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“Oettinger Davidoff has made great progress, both strategically and with regard to the development of the core brands and market shares.“ |
Hans-Kristian Hoejsgaard CEO Oettinger Davidoff |
Premium cigar maker Oettinger Davidoff posted sales of CHF1.26 billion (US$1.3 billion) in 2015 – its 140th year – a decline of -8.2% (-3% adjusted for currency changes). The company highlighted a business environment “that continues to be very challenging”, blaming the dip on “falling demand in Europe and China, the effects of the strong Swiss Franc and slightly lower sales in the cigarette and general agency business”.
Despite this, the company said it gained market share worldwide thanks to growth in North America and Asia alongside some improvements in core brand sales. In the USA, Oettinger Davidoff said it outperformed market growth of +2% with a sales increase of +15%.
Against the backdrop of a declining global market, both core brands, Davidoff and Camacho, reported double-digit growth of +10.5% and +34.4% respectively. In addition, Oettinger Davidoff achieved a production record for the third consecutive year: it produced a grand total of 45.8 million cigars (previous year: 44.0 million) in 2015, an increase of +4.1%.
In strategic terms, with the sale of the wholesale business announced in December (to Lekkerland Schweiz AG), Oettinger Davidoff focused more on the core business of premium cigars and accessories, it said, and pursued its “crop to shop” strategy by increasing the vertical integration of the company. This will mean a reduction in sales as well as employee numbers in 2016, it noted.
“In the financial year gone by, Oettinger Davidoff has made great progress, both strategically and with regard to the development of the core brands and market shares,” said CEO Hans-Kristian Hoejsgaard. “This is all the more gratifying since we were obliged to campaign simultaneously on a number of fronts, such as the exchange rate situation, the anti-corruption law in China and the economic trend in Russia, as well as further international tightening of anti-tobacco regulations.”
Key contributors in the year were innovations and new product launches in the Davidoff and Camacho core brands as well as the relaunched AVO line. New Davidoff lines Winston Churchill, Escurio and Nicaragua now account for around one-third of all Davidoff cigar sales.
As reported, at the beginning of the financial year Oettinger Davidoff acquired a shareholding in its exclusive sales partner for Asia, Bluebell Cigars (Asia) Ltd. On 1 January 2016, the company exercised an option to acquire a majority shareholding in Bluebell Cigars, which it said would “increase its influence on the development of the Asian markets outside China”.
To gain access to the Chinese market, Oettinger Davidoff has entered into a joint venture with the Chinese Sparkle Roll Group, a stock-market-quoted trading group for premium and luxury products. As previously reported, Sparkle Roll Cigars Holding Limited will in future be responsible for the sale of Oettinger Davidoff cigars and cigar accessories throughout China.
In addition, in Germany the company established its own sales company during the current financial year, allowing it to exploit this market directly from 1 January 2017.
The Davidoff Art Initiative
The group also highlighted the Davidoff Art Initiative, established four years ago, through which it supports contemporary art and artists in the Caribbean. At the heart of the initiative is the endeavour to promote and support the development of the cultural community of the Dominican Republic, where a large part of the production is located and many of the company’s employees live.
An Art Residency Programme forms the cornerstone of the initiative, which aims to foster the creative exchange between artists in the Caribbean, in particular the Dominican Republic, and the rest of the world.
After the opening of a dedicated residency in the Dominican Republic at the beginning of the reporting year, the first Caribbean artist was welcomed to Switzerland as part of the new collaboration with the Atelier Mondial Art Residency in Basel in October 2015. The fifth and, for the time being, final cooperation will enable a fifth Caribbean artist to take up a three-month residency this year in Bogota (Colombia). Three cooperations are already under way with residencies in New York, Beijing and Berlin.
New regulations
Oettinger Davidoff noted how regulatory requirements will “challenge the industry” both in Europe and in the USA during the current year. In Europe, the EU Tobacco Products Directive TPD2 enters into force in the individual member countries on 20 May.
This increases the complexity and compliance requirements through new packaging rules, which will result in additional costs.
In the USA, tighter regulations governing tobacco consumption later this year will probably also affect the cigar industry, it added.
In addition, the relevant committee of the Swiss Council of States (upper chamber of parliament) is occupied with the draft by the Federal Council for a tobacco products law, a factor which looks set to hurt the industry with new and costly regulations.
Looking ahead, Hoejsgaard said: “Thanks to our strongly anchored core brands and the many product innovations that we will also be launching this year, we are confident of winning further market shares.
He added that further investment is planned in building and developing Davidoff flagship stores in city centres as well as duty free locations worldwide.
