In 2003, when the then-25-year-old Pierre Rogers attended a cigar dinner commemorating the seventy-seventh birthday of celebrated pianist and cigar maker Avo Uvezian, he bought a limited-edition box of Avo 77 cigars, a highly rated, medium-bodied cigar that packs Dominican binder and filler, is hand-rolled in Ecuadorian wrapper and, according to enthusiasts, emits silky notes of nuts and earth in its signature gummy smoke.
It wasn’t until 10 years later that Rogers realized that his beloved box of Avo 77s was short one cigar. And with that began his search for a single cigar, spanning from web forum scouring and trips to cigar shops to reaching out to all his cigar aficionado friends. He was striking out and frustrated.
“If you are a collector of anything, you’d realize that you either have the whole thing or you don’t,” Rogers said. “There’s no middle ground.”
In his search, to Rogers’ surprise, there were numerous websites that enabled cigar collectors to plug in and track the inventories of their own humidors, but none where collectors could browse one another’s holdings, which ultimately made it extremely difficult to find a stray Avo 77, let alone someone willing to part with one.
But when one door remains frozen shut, sometimes you just have to find another way in. After a year-long search for his lone cigar without success, Rogers saw another way — in the form of an opportunity that could be a boon for him and fellow cigar lovers: an online cigar marketplace.
So Rogers set out to build a fully searchable marketplace that would allow collectors to take a peak inside the humidors of other members and easily auction, buy and sell pieces from their collection. Along with Co-Founder Soroosh Kiani, an Atlanta, Ga.–based cardiovascular surgeon, they founded and named their cigar marketplace PuroTrader.com.
As Rogers explained in a recent interview with PYMNTS, which focused on the challenges of launching an international online marketplace in the highly regulated tobacco industry, “PuroTrader maintains zero inventory … which means we are somewhere between the eBay and the Nasdaq of cigars.”
Between those two entities, as it turns out, there’s a lot of middle ground.
A Legal Minefield
Setting up the cigar marketplace, Rogers said, posed challenges similar to those that companies like Airbnb and Uber faced upon their launches in the Wild West of tech startups.
“The law hasn’t really caught up with what you are doing; so is it legal or illegal?” Rogers mused.
The online platform’s ability to allow direct buying and selling of tobacco between buyers and suppliers calls for protocols and security measures that ensure that all transactions stay within the bounds of law. And when it comes to selling tobacco to an international consumer base, the situation gets all the more complex.
To comply with state and federal laws, the company partnered with digital identity solutions provider Veratad to avoid complexities around the selling and importing of tobacco. The partnership enabled PuroTrader to restrict the online display of products according to the governing laws of a consumer’s location while verifying age.
“It took an enormous amount of work, because on one side we had to hire a tobacco lobbyist firm to give us very specific guidelines, and then we had to build geo fences around each and every user depending on what their profile’s address maintained,” Rogers said.
While doing so restricted American buyers from purchasing directly from international sellers, it still gave them access to all the international brands that are sold on the platform through stateside sellers.
International customers, on the other hand, could access and readily buy cigars being sold by American sellers, Rogers said.
Rogers and Kiani further streamlined their operation by allowing direct exchange of products between buyers and sellers.
Overcoming Payment Pains
Some 300 million premium cigars are sold in the U.S. every year, totaling over $3 billion in sales, according to Reuters. Despite PuroTrader’s increasing revenue and growth, Rogers said, handling payments for the sale of cigars can be an agonizingly protracted process.
“Accepting payments has been by far the largest headache we have ever had,” he said. Prior to finally finding a payment processing partner, Rogers said he and Kiani were turned down by 82 processing companies.
Each of those payment processors, Rogers recalled, thought that dealing with an online tobacco marketplace was a big risk, and, to top that off, supporting payments in an auction environment made it a business that most payment processors didn’t want to touch.
It wasn’t until April 2016, when the company partnered with its current payment processor Humboldt Merchant Services, that the company could finally begin charging commission on sales and draw revenue.
Up until that point, the company operated on a freemium model, where buyers and sellers transacted without paying a fee.
PuroTrader took inspiration from Gmail’s invite-only beta rollout and invested all its resources in building an invite-only platform, where each member received two additional invites, Rogers said. “That’s what really helped the platform to grow in the early days.”
Last year, when the company finally moved from its freemium model to a paid one, the move wasn’t particularly well received.
Sales on the platform initially went down by nearly 30 percent, Rogers recalled, but eventually picked back up again. A lot of “those customers often come back to us once they have a bad experience somewhere else,” he said.
In 2016, the company sold close to 51,000 boxes of cigars and, at its current pace, is set to triple that by end of year, Rogers stated. And that’s before Cuban cigars can even be legally imported into the U.S. market. As it stands, the company currently sees a quarter of its sales come from high-value international transactions, he said.
The Impending Cuban Boom — Will It Go up in Smoke?
With demand for cigars picking up and the loosening of Cuban import regulations in the cards, Rogers is bullish on the state of the cigar industry in the U.S. and its potential upside for his cigar marketplace.
On PuroTrader, Cuban cigars currently outpace sales of all other cigars three times over, and the gap is likely to get bigger, he said.
Since the Obama administration moved to restore diplomatic ties with Cuba in December 2015, the U.S. government has allowed American travelers to buy Cuban cigars from anywhere in the world. However, direct sale of Cuban cigars in the U.S. still remains prohibited, although it is set to reverse with the eventual lifting of the trade embargo.
“I strongly believe that the loosening of the Cuban trade embargo, and specifically the introduction of Cuban cigars in the United States, will be a Dutch effect for the island nation of Cuba,” Rogers said. “What that really means is that the demand for Cuban cigars, once they are finally able to be bought here in the United States, will far outstrip the production.”
Over the next few years, as Cuban cigars are expected to legally make it into the U.S. market, Rogers believes the initial high demand will force Cuban suppliers to stretch their production to meet the demand, which will, in turn, affect production quality and price.
But down the road, Rogers thinks prices for Cuban cigars in the U.S. will come back down to earth as the production quality suffers and the fad fades.
“The bubble will pop, and pricing will fall,” he added. “Ultimately, it will show that Dominican cigars and Nicaraguan cigars are also quite good and that people shouldn’t give up on those brands.”
With the trove of sales data that PuroTrader has been collecting, Rogers thinks the company is perfectly positioned to take advantage of this boom-or-bust cycle.
By the end of 2018, the marketplace plans to introduce a new tool that will help users correctly estimate the value of their purchases and their potential ROI.
For now, the company’s focus remains on being a marketplace for collectors, buyers and sellers where they can safely transact in a transparent environment. Ultimately, it is trust, Rogers believes, that has helped the company find its place in the market and become a place where collectors like him can easily look for, and find, their own singular Avo 77.
And, as it happens, Rogers is still on the lookout for his Avo. “Hopefully someday someone will post up a box on PuroTrader, and I will be sure to bid on it,” he said.
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About the Index
This quarter, the PYMNTS X-Border Optimization Index™ tracks the journey of 189 merchants who are vying for their share of the global eCommerce windfall.
The index takes the pulse on how merchants are improving on attributes conducive to international eCommerce in countries that include Canada, China, France, Germany, Italy, Japan, Mexico, Spain and the United States. The verdict: The U.S. is still ahead of the rest, but not by much.
Source: http://www.pymnts.com – Payments
X-Border Cigar Marketplace Rises From Ashes Of A Hazy Search