Robaina, founded in 1845, is one of Cuba’s premier cigar brands. Less than two weeks ago, I visited both the Partagas cigar factory (Fábrica de Tabaco Partagas) in Havana and the Alejandro Robaina tobacco plantation (Finca El Pinar Robaina) in Pinar del Río. The entire Robaina operation was a model of effective business and operational alignment.
Robaina is in a unique situation because the business model is fixed by the government. The Cuban government mandates that 90% of production be sold to Cubatabaco, the state-owned tobacco company, while 10% of production can be sold to friends and family, loosely defined. Quality is judged by a government inspector, who sets the final price the government will pay for the cigars.
Production is ~5 million cigars per year and is capped by the quantity of fertile land available. A government-granted monopoly for the region ensures that Robaina has no competition for labor locally. The Robaina family controls cigar production end-to-end, from growing tobacco leaves to selling cigars to the government.
The plantation claims that its primary asset is the unique soil. However, in my opinion, Robaina’s primary advantage is its operational excellence. The company uses 80% of its harvest in cigar production, compared to 35% for other plantations.
Robaina’s business model is supported by a unique operating model. Given that Robaina’s value capture (price and quantity) is fixed, the interaction between business and operating models is that much more important. Robaina has masterfully used its advantages to build a brand that has lasted for more than 150 years. The unique attributes of Robaina’s operating model include:
High raw material costs and low labor costs
- Robaina substitutes labor for capital whenever possible, with a focus on conservation of raw material, the limiting resource in the cigar-making process
- The company is focused on maintaining the tobacco at a specific temperature to promote quality. Dozens of sweepers mix piles of tobacco leaves daily, ensuring that leaves at the top are the same temperature leaves at the bottom
- Tobacco leaves are sorted into three types (wrapper, binder, and filler) according to quality to maximize output. The inner part (filler) affects cigar size, the middle part (binder) governs strength, and the outer part (wrapper) determines flavor
- In the Partagas factory, hundreds of torcedores (cigar rollers) sit in long rows. They are trained for nine months before being allowed to roll cigars to avoid mistakes and wastage
- Scraps from discarded tobacco leaves are collected and ground up into cigarettes
Flexible, adaptable workstreams
- The plantation employs 10-20 people during the year and 150-200 people during harvest season from October through February. Each person rotates between tasks because the majority of the tobacco leaves follow a pre-determined process flow at the same time
- When I visited the factory, there was a power outage, resulting in no lights and no working fans. An outcome that would have shuttered a typical American factory was barely felt. Windows were opened and workers continued about their business
Employees motivated to focus on quality
- The Robaina plantation actively tries to hire families, particularly those who have lived in the Pinar del Río area. This legacy system ensures loyalty in a business where workers can significantly affect quality
- Employees of the plantation and factory earn a nominal salary equivalent to $1/day, but they receive 5 cigars. These cigars can be sold easily on the black market for approximately their monthly salary (representing half the retail price). As a result, workers are invested in the quality of the brand because a large portion of their compensation depends on perceptions of Robaina
- Importantly, cigars used to compensate workers are excluded from the 10% limit of sales to friends and family
Introduction of new line to expand production
- Given production constraints in Cuba, the Robaina family began marketing cigars produced in Nicaragua in the United States. The introduction of the “HR” (Hirochi Robaina) line allows for greater value capture from the brand
Factory tour at Partagas cigar factory, November 27, 2015.
Employee interview at Alejandro Robaina tobacco plantation, November 28, 2015.
Bloomberg View. “The Cuban Cigar King Sets his Sights on America.” February 27, 2015. http://www.bloomberg.com/news/features/2015-02-27/the-cuban-cigar-king-sets-his-sights-on-america
Miami New Times. “Hirochi Robaina Grows Tobacco for the Castros but Tours the U.S. Selling His Own Stogies.” February 11, 2015. http://www.miaminewtimes.com/news/hirochi-robaina-grows-tobacco-for-the-castros-but-tours-the-us-selling-his-own-stogies-6557923