As Macau builds its reputation as an entertainment hub, the trade in premium handmade cigars is booming. The city is already Asia’s third-biggest market, behind Hong Kong and Japan, industry insiders say.

“Hong Kong and Japan represent together around 60 percent of the market, with Macau having a market share of 8 percent to 9 percent,” says Laurent de Rougemont, managing director of Bluebell Hong Kong Ltd, an importer and distributor of luxury goods that represents brands such as Davidoff.

According to official figures, Macau imported MOP170.2 million worth of cigars, cheroots and cigarillos in the first 11 months of last year. This represents roughly a two-thirds increase over the figure for the whole of 2005. Mr Rougemont says the growth has been phenomenal, since Macau was one of the region’s smallest markets for premium handmade cigars just five years ago, behind Singapore, Taiwan and South Korea. It is tourists driving the trade.

“Around five percent of Macau business is done with the local crowd that knows cigars, enjoys cigars. The rest is mainly mainland Chinese, Hong Kong people that come on a regular basis, quite a bit of Taiwanese, a little bit of Japanese. But overall, I would say 80 percent is done with the mainland Chinese,” says Mr Rougemont.

“Definitely, the local market will grow but it will always remain a smaller part of the overall business in Macau, which will be driven by the mainland tourists.”

Brands have a strong impact on customer choices. Bluebell sells around 40 different cigar brands at its three local shops but only four account for around half of its business here.

The right stuff

Macau is a leader when it comes to selling cigar boxes and humidors. “The share of accessories we sell in Macau is the highest in Asia,” says Mr Rougemont.

“In our stores in Macau, close to half of our business will be done with accessories, while in Japan, where the market is more made of a local base of customers, it is less than 10 percent.”

The reason is simple. “If you work with a base of customers that has been there for many years, you don’t sell many accessories. How many cigar boxes, how many humidors can you sell to the same customer? When we get tourists, people that are starting to enjoy cigars, then they are very keen on buying the right humidor, the right lighter, the right cigar box, the right cutter.”

The Macau market is also even more male-driven than others. While Japan has cigar clubs for women, here “99 percent of the cigar smokers would be men,” he says.

Bluebell has been posting strong growth in the territory, especially since it started opening its own shops, all in casinos, in 2006. Its business grew around 30 percent in 2008, 25 percent in 2009 and 50 percent last year. With the company looking at expanding its shop network, “there is no reason why it should stop,” Mr Rougemont said.

The growth of the market for premium handmade cigars is attracting the attention of several global players. Ashton Distributors Inc. is one of the cigar companies stepping up its game in the city, where its products first arrived 10 years ago.

Caribbean luxury

Robert Levin, president of Ashton Distributors, told Macau Business the US company wants to take advantage of Macau’s booming economy and the growing appetite for luxury products. Sales of Ashton products, distributed in Macau by Bluebell, have been posting two-digit growth rates here over the past three years.

“We haven’t even reached, nor are we near to reaching the potential of Ashton in this market. We just introduced our two brands from Nicaragua. So we have years of growth here,” he says. “The sky is the limit.”

Ashton deals only in handmade premium cigars, most made in the Dominican Republic. The company sells around 8 million to 9 million cigars per year in 52 countries. In Asia, Ashton cigars can be found in Macau, Hong Kong, Taiwan, the mainland, Japan, Malaysia and Singapore. Cigar Aficionado, a reference magazine for cigar lovers, recently voted the Ashton VSG Eclipse one of the 25 best cigars of 2010.

For Mr Levin, there is a direct connection between gaming and cigars. “People who gamble also like to enjoy fine cigars, fine wines, fine Scotches… It all goes with a luxury lifestyle,” he says.

“As the economy keeps growing in Asia, people want the finest things in life and premium handmade cigars are a luxury product that people will learn to appreciate.”

Although the growth rates in Macau are spectacular, the market in this part of the world for premium handmade cigars still lags behind the world’s biggest, the US, where 230 to 250 million premium cigars are smoked annually.

Many industries in Asia opt to adapt their products to suit local tastes. This is the case, for instance, with wines.

Mr Levin sees no need for cigars to be similarly adapted. “Cigars are very subjective but Ashton sells the same cigars in the United States, in Europe, in Asia. It is the same product,” he says.

The Legislative Assembly has been discussing a more restrictive anti-smoking law for more a year already, and Mr Levin – who smokes an average of three cigars a day – admits that smoking bans hurt the industry. “But people always find a way to do what they want to do,” he says.

Smoking dragon

The mainland is the main source of customers for premium handmade cigars sold in Macau. The country’s 300 million-plus smokers make up one-third of the world’s total, and are a great pool of potential customers for the cigar industry.

The Chinese cigar industry is expanding at a much faster pace than the country’s tobacco sector as a whole.

The mainland spends an average of RMB2.2 billion (MOP2.66 billion) a year on cigars, with annual sales topping 370 million, according to the latest analysis by Market Avenue, an independent market research company based in Beijing.

The Chinese market is somewhat more complex than others. Low-end products, with a price per cigar of RMB0.30 or less, have the biggest share of the market, accounting for 45 percent, Market Avenue says. Most of the low-end products smoked in the mainland are manufactured domestically. Top-quality brands account for about 25 percent, with cigars in the middle of the price range taking 30 percent.

In Europe and in the United States, top-quality brands and mid-range products each have half the market, and low-end cigars are practically absent.

Proper cigars available in the mainland fall mainly into two categories: handmade or traditional cigars, and machine-made products that are cheaper and more widely available.

Foreign-made products smuggled into the mainland have about 50 percent of the market for mid-range and top-end cigars. In Shenzhen, Guangzhou and Zhuhai, smuggled cigars have 90 percent of this market, Market Avenue estimates.

The mainland tobacco industry is entirely state-owned and Beijing controls the importation of cigars, making it difficult for international players to get a strong foothold in the country, industry insiders say.