Lennart Freeman: Swedish Match International

Photo: Chip Mitchell | Lennart R. Freeman directs the entire cigar production of the Swedish Match Group

After the reorganization of the Swedish corporation in November 2008, Lennart R. Freeman became quasi the second most powerful man in the international cigar business. As president of Swedish Match International (SMI), one of the four divisions of the Swedish Match (SM) corporate conglomerate, he also directs the entire cigar production of the group, as well as the lion’s share of the distribution and sales, in addition to the initial core business, which is producing matches and disposable lighters of the Cricket brand.

He manages 80 percent of all the group’s employees, which is more than 10,000 people worldwide. The division’s factories are scattered over several continents, some of them separated by thousands of miles between each other – in the USA, the Dominican Republic, Honduras, Belgium, Brazil, Bulgaria, Indonesia, the Philippines and Sweden. Freeman’s office is situated on the east coast of the USA, in Richmond, Virginia. Regardless of whether he is within the circle of factory workers in Santiago or among those at the executive board meeting in Stockholm, the communicative businessman with both Swedish and American citizenship quickly connects with his partners in dialogue.

Photo: Swedish Match | Freeman: ” If Cuba may sell cigars in the USA, we claim the right to acquire tobacco from Cuba”

The approximately 53,000 shareholders of the enterprise be satisfied with its performance. In the summer of 2009, the share price was approximately 20 percent higher than that of last year. Combined sales increased in 2008 by almost five percent, to 13,162 million Swedish crowns, corresponding to approximately 1.24 billion euros or 1.76 billion US dollars.

Their net earnings reached the second highest level of this decade: 2,261 million Swedish crowns (EUR 302 million, USD 212.5 million). “We achieve 28 percent of group sales with cigars”, the 57- year-old manager says, in stressing the weight of this segment within the enterprise group. “Only snuff tobacco and snus contribute somewhat more than that to the total net revenue.” While I light up a Macanudo 1968, the impresario declines: “It is too early in the day. I do like to smoke cigars occasionally in the evening. And I love their aroma … with every cigar I smell money”, the successful top manager says with a laugh.

THE TUG-OF-WAR CONCERNING TRADEMARK RIGHTS

Whoever considers the cigar portfolio of Swedish Match can immediately clearly realize, for instance, just why the enterprise is the market leader on the US premium market (their market share is approximately one-third). Since the gradual acquisition of the General Cigar Company, Inc. (between 1999 and 2005), SM has possessed the most successful premium cigar brand of all times. Macanudo (Spanish: excellent) was once a frontmark of the Punch brand, which Partagás owner Ramón Cifuentes had salvaged to Jamaica after the exodus from Cuba. After the acquisition of the Temple Hall factory (and its brand) in 1968 in Jamaica, where Macanudos were first rolled solely for the British market, General Cigar turned them into worldwide bestsellers from 1971 onwards. Together with General Cigar, the corporate group acquired such internationally well-known brands as Don Tomás, El Credito, and Excalibur.

In the USA, which is the main market, their brands Bolívar, Cohiba, Hoyo de Monterrey, La Gloria Cubana, Partagás, Punch, Rafaël González and Sancho Panza rank among the best-known. Though these brands (and numerous others) all originate in Cuba, their legitimate owners however have, since the expropriation of their factories and eviction from Cuba by the Castro regime, continued production elsewhere and have subsequently sold their trademark rights (with the exception of Cohiba – see information box).

Photo: Swedish Match | SMI foresees good prospects concerning growth in the US, in Eastern Europe and Asia

While after the nationalization the island country also claimed the brand names for themselves, these brands went their own ways in parallel outside of Cuba. Finally, international politics led to the situation whereby the formerly purely Cuban brands nowadays exist in duplicate: the brands seized back then are known in Cuba and the rest of the world as Havanas; on the other hand, in the USA they are owned by non-Cuban enterprises such as General Cigar, Altadis or MATASA.

This duplication is currently causing some headaches for Lennart R. Freeman, as well as top attorneys from all over the world representing Swedish Match and Imperial Tobacco (partial owner of the Cuban cigar business), in addition to the Cuban government. And even more for the consumer: what will happen after the cancellation of the US trade embargo which John F. Kennedy imposed on the government of Fidel Castro on February 7, 1962? Lennart Freeman: “It is a fact that these brands have been continually owned by us for decades. Therefore, I do not see the slightest indication of any legal entitlement of the Cuban government concerning them, not even in the case that the US trade embargo should eventually end. Nobody would come up with the thought of contesting our claim to the Macanudo brand name. Therefore, why should this be possible in the case of Partagás, Hoyo de Monterrey or Punch?”

THE SCENARIOS AFTER THE FALL OF THE TRADE EMBARGO

In the worst-case scenario, a termination of the trade embargo could bring about fatal economic consequences for Swedish Match. Their strongest competitor, Imperial Tobacco owns fifty percent of the Cuban Habanos SA, including ex- clusive distribution rights concerning Havanas. Theoretically, Altadis USA – belonging to the Imperial Tobacco group, could then place on the US market a whole line of Havanas for which Swedish Match does not hold rights to trademarks in the US, but Altadis does – for instance, H. Upmann, Montecristo, Romeo y Julieta, St. Luis Rey or Trinidad. Freeman: “We are not commenting on the embargo itself. That is a political decision. But one matter must be clear: if the embargo is cancelled, all the market participants must have the same rights (as Altadis), and therefore, it should not result in a market monopoly of Cuban cigars or tobacco.

If Cuba may sell cigars in the USA, we claim the right to acquire tobacco from Cuba and sell such cigars in the USA. That is our point of view and it is also beneficial for the entire cigar industry, even more so in the interest of consumers.” In order to safeguard this position in good time, company representatives and lobbyists have for many years been educating members of Congress on this issue. Freeman also brings another aspect into the situation: “If the cancellation of the embargo isn’t based on sound reasoning and given the necessary consideration, we will have a massive problem with counterfeits. That would be precarious for the entire cigar industry.”

FREEMAN’S PLANS FOR SWEDISH MATCH INTERNATIONAL

Photo: Swedish Match | Combined sales increased in 2008 by almost five percent to 1,76 US-Dollars

Concerning the question regarding future plans, Freeman cannot refrain from an allusion to the ECCJ cover story from the summer 2009 issue: “I will not now provide you with any challenge for a headline and announce that we aspire to become number one in worldwide business”, he says with a smile. “But I will gladly reveal which route we will take.” The strengthening of the impact of the enterprise, as well as aspects of quality, are priorities to the tall manager. “I am glad that through the most recent reorganization of our company we finally managed to place the entire cigar division under a single umbrella. This enables us to work more effectively across borders, better position our brands internationally, optimize our supply chain and finally pay even more attention to the tobacco side of our business from now on.”

By the way, Daniel Nuñez will continue to play a leading part in reference to that, even though he recently retired as COO of General Cigar. And what about the growth potential? “We have good prospects concerning growth, both within and outside the USA, in Eastern Europe and on the markets of Asia, which we will also use. However, as a priority we would like to work on new, innovative concepts concerning the cigar. We would like to get to know our customers and consumers even more thoroughly and to gauge their needs even more precisely. Then we can extend our range of products, and perhaps even offer new product categories, new blends and innovations in packaging. Maybe we will also take new routes in marketing …”

Freeman becomes visibly enthusiastic when creative approaches are at stake and explains that “within the difficult legal framework for tobacco, it is necessary to find new approaches in thinking. Perhaps we should also position the cigar, a lifestyle product, in what were up until now unfamiliar surroundings and find out through testing whether the consumer is accepting that.” The bottom line is that Lennart R. Freeman would like to see Swedish Match become the favored cigar supplier of both the dealers and consumers. “I am predicting an interesting future for premium cigars; it is a niche product with a high idealistic and material value – a good combination.”

This article was published in the Cigar Journal Autumn Edition 2009. Read more