Fine SelectionAfter 43 years of leadership and perseverance, Theo Folz of Altadis U.S.A. continues to bring life, passion and flair to the cigar industry.
JINGER DURYEA: Tell us about brands Altadis has under its umbrella.
THEO FOLZ: In the popular priced cigars, which are mainly in the convenience store industry, we have about 16 brands. Our big brands at convenience stores are Phillies, Dutch Masters and Backwoods. And then geographically, different brands sell better in different parts of the country, such as Hav-A-Tampa Jewels, Muriels, El Productos, and Antonio y Cleopatras. They are the main brands in convenience stores, and in the premium cigar business we have about 30 brands.
Which brand would you recommend to females?
We've been trying to develop the female market off and on during my 43 years in the business. We actually came up with handmade cigars for females under the Don Diego brand and it didn't work out. But I would recommend that you try to smoke something with a smaller ring gauge, smaller in diameter, light bodied and mild.
Cigars and other tobacco products are growing categories. What different strategies does the Altadis sales team use to help the small, one-store operators that are different from the large chains, particularly as the competition grows?
Realistically, it's difficult for us to afford to call on one store. We just don't have the type of organization that can call on every store, but what happens is the successful programs we have developed for the chains are made available to independents through their wholesalers. One of the things we do for independent stores is develop the right product mix or planograms for them. We also provide fixtures for free and offer consumer promotions. We try to provide a good selection because if you don't have turnover, nobody is making any money. And one of the things about our company is that we give 100 percent credit. So while we don't sell on consignment, the fact is that it is consignment because until it's smoked we own it. So if any of your stores have stale product or even product that's not selling, it goes back to the distributor and they send it back to us.
What separates the convenience store channel from other retailers?
I think the first thing is the unprecedented growth in the convenience store industry. When I went to my first NACS convention, there were only 14,000 stores. It is the premier class of trade for popular priced cigars in the United States. We believe close to 70 percent of popular-priced cigars are sold in convenience stores in this country. So that's very important to us. The other positive aspect with convenience stores is that it gives us an opportunity to introduce new products, line extensions and develop business - if we want to promote, introduce and develop; we need to do it in convenience stores. We have a great team of national account managers who work hard every day to provide retailers with the objective advice they need to make good decisions on Altadis U.S.A. products and the cigar industry as a whole. I also think that because our products are a guaranteed sale, have high turnover and, relatively speaking, need a little bit of shelf space, they are profitable for convenience stores.
I got my start in this business in convenience stores because my father, who was a district sales manager in Memphis, recognized in about 1974 that there was potential in convenience stores for cigars. There were maybe 14,000 stores in the country and the big chain was 7-Eleven. In fact, my father and I set the cigar display fixtures in the 5,000th 7-Eleven store, which was opened in Dallas. And he realized that if we could call on the merchandise managers of the big convenience store chains, that we could help them with their planograms and product selection, reduce their inventory in dollars and increase their sales. Cigars were not really a focal point in convenience stores, but it was good to have someone come into your store on his way home for milk or a six-pack of beer, because it was the store that carried his favorite cigar. Because of this, we tried
to have a good product selection at convenience stores. The first big order I ever wrote was for the 7-Eleven warehouse in Tyler, Texas, for $84,000 of Garcia Vegas and they put Garcia Vegas in 769 stores.
My observations are that the hypermarkets are not interested in selling tobacco. This seems to make it very difficult for the customer to get that product in their hands.
Cigar smokers are their own lot. They want to feel their cigars. The reason most of the five- or six-packs have a cellophane window is because people want to see the product and feel their cigar to make sure it's fresh. Cigar smokers, while they still buy in boxes, often buy five- or six-packs or they buy one or two cigars. Tobacco is a big traffic builder and profit center for convenience stores; having the right cigar product selection can influence your sales of beer, milk, bread, candy and other products.
Can you touch on how important Internet sales are to your company?
In our popular-priced mass market business, I don't believe the Internet is a factor. And as far as the vast majority of cigars sold in convenience stores, I don't think the Internet is a factor. I think people who want to buy one, two cigars or a five-pack are not geared up to go on the Internet and wait for their delivery. I'm not saying that it doesn't happen, but I don't think that's the cigar smoker. As I mentioned earlier, we believe 70 percent of the cigars that are mass marketed are being sold in the convenience store. So what does that say to you? It says that people are buying less than a box and they want convenience.
The power shift in Washington could resurrect a legislative push to bring regulatory requirements of tobacco products sold at retail under the jurisdiction of the U.S. Food and Drug Administration. What are your thoughts on this?
Total disaster. My experience is that every time you try to get the government involved in your business willingly to give yourself a competitive advantage, you have your head handed to you. Whenever I was doing 'road shows' selling stocks or bonds, the investors wanted to know the big risk. The big risk is the government. We don't want the government in our business because it costs money and makes us inefficient. And one of the big problems with our industry is where you can smoke, the cost of smoking, the display of the products and the potential ban of products. People no longer have the right to make their own choice. The convenience store industry needs to look at what they can do to help the tobacco industry protect the rights of customers who buy tobacco and smoke.
You have a lot of loyal customers to your brands and they're being inundated every day with all different kinds of options, new flavors and new products. How are you going to keep your customers loyal to your brand?
It's hard because cigar smokers are very brand conscious and they're very brand loyal. However at the same time, they're always searching for that Holy Grail or the perfect cigar. Or in some cases you have people that smoke different sizes of cigars during different times of the day.
I'd like to talk about the American dream and the great country that we live in. How did a kid from Memphis who sold pots and pans door-to-door get to the position you are in today at one of the largest tobacco companies in the world?
I had good training. My father was in the business for 54 years as a salesman and that's what got me into the business when I was 20 years old. It was sort of funny because in 1967 I got transferred to New Orleans and my territory was all of Louisiana. So one week I was scheduled to work at Lee Dee Cigar Company. It's about 200 miles north of New Orleans. When you worked for my father, you had to be there at 6:30 Monday morning. So Sunday afternoon I drove up to Alexandria, Louisiana, and was at the warehouse that Monday. In those days this particular company had what they called step vans. They sort of look like UPS trucks, and the salesman would drive the truck, go into the store, straighten up the display, take the inventory, take the order, go back to the truck, pick out the order, bring it back into the store, and collect the money unless they had a charge account. So I was a factory man working for Phillies and Garcia Vega cigars and went to work there for a week. They put me with their top salesman and this was in August - I'll never forget it - and they didn't have a seat in the truck, so I rode for a week on two cases of Diamond Matches.
In August?
In August. He was a great salesman who had a free laborer for a week. This guy worked really hard. At 6:00 on Friday night we were coming back into Lee Dee and he says, 'You know, you're the best guy I ever had work on my truck,' and I said, 'Thank you.' He said, 'But I got to ask you one question: why is a young guy like you coming out here working in this heat when your father owns the company?' And I said, 'Let me tell you something - if my father owned the company, I'd be on my yacht in the Bahamas.' So there was always a misconception that my father owned the company because he was a great cigar salesman and a great man.
I think I got where I am today because number one, you have to be lucky. And number two, you have to take advantage of your opportunities. And I think above all you have to work very hard and you have to be blessed with good associates, because the higher up the totem pole you go, not only does your ass shine, but also the harder it is to get the job done. If you don't have good people working with you you'll never make it. So that's how I think I got to where I am.
What type of skills or qualities do you look for in hiring a management team?
To make it with our company in management, you only have to have two characteristics, but they're nonnegotiable. If you have these two characteristics everything else can be taught. One is you have to be smart. I'm not necessarily talking about school education, but you have to be intelligent. And the other thing is that you must work hard. Sometimes you get great people who are intelligent, but they're lazy. If you don't work hard, you can't make it here. And then you have to have things like good judgment, integrity and treating people right. We try to treat everybody the way we like to be treated.
I asked one of your associates what happens to the 'nonperforming whales.' She said that they let themselves go because everyone in the company works so hard.
That's true. And also you have to understand that realistically sometimes people get ill or they have personal problems. But if you're healthy, most people are not going to be willing to sit next to somebody who is reading magazines all day while they are working hard. You'd be surprised of the pressure other employees put on nonperformers to leave, and if they don't leave, we let them go. We try to take care of our employees and have a good working atmosphere. We try to run a family business even though we have 7,800 employees. Also, we don't have much turnover. Combined, the top five guys on our senior management team have been in the industry for more than 169 years and 141 years together at this company. That does make us flat, and maybe promotions are not that easy to come by because we don't lose people, but I think it makes us a good company.
Who do you consider your biggest mentor and are there CEOs you admire most or try to emulate today?
Well, I already mentioned my father. The first week I was in the business he taught me you don't have anything to sell but yourself. The other fellow who gave me the greatest opportunity was Archie Mishkin. He and his family were the controlling shareholders in Bayuk Cigars and he gave me the company to run in November of 1977. I don't want to get into a naming contest because I would leave somebody out, but Ronald Perelman gave me a lot of opportunities.
What do you do for fun?
I try to fish when I can. The main thing we do is work. I guess after almost 43 years that's sort of what you do. And one of the things we try to do is set a good example by doing. It's a cliché, but I don't ask anybody here to do anything that I haven't done or won't do myself. I think that I have to demonstrate honesty, integrity and set a good example. There's another cliché about leading by example. I don't understand how you can run a company like this if you take off three afternoons a week to go play golf. I don't think it sets the right tone.