Cigar city, Cigar man

Cigar city, Cigar man

Eric Newman is a link to Tampa's past, as head of the city's last family-owned cigar company. He is fighting Washington and the anti-smoking crowd for his company's survival.

COMPANY by Dave Szymanski | Tampa Bay Editor

If Thomas Edison was right, and persistence is the key to success, then Eric Newman keeps turning the key.

Newman, 60, is president and chief executive officer of J.C. Newman Cigar Co. in Tampa, grandson of company founder Julius Caesar Newman.

In a city known for its cigar heritage, Newman is like the frozen man scientists found - a link to the city's history as head of the last remaining family owned cigar company in Tampa and the oldest family cigar company in the country.

"It turned out this way, because we've been innovative, always looking for fresh and new ideas," Newman says. "It is about innovation, hard work, smart approaches, a little luck and perseverance after all this time."

It is still standing despite facing many of challenges in its 113-year history. And 2008 is no different.

The two current challenges are the well-financed and increasingly slick and vocal anti-smoking lobby and a pending bill in Congress that would raise taxes on cigars nationally from 600% to 6000% (Up to $3 more per cigar) to raise $3 billion to $5 billion to pay for health care for children from families that can't afford health insurance.

President Bush vetoed two previous cigar tax bills, but the industry is girding for a fight this third time. Newman, president of the industry trade group, Cigar Association of America, has been to Washington to talk to lawmakers, including House Speaker Nancy Pelosi, about the bills.

He is guarded in his optimism.

"They listened, but we're a dot on their radar," Newman says. "We're a small industry. There's not enough cigar smokers. We're getting rolled over."

Sponsorship challenge

The anti-smoking lobby, now organized as Tobacco-Free Florida, has pushed Newman into a strange corner. Newman remains one of the few original sponsors of the Tampa Bay Rays, enduring the team's losing seasons before this year's glory.

But the team recently welcomed another sponsor: Tobacco-Free Florida. The state anti-smoking effort is part of a national one and has enlisted the help of athletes, including Rays players.

Inside Tropicana Field, the Rays' home ballpark in St. Petersburg, is the Cuesta Rey Cigar Bar, a cigar bar developed by Newman and the first of its kind in Major League Baseball.

Newman is hoping for a tactful compromise with the Rays.

"We are reminding the Rays about the area's cigar tradition," he says. He's also aware of what the players light up after a championship. When placing bets with the mayors of Boston and Philadelphia during the baseball playoffs this year, Tampa Mayor Pam Iorio wagered with Tampa cigars.

Along with defending itself, Newman has gone on the offensive. Like a cigar-smoking poker player, he has a new ace up the sleeve of his business suit: Cigar lounges.

Newman is partnering with smoke shops across the country to open Diamond Crown cigar shops, named after one of its premium brands, Diamond Crown cigars.

This month he went to at least three grand openings, in Philadelphia and New Jersey. The lounges, adjacent to smoke shops, feature leather chairs, flat-screen televisions and space for smoking stogies and socializing.

Newman provides up to $1,000 for the grand opening event and helps finance the lounge remodelings. The company came up with the idea because smoke shops often had the room for a lounge as well as a store. There are 43 lounges nationally.

"We turned lemons into lemonade," Newman says.

Marketing the smoke

The lounges and a continual search for new brands, especially imported premium ones, illustrate the importance of marketing for this company.

While it still makes about 80,000 medium-priced machine-produced cigars a day in its Ybor City facility, Newman gets higher margins from its imported handmade cigars, which cost it just as much as its machine-made Tampa brands.

That was part of the reason why, in 1996, Newman formed an online marketing partnership with the Fuente cigar-making family, which produces handmade cigars overseas. Newman's cigar family Web site celebrates the heritage of both families.

So Newman is selling the family name, on the imported cigars and the new lounges, as well as making its own cigars.

It is also clear that Newman is separating itself from the cigarette industry. Cigars use different tobaccos than cigarettes and, popularized by movie stars, cigars are seen as a special occasion, even upscale smoke, something Newman likes to emphasize. Think: World Series champs, not pool-playing palookas.

"Cigar smokers are successful," he says. "They are achievers."

Newman has been a sponsor of the Cigar Dave national cigar radio program, which is produced in Tampa, and the company has been featured in the shiny, upscale Cigar Aficionado magazine.

"We are in the pleasure business," he says. "Cigars are an affordable luxury."

The future

Looking ahead, Newman wants to expand the lounge concept in and out of the United States and keep sales growing, especially sales of the higher-margin imports. Newman cigars are now sold in 80 countries. Margins on imports are about four times what they are on machine-made domestics. (Newman decline to release revenue figures for the privately held company.)

More regulatory challenges loom. The U.S. Food and Drug Administration is working up new regulations to control the tobacco industry, mainly through limits on cigarette advertising.

"They are not after us, but it does make us nervous," Newman says. "They consider us tobacco."

His biggest lesson learned as a CEO is to be nimble and flexible and stay tuned to trends. It took Newman about six to eight weeks to develop and roll out its Diamond Crown upscale cigar. Competitors needed six months. A flat management organization and teamwork values help.

"We can make cigars quickly and get answers quickly," Newman says.

"The gist of the whole story, is that we are survivors," Newman says. "It's unusual to be around for a century. Every industry has challenges. It's how you can overcome them that counts."

He is also looking forward to the day when his attorney son, Drew, 27, comes home from Washington and is handed the keys to the family business. Drew was responsible for the company's unique, nostalgic Web site, which starts off with a wooden cigar box.

"That would make four generations," Newman says.

That father-son moment might call for a cigar.

REVIEW SUMMARY

Business: J.C. Newman Cigar Co.

Industry: Cigar manufacturing and marketing

Key: Marketing higher-margin, imported and premium cigars and growing the cigar lounge concept to offset anti-smoking crowd.

A history of challenges

1885: Hungarian immigrant J.C. Newman starts a cigar company in a barn in Cleveland with a couple of wooden boards and $50 borrowed to buy tobacco. Before World War I, cigars were the tobacco of choice. Very few people smoked cigarettes. Newman pioneers cigar-making machine.

1914-1918: World War I creates problems for cigar makers. Shipping was restricted and prices soared - not only for tobacco, but also for paper and wood needed to make labels and boxes. Higher federal tobacco taxes drive up prices.

1927: Facing plant closures, J.C. Newman Cigar Co. merges with Mendelsohn Cigar Co. in Cleveland.

1929-1940: The Great Depression limits business growth. Cigar production falls from 8 million to 4 million a year but machine-made cigars begin to grow.

1941-1945: The Red Cross sends care packages to U.S. Troops in World War II. The packages include cigarettes. Cigarette smoking becomes more popular during and after the war.

1950-1955: Big, mass-market cigar makers try to squeeze out independents by offering more money to growers. J.C. Newman counters this by going into the premium cigar business, which has less competition.

1953: Newman moves company to Tampa, the U.S. cigar-making capital, to take advantage of the availability of Cuban tobacco, which was shipped to Tampa.

1958: Founder J.C. Newman, who never retired, dies at 82.

1961: Cuban embargo blocks all Cuban tobacco shipments. Stanford Newman, son of the founder, finds substitute in tobacco grown in Cameroon, Africa.

1975-1979: Noticing a demand for imported items, Newman imports handmade cigars from Dominican Republic, Nicaragua and Honduras, taking advantage of lower labor costs.

1986: The Newman and Fuente cigar families form a business agreement. Newman agrees to distribute Fuente cigars in the United States and Fuente will make some premium Newman cigars in the Dominican Republic.

1996: Newman forms Cigar Family, an online marketing partnership with Carlos Fuente and his cigar-making family to market each other's cigars on the Internet. The partnership leads to a foundation that builds schools, medical clinics and athletic facilities and provides clean water in the Dominican Republic, near the tobacco fields.

1987-1997: Movie stars, like Arnold Schwarzenegger, popularize cigars. Cigar boom peaks in 1997.

1997-2006: Anti-smoking lobby, known as "pleasure police," and anti-smoking legislation grow, mainly because of health issues connected to cigarette smoking. Public places open for smoking dwindle.

2006: Stanford J. Newman, chairman of the J.C. Newman Cigar Co. and son of the company founder, dies.

2007: CEO Eric Newman, grandson of the founder, begins Diamond Crown Cigar Lounge chain.