Gurkha Cigars: A Cut Above the Rest

For those of you who don’t smoke cigars, there really is a difference when comparing regular versus premium and premium versus super or ultra-premium smokes. Fine cigars are definitely catching on like fine wines and one company that specifically caters to this market is the Gurkha Cigar Group.

Gurkha (named after Nepalese fighters who fought alongside the British in the late 1800s) traces its roots back more than 25 years.

“When I started with cigars there was no real market for them. The most expensive cigar in those days was about $8 and that was in 1989-1990,” Kaizad Hansotia CEO of Gurkha noted. “There was nothing high-end, super high-end and we wanted to come out with ultra-premium cigars.”

Hansotia said that when he first ventured into the field, and visited factories to get a feel, it was very interesting to see a “very pedigree-type of business from the Cubans and from the old American families also.”

Things had stayed the same for generations, but Hansotia was out to change that.

“The aura of cigars was that of an old World War II veteran putting a cigar in his mouth just to chew on something,” he said.

There are different levels of cigar offerings, and Gurkha believes their brands are at the highest.

“The way I look at it is kind of the way I look at the car industry: you have your Macanudo, your Partagas, then you have your General Motors (NYSE:GM), your Toyota (NYSE:TM). You are not going to mess with them, they are huge. They are massive, they’re billion dollar companies. And their objective is shelf space and numbers,” states Hansotia.

“Then you have the premium which is your Ashton, your Fuente, your Davidoff… This is your Mercedes Benz, your BMW. You know they make 20, 30 million cigars a year. And that is basically your premium cigar market. And then you have your ultra-premium cigar market. We are basically the only ones in that market. We are the Ferrari or the Rolls-Royce of the industry… we will only make 5 thousand cigars for one line. Or we’ll come out with boxes for 20 or 30 thousand dollars each.”

The company offers nearly 50 brands in 45 countries, one of the more popular of which is the Cellar Reserve, a cigar that has been around for approximately 9 years.

“That brand has really taken off,” notes Hansotia. “At the beginning, it was very slow going, we released 200 boxes the first year to see how they would do, then we released 1,000 boxes the year after that. And now we are up to 10,000 boxes.“ He says each stick (or cigar) is priced at $12-$14.

But don’t think that’s the norm at Gurkha as many other brands are much more expensive. For example, His Majesty’s Reserve (HMR), a Remy Martin Louis XIII cognac-cigar sells for $30,000 a box. The company also periodically releases special edition cigars like the Black Dragon Grand Especial which sold for $125,000 a box.

There is also a lucrative investment angle with regard to Gurkha cigars. For example, the HMR line in 1996 was selling at $5,000 a box and now sells for $35,000.

“We had a box that we had made only for the Millennium that came out in 1999, which sold to close to $4,000 each. And now that same box sells for $85,000, so you could imagine the return,” said Hansotia.

So who are the individuals buying these ultra-premium smokes?

Gurkha explains they have a client base of very high-end, high net worth individuals around the globe. These include lots of athletes, royalties, most of the Maharajah’s of India, and the Who’s Who of celebrities, such as Matthew McConaughey, Arnold Schwarzenegger, Sylvester Stallone, and Harrison Ford.

“There’s a mindset in business…[for instance] there’s a Chinese guy who wants to know what cigar you smoke, just to know if you could afford it; It’s a very big status symbol especially in Asia, in the Middle East,” Hansotia adds.

“We have our ultra-premium buyers, which are collectors, the super affluent, if you are a millionaire, you smoke Davidoff, if you are a billionaire, you smoke Gurkha.

Cigars aren’t the only market for Gurkha.“We set the bar in packaging aesthetics… before it was the paper boxes, now everyone is trying to use different kinds of woods, metals, and other materials, stated Bianca Melone, Gurkha’s Marketing Director.

“Just last year we were on Beverly Hills Pawn,” she said and “somebody had purchased an HMR box, and it resold for around $25,000 dollars, and when they first purchased it, it was around $17,000.” Melone also said she’s seen many of the empty boxes, the outer packaging alone, sold on eBay (NASDAQ:EBAY) and elsewhere online for several hundred dollars.

Juan Lopez, the company’s National Sales Director said Gurkha didn’t enter the international market until about three years ago.

“It’s very interesting,” Lopez says, as “we have not approached the market, the market has approached us. We always had demand internationally, but never had enough supply, stock. Little by little, we have now set aside stock for the international market and it has really paid off."

And the company is confident in its business model.

“We sell out of every single one of our products,” stresses Hansotia. “It is never an issue for us. We have some cigars like the Cellar Reserve, there’s a four month waiting list. You could buy a Ferrari before you could buy one of our boxes.”