The Hidden Costs Behind Expensive Cigars

Expensive Cigars Title Image

 

The decision of whether or not expensive cigars are worth the money is an entirely personal one. Some people can’t afford expensive cigars, while some can’t afford not to go to the additional expense. To each their own. Today, however, we’ll be taking a closer look at the math behind the pricing. Some people say expensive cigars cost more because of their marketing (stay tuned for more on that), but in reality, there’s much more to the cost of making super-premium cigars than people realize.

Factor 1: The Tobacco’s Age

The age of the tobacco used to make a cigar plays a significant role in what it cost to produce that cigar.

Let’s say a manufacturer secures $1 million (USD) of tobacco (tobacco A) that he needs to use for a blend. Tobacco A goes through a fermentation process that lasts approximately six months, only to be aged for an additional six months after that. In that time, the cigar maker is using bank money at 6% interest for tobacco that won’t be able to be used for at least 12 months.

Formula used : I+P x r x t 

Cost of tobacco A with interest: $1,060,000.

Now let’s say the cigar maker wants to make a more premium version of this cigar and decides to use tobaccos aged for five years after fermentation (tobacco B). Tobacco B goes through a fermentation process of approximately six months and is then aged for 60 additional months. 

Formula used : I+P x r x t 

Cost of tobacco B with interest: $1,390,000.

The additional investment between tobacco A and tobacco B isn’t simply $330,000. That tobacco also has to be stored somewhere and protected by guards—not to mention the fact it has to be covered by insurance. 

Now let’s use the same example but from another angle. Let’s assume the cigar manufacturer wanted to make this cigar as part of their standard offering. They couldn’t simply buy the tobacco and allow it to age without thinking about future productions. In this example, let’s say they wanted to release a premium cigar using tobacco B. 

2021: Secure tobacco for 2027 release $1M

2022: Secure tobacco for 2028 release $1M

2023: Secure tobacco for 2029 release $1M

2024: Secure tobacco for 2030 release $1M

2025: Secure tobacco for 2031 release $1M

2026: Secure tobacco for 2032 release $1M

2027: Sell the first cigar.

Just a quick look at the math shows the cigar manufacturer has invested approximately $6 million (plus interest and storing costs) before they ever sell a single cigar.

Factor 2: The Variety of the Tobacco

It goes without saying that wrapper leaf is significantly more expensive than filler leaf. But the price differences don’t stop there—the cost between different varieties of tobacco, as well as the tobacco’s country of origin, can be significant. Like everything else, tobacco costs rise with demand, but you can expect to pay between $25 and $50 (USD) per pound, depending on the type of wrapper the cigar maker selects. 

Approximately 1/3 of the cost to make a cigar is wrapper. In this example, choosing the $50-per-pound wrapper over the $25-per-pound wrapper would add roughly 33 percent to the cost to produce the cigars. 

Factor 3: Packaging

We all love gorgeous cigar boxes and rings (bands), and why not? World-class cigars deserve to be dressed appropriately. As you can imagine, the type and quality of the boxes and rings used in packaging plays another role in the final cost of a cigar.

Here are a couple of practical examples.

  • Cigar A uses an MDF (compressed wood) box and average-quality bands at a cost of $4 per 20 cigars.
  • Cigar B uses a well-designed Spanish Cedar box and high-quality cigar bands at a cost of $12 per 20 cigars. 

This doesn’t seem like an enormously significant difference, but the difference comes to about 50 cents per cigar after the additional cost of shipping is accounted for. 

Factor 4: Marketing

Finally, we arrive at marketing. This is the first thing most people think about when it comes to influencing a premium cigar’s price, but I put this last on the list of factors for a good reason. While it’s true that marketing does contribute to the ability of a cigar manufacturer to ask a certain price of their product, all those expensive ads aren’t free, and it doesn’t account for everything. Sure, some brands get away with expensive making tactics to sell low-cost production cigars, but I can count most of those examples on one hand. These cigars usually have a high MSRP but are heavily discounted at the point of sale.

The bottom line is that making super-premium cigars with well-aged tobacco costs a lot of money, and cigar manufacturers aren’t in the business to break even but to make money. If you lay the blame at the feet of marketing and hype, you run the risk of missing out on some truly incredible cigars that are worth every extra dollar you spend on them.






1 comment

  • Always enjoy your posts and the education you provide. Keep up the good work.

    Valor is doing very well. I think there were no losers in the deal.

    Best of luck,

    Mike Holman

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