foot office in an industrial area of Mid-City L.A., just east of Culver City posted revenues of $4 million in 1997, up from $1.5 million in 1996. Samet estimates the company sold about 1 million cigars wholesale last year.

Tabacon has four full-time employees, and hires temps to help during busy times of the year, such as just before Father’s Day and Christmas.

Tabacon’s hand-rolled cigars are made by companies in the Dominican Republic, Honduras and Nicaragua. The tobacco blends are selected by Chu and Samet, who say they have been smoking cigars since they were in college together.

The cigars are then imported to the company through Los Angeles International Airport, and sold wholesale to owners of liquor stores, restaurants and bars. In many of those retail locations, the cigars are displayed in humidors supplied by Tabacon. Samet said Tabacon has between 400 and 500 humidors in retail outlets throughout the country.

The company’s cigars also are sold through catalogs from Neiman-Marcus, Saks Fifth Avenue and Bloomingdale’s.

For stores such as Saks Fifth Avenue, Tabacon assembles 10-cigar sampler boxes, which retail for $75 to $90. They contain Tabacon’s own cigars and other cigar brands the company distributes. Tabacon also sells “The Monthly Cigar Club,” through the catalogs of Neiman-Marcus and others, which sends customers a box of cigars once a month for a six- to-12-month period.

Tabacon’s latest product is La Diabla, a vanilla-flavored cigar, which the company started distributing earlier this year. Also being considered are cigars flavored with alcohol, such as rum or brandy.

Chu and Samet who originally went into business together in 1992 to distribute snack foods at movie theaters say they are committed to the cigar business, but they are open to other opportunities.

“It’s a natural progression for Scott and I to keep our eyes and ears open for other things,” Chu said.