We’re already very close on the heels of Swedish Match. Soon we’ll be disputing their current position as second-largest cigar company in the world.” This isn’t a light provocation, but rather a serious challenge: CEO Anders Colding Friis is steering the Scandinavian Tobacco Group (STG) into the passing lane. Friis is a hard-hitting, strategic manager with 20 successful years in the business, ten of those in tobacco. And he isn’t just going to rest on his laurels – long-term goals include taking the world market lead. “How long it takes to achieve these goals isn’t important to me”, says Friis, who manages to remain cool despite his bold statements. “What’s much more meaningful is the dynamic that this kind of leadership strategy creates within the company.” His number one priority is keeping employees motivated for vigorous progress. “I want to achieve our goal through growth. If we were to trump Swedish Match just because, say, the competitor weren’t doing so well, that wouldn’t satisfy me at all”, admits the feisty Dane.
With 10,000 employees worldwide, 4,200 of whom are affiliated with tobacco firms within a global network, STG has lately achieved considerable magnitude. Eleven factories spread out over seven nations process its tobacco; factory locations include Denmark, the Netherlands, and Belgium, as well as the Dominican Republic, Indonesia, Nicaragua, and Honduras. Altogether STG produces 1.7 billion cigars and cigarillos annually, bringing in 270 million Euro in revenues. Sales of all companies under the STG umbrella during the last fiscal year, however, exceeded that number by far with a total of 5.9 billion Euros. The firm has built up sales and distribution companies in its home country of Denmark as well as in the Benelux states, Germany, France, the UK, Spain, the USA and Canada. Through these main channels and local distributors, STG sells tobacco products in over 115 countries. According to company figures, the market share on piece-by-piece terms – meaning cigars and cigarillos – has reached 12.5 percent worldwide. When the US market is set aside, figures increase to 21 percent; in Europe, STG has claimed an 18 percent market share. In Australia the figures are even higher, around 50 percent.
CATAPULTED INTO THE INTERNATIONAL SPOTLIGHT WITH CAO
The family company’s history goes back to the year 1750, when Chr. Augustinus Fabrikker opened its first small tobacco manufacture in Copenhagen. In 1961 the company merged with two other Danish tobacco dynasties, founding the Skandinavisk Tobakskompagni A/S. These two partners were C. W. Obel from Aalborg (founded in 1787) and R. Færchs Fabrikker from Holstebro (founded in 1869). After countless firm acquisitions and mergers, a conglomerate was formed that is now considered the world’s largest privately owned tobacco corporation. Since December 2008 it has been operating under the more easily pronounceable name Scandinavian Tobacco Group, but remains, as always (or again, depending on how you look at it) one hundred percent in the hands of two of the original founding families. STG’s success has until now hinged primarily on its renowned small cigars and cigarillos like Café Crème, Henri Wintermans, Colts, Nobel Petit and Mercator, of which 375 million a year are sold in France alone, with 202 million sold in Great Britain and 131 million sold in Canada, for a grand global total of 1.7 billion pieces sold annually. Also in high demand are pipe tobaccos like Clan, Orlik, Erinmore, W. Ø. Larsen, Peter Stokkebye, Stanwell and Sweet Dublin; STG currently markets more than 150 varieties. Onequarter of the world’s annual pipe tobacco consumption (around 4,445 tons) falls under STG pipe tobacco (1,141 tons). Stanwell pipes also belongs to the STG portfolio, and on a side note, acclaimed pipe maker Niels Larsen went to school with Anders Colding Friis. STG also produces, in large quantities, a number of fine-cut tobaccos for hand-rollers.
STG took the international cigar business by storm around two years ago, catapulting into the spotlight with the January 25, 2007 takeover of one of the best-known and most dynamic US cigar companies, CAO. “At that time, we were already distribution partners with CAO in Great Britain, and had a close business relationship with the owner Cano Ozgener, as well as with Tim and Aylin, who ran the business”, remembers the 46-year-old Friis. “It was the ideal moment for us to get a foothold in the US market, and at the same time it was an opportunity for CAO to develop its brand under our strong ownership.” Gary Hyams, previously managing director of the British Henri Wintermans sister firm, was sent to CAO International in Nashville as chairman of the supervisory board. It was understood from the start that Tim Ozgener would remain president. Says Friis: “CAO’s tremendous innovative power in marketing, coupled with a ceaseless commitment to quality, was the defining factor for our involvement in the US. I am very pleased that we decided to take this step.”
Why is the American market so intriguing to the STG chief executive, in light of increasing smoking bans, prohibitively high taxes and legal hurdles? “Well, if you compare the US market to the European market, I’m astounded how dynamically development and growth happen this side of the Atlantic, despite all apparent restrictions. Uncertainties and difficulties are gotten over much more quickly in the USA. The market reacts more rapidly, and there’s a willingness to try out new niches and business branches. It gives me confidence”, Friis concludes, explaining his impulse to move forward.
NEXT STEP: PRODUCING PREMIUM CIGARS
“After the CAO acquisition, my greatest concern was that we had no control over the supply chain, something that’s already been established in all our other business segments. Therefore, our first goal was to enter production of premium cigars and to be able to control the whole procurement chain from tobacco purchase to sales.” Anders Colding Friis describes his next coup, which turned a lot of cigar world heads at the turn of the year 2008/09. After many turns around the rumor mill, Friis confirmed the takeover of not one, but two preeminent manufacturers in Danli, Honduras and Estelí, Nicaragua. The sellers: no less than Charlie Toraño on one hand, Fidel, José and Aldrin Olivas on the other. Friis sums up his decision: “Naturally we could have also decided to try to build up our own manufacture, but at the moment that’s proving extremely difficult in the premium sector. And why miss out on such an opportunity? The Toraños and Olivas have an impeccable reputation and the best part is that they’ll remain at the helm. It’s a classic win-win situation for all.”
At closer glance, the puzzle pieces all begin to fit in: the former Toraño manufacture, now owned by STG, produces a good share of CAO cigars, also under STG. But is it true that at the same time, Toraño continues to produce cigars like the Dunhill Signed Range, which as everyone knows belongs to British American Tobacco (BAT)? “Oh, that’s easily explained”, Friis casually fends off any potential conflict. “BAT has been a partner of our corporation for a long time. We value the close, friendly relations between the two companies.”
“OUR CREED IS GROWTH”
In view of STG’s recent offensive course toward large-scale expansion, it seems that the Danish firm’s growth potential is right on track. There’s no lack of either ambition or funds available in the “war coffers” for further takeovers, as Friis admits outright. “As the worldwide pipe tobacco sector begins to decline, consolidation becomes essential. While we’re always interested in attractive takeover opportunities, acquisitions are only the spice on the dish. The company’s own organic growth remains the most important recipe in our kitchen.”
Anders Colding Friis is also entirely open to new adventures in the cigar branch. He addresses the question of possible candidates for acquisition with a mischievous smile: “Yes, we are interested …” Of course, the journalist takes this as an invitation to inquire further about specific brands, which indeed happened during the course of this interview. No surprise: every manufacturer mentioned elicited only a terse “yes” from the manager and the following concluding statement: “Our fuel is organic growth. Above and beyond that, when opportunities come along for us to acquire this or that company, then we’ll tryit–and not only in the US, but also in Europe.” And thus the great Danish challenger promises to bring suspense and dynamism to the market.
This article was published in the Cigar Journal Summer Edition 2009. Read more