THE ROLE OF CUSTOMER EXPERIENCE IN THE TOBACCO SECTOR

The tobacco sector is probably one of the hardest ones for the head of marketing in any of the companies competing in this market, what with all of the regulation on advertising and marketing, not just in Spain but worldwide, where general advertising is restricted or directly prohibited, and with sales channels often closed to competition (as is the case with tobacconist’s shops in Spain). What’s more, it is one of the sectors that has been evolving the most in terms of products in recent years, with the arrival of new consumption formats such as vapes and Tobacco Heating Products (THPs).

We want to find out first hand from Jorge Fernández Cabezas, International Marketing Director at Tabacalera, how he sees the future of the sector and the trends in marketing and consumption that this market is going to face.

Question from Zedis: How is your company organised? What are your most famous brands? Are you part of a group? What are your roles?

First of all, just to explain where my company sits within the world of tobacco, I want to clarify that we move in a special and different world from the rest of the “tobacco” industry, since we are in the premium cigars segment. In this respect, premium cigars are much more closely associated with other premium or gourmet products, their production is manual, and the whole agricultural process takes on great importance: the seed, the climate, the land… And their consumption is strongly associated with special moments, enjoyment. We could say that it is much closer to wine, for example, than to other products in the sector.

Tabacalera is the world’s leading corporate group for premium cigars, with a presence in over 150 countries through a strong distribution network. It is the heir to the Spanish tobacco monopoly created in 1636, and since 2020 it has been an independent company separate from its former shareholder, Imperial Brands.

Within Tabacalera we are divided into three business areas. In my case, I am part of the international area, where we manage different brands throughout the world, such as VegaFina, and the Cuban brands in the machine rolled cigar segment (such as Cohiba, Montecristo, Partagás, Romeo y Julieta), as well as all of the Habanos brands in Spain.

Within the marketing department, our main roles are related to the product itself, which is hugely important: strategy and brand image, development of new launches, limited editions, etc. Our job is a constant mix of blending tradition with innovation. And then, also of great importance are communication and events; the marketing of experiences is the core concept within our product.

What products do you work with? What are cigar consumers like?

The product we are working with, the premium cigar, is a very special product, as I was saying before. It is an artisanal product that’s made by hand, and has a great tradition and culture behind it, with many rituals…  We are lucky to have the best origin in the sector, Cuba, and the best brands in the world.

With regards to the consumer, in reality we talk about “enthusiasts”, because they really are, Cuban cigars are a passion for them. There is a great pride of belonging, and it creates a special relationship of affinity between them. Smoking a Cuban cigar is a moment of enjoyment, whether on your own or with company. In general, the profile of an enthusiast is someone who likes enjoying life, enjoying the best premium cigars, but also the best wines, spirits, gourmet products, etc. As for the age profile, the average age would be between 40 and 50 years old. However, we are seeing more and more people between 25 and 35 who are getting into this world and who feel attracted to this whole lifestyle.

What is the tobacco sector like? What are the most important markets today, and which are showing the most promise in terms of future growth?

Here, and focusing on the premium cigars segment, the market in general has shown very positive behaviour in the last few years. The biggest market, by a long way, is the United States. Spain has traditionally been the second largest market in the world. However, as is happening in the majority of industries related to premium brands, the emerging market is Asia, and more specifically China.

What is the main point of sale for your products? What relevance does the point of sale currently have within your general marketing strategy? How do you make the most of it?

It depends on the country. The tobacco sector is a hyper-regulated sector, especially in European countries. In countries such as Spain, France and Italy, the only point of sale permitted is tobacconist’s shops. There is a second sales channel, hospitality, but they are obliged to buy the product from the tobacconist’s rather than the manufacturer or distributor, so it is never a direct sales channel. As for the online channel, other countries such as the United States, Switzerland and Germany do allow online sales, or sales in other establishments that aren’t tobacconists.

In Spain, furthermore, it is prohibited to have points of sale that are exclusive to one manufacturer. The only point where you can give your brand visibility is in the tobacconist’s, and the competition between all of the companies to carve out a gap on the shelf is high.

In Spain, the market for premium cigars is increasingly concentrated, and there is greater specialisation in the points of sale, which additionally require specific installations to properly preserve the product (premium cigars require a suitable temperature and humidity). The strategy depends on working closely with the tobacconist, achieving enough visibility of the product and its description.

In this contact with the point of sale, how relevant is the packaging, the presentation and the merchandising in general? Do you put a lot of work into it?

As I was saying, in Spain, the tobacconist’s is the only place where you can address the consumer, so it is fundamental, and our sales department, hand in hand with Trade Marketing, is responsible for putting the maximum amount of care into it and being able to offer the best tools.  And within the point of sale, without a doubt, the product packaging is also a very important element that we dedicate a lot of time and effort to, trying to come up with concepts, special editions, etc.

One of the most important marketing trends at the moment is the Customer Experience, everyone is focusing on the customer. Do you think that’s the case in your sector, or are there other more important trends, such as digitalisation, big data, etc.?

In our sector, the customer experience is not a trend, but rather an intrinsic element of the product itself, given that premium cigars are a real experience in themselves; even just the ritual before you begin smoking, how it’s cut, how you light up, etc. The very essence of the product demands that element of an experience, which is fundamental for the enthusiast. We always say that a Cuban cigar is not so much a luxury product as a lifestyle; a way of enjoying the small moments, of knowing how to eat well, knowing how to drink well. Those little things with which you can give yourself a treat from time to time.

The cigar enthusiast loves to try new things, limited editions and new concepts, so the premium cigar sector also relies a lot on the novelty of the product, mixing tradition and innovation as I said before. In fact, the Tabacalera logo itself contains those two words, “Tradition and Innovation”.

You say that the customer experience is practically a defining element in your sector. Compared with others, for example the cosmetics or automobile industries, would you say it is more or less relevant?

Whilst I’m no expert in the other sectors, I would say at least equally so.

Above all, for beginners, the first experience is key: knowing how to cut the product or light it, etc.; it is always very closely associated with someone showing you, such as a friend or family member, an event where you see it done…

Post-pandemic, raw materials crisis, environmental transition, increase in regulations, digitalisation… These are some of the problems that are cutting straight through the heart of countless industries. Which do you think have affected, are affecting or will affect the tobacco industry in general, and in particular your company, the most?

The pandemic affected us, obviously. 2020 was a difficult year for everyone. Almost everyone stopped one way or another.

Furthermore, our product is made by hand, and passes through multiple pre-industrial, manual stages, therefore on several occasions there were compulsory stoppages in the fields and in the factories. And production can’t just be started back up with the press of a button… It needs time for ageing, to rest the raw material, and to put the requisite quality into the product when rolling it.  We have also suffered from the whole issue of raw materials and logistics. We manufacture in Cuba, the Dominican Republic and Honduras, and we often source our packaging from other parts of the world. Meeting the timings for launches and new products is a big challenge. There have been various problems with the materials: lack of specific materials such as aluminium tubes, shortage of packaging and delayed deliveries.

On the positive side, in 2020 there were some countries, such as the United States and Germany, that experienced increased demand due to the fact that people were spending more time at home and therefore had more opportunities to enjoy their love of premium cigars. In general it can be said that our sector is very fortunate, because by the end of 2021 we had already recovered our sales figures from 2019.

Several countries are limiting the sale of vapes and new generation tobacco products. Do you think this is a barrier that the industry will be able to get past in the short term?

Whilst I am not an expert within this sector, here’s my personal opinion. Today, there are opposing positions depending on the country. Some see vapes as tobacco substitutes, therefore they promote their consumption and are more lax with regulations in order to encourage consumers to switch; others who don’t see them as substitutes tend to ban them. I think the journey that some of the big tobacco companies have taken is irreversible, they are focused on it and have invested a lot in it.

Today you are working in the most exclusive sector within the tobacco industry; what are your main challenges?

The main challenge we have ahead of us is to carry on offering enthusiasts the best premium cigars on the market. And as leaders, to keep innovating and developing new concepts.

Furthermore, we are a sector in which regulations weigh heavily, meaning we are always alert to any regulatory changes that may occur. For instance, anything related to consumption, for example in Spain there is talk of banning smoking on terraces outside bars and cafés, or anything relating to packaging: there are countries such as Australia or Canada that are implementing so-called plain packaging, which forces tobacco brands to bring uniformity to their products, eliminating any differentiation between brands. All of this is designed for the world of cigarettes, which is more industrial, but all of the regulations are being adapted to the world of cigars, and this is a challenge because our product is very different, it’s artisanal, the boxes are made by hand… What’s more, in Europe we have a new regulation coming in May 2024, the so-called Track and Trace directive, in order to trace the product. In conclusion, regulation is a critical subject in the sector, in terms of consumption as well as materials.

What are the main sustainability initiatives being developed in the sector?

Our product is a natural product in itself, made from 100% tobacco leaves. Its production is, as I said, mainly artisanal, with production systems that carry centuries of tradition. But sustainability is without a doubt an underlying topic, and one we all try to take into account in our day-to-day work.

In terms of smoking clubs, here in Spain we know about the development of the Club Pasión Habanos. What can you tell us about this club? What is the purpose behind its creation? Is it exclusive to Spain, or has it been established in other countries too?

The Club Pasión Habanos is a club that is only present in Spain. It is a not-for-profit association that was created for enthusiasts of the world of Cuban cigars, who like to meet up to enjoy their passion. They carry out activities such as tasting sessions and pairings with other premium products. The events they organise are very interesting, and tend to be a hit.

There aren’t many smoking clubs in Spain. However, in other countries there are more spaces, and greater legal coverage that allows enthusiasts to meet up and enjoy a premium cigar.

If we met again in 10 years’ time. How do you imagine the sector will be compared to how it is now?

In the next 10 years I think the sector will carry on with the dynamic of combining new concepts and launches, since that’s something the consumer demands, with the tradition surrounding this whole world. New concepts in ageing and production methods etc. are being developed all the time. Also, as I have been saying throughout this interview, the customer experience is fundamental. However, regulation is going to carry on affecting consumption in public places, and making it more difficult, leading to more and more consumption at home. This will also lead to an expansion of smoking clubs in countries that allow them, which have a long way to go. Finally, a clear trend is the development of the Asian market, which is gaining prominence.

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