Dosal opposes new cigarette fee
Feb 28, 2009
Dosal opposes new cigarette fee
The deal added 50 cents to the cost of a pack of Marlboro, Camel and other name-brand cigarettes. Dosal, which wasn’t part of the case, rolled out low-cost smokes and wooed away smokers from costlier cigarettes.
In the 12 years since the settlement, Dosal has seen its share of the Florida market climb from less than 1 percent to more than 15 percent. It sells four brands: 305’s, its most popular; DTC; Romy; and Competidora. Most sell for about $1.40 to $1.80 a pack retail.
Dosal now sells more cigarettes in Florida than any other manufacturer, save for giants Philip Morris USA and R.J. Reynolds. From its 40,000-square-foot plant in the shadows of the Opa-locka Executive Airport, Dosal produces 80,000 to 90,000 cartons a day. That’s 16 million to 18 million cigarettes.
The privately held Dosal guards its financial data, only sharing that annual revenues exceed $100 million, though they pay 65 percent of that in federal and state taxes.
Despite Dosal’s striking growth, it has no illusions about smokers’ loyalty to its ”sub-generic” cigarettes.
”We sell on price. End of story,” Yolanda R. Nader, Dosal’s chief executive and chief financial officer, says matter-of-factly.
Now, Dosal is afraid its business may be snuffed out by Big Tobacco’s push to persuade Florida lawmakers to hit Dosal and other small cigarette makers with the same 50-cents-a-pack settlement fee.
If Dosal has to raise prices to cover the fee, it says, it will lose its cost advantage. Dosal says smokers will defect to other brands, including discount cigarettes made by Liggett Group, a unit of Miami’s Vector Group, which reached its own settlement with Florida. Liggett doesn’t charge the 50-cents-a-pack fee.
”That will put [us] out of business and give our market share to someone else,” says Nader. Dosal is the only cigarette firm with production facilities in Florida, she adds.
The looming battle has thrust a spotlight on a company that has until now kept a relatively low profile. The company would not be presenting its story if not for the fee proposal, concedes Guillermo J. Fernandez-Quincoces, the company’s chief legal counsel.
Dosal Tobacco’s roots trace back to Competidora Gaditana, founded in 1860 in Spain. In the 1920s, the founders sold the company’s business in Cuba to Martin Francisco Dosal. There, it grew to become one of country’s three largest cigarette manufacturers, the company says.
Following the Cuban revolution 50 years ago, the government nationalized Dosal’s cigarette factory. The Dosal family relocated to Miami.
Dosal’s sons, Martin Roberto and Alberto, relaunched the business from a small garage in Opa-locka in 1962. The company produced Cuban-style Competidora cigarettes, made with aromatic black tobacco. The brand later became popular with Mariel refugees who wanted a cigarette that reminded them of Cuba. Today, Competidora is Dosal’s smallest-selling brand.
Dosal launched DTC — short for Dosal Tobacco Corp. — in 1987 using a lighter blend of tobacco in an attempt to attract American smokers. It couldn’t use the name Dosal because of the close similarity to R.J. Reynolds’ Doral brand. DTC full-flavor and menthol brands are two of the four brands sold in Florida prisons.
In 1987, Dosal began producing additive-free Natural American Spirit Cigarettes for Santa Fe Natural Tobacco. Contract manufacturing came to represent 90 percent of the business.
Following the death of Martin Roberto Dosal in 1992, his wife, Margarita, took over the business. She remembers the days when the entire Dosal family worked in the business, including herself while raising five children.
”I didn’t even earn a salary,” she says. ”I remember those days with a lot of love.” She remains chairwoman, president and the only voting member of Dosal’s board.
The Natural American Spirit brand, meanwhile, grew large enough for Santa Fe to begin manufacturing in-house in 1997, says Santa Fe spokeswoman Alexandra Pratt. Dosal no longer makes cigarettes for other firms.
THE OPENING
That same year, Florida reached its historic settlement with Big Tobacco. The tobacco companies, besides charging the 50 cents a pack fee, used the settlement as an opportunity to increase the price of their cigarettes by more than a $1 pack. That, Nader says, created an opening for Dosal and other small companies to roll out their discount cigarettes.
Dosal took inspiration from Miami’s area code in unveiling 305’s in 2001. It sought to distinguish itself from lower-cost imports by pushing an American-made theme, Nader says. Today, 305’s account for 70 percent of Dosal’s sales.
”Customers are always looking to see if they can save some money,” says Fred Hoyland, owner of Tobacco Depot, an 18-store chain on Florida’s west coast. “Dosal has been able to put together a good, quality product at a good value. I think that’s why they’ve grown so much.”
Romy, Dosal’s fourth brand, was introduced in 2003. The lowest priced of Dosal’s quartet, it’s meant to compete with cheaper-priced imports. Each of Dosal’s brands except Competidora come in full flavor, nonfilter, menthol, menthol lights, lights and ultra lights. Dosal buys its tobacco blends from companies in Kentucky, North Carolina and Virginia.
THE NONSMOKING CEO
Nader, a one-time IRS agent, worked as accountant at KPMG handling Dosal’s books starting in 2001. She spent most of her time at Dosal’s plant.
The following year Margarita Dosal appointed Nader as Dosal’s chief financial officer. In 2004, Nader was named chief executive.
Don’t bother asking her which of Dosal’s brands she puffs. ”I’ve never touched a cigarette. Never, ever,” Nader insists. ”Working here hasn’t done anything to change that, either.” Her father, though, smoked Competidoras most of his life.
Since taking over, Nader has focused on automating much of the company’s production. The company has spent $19 million in capital improvements to its factory.
Margarita Dosal, she says, has “never said no.”
Amid the din of various machines in Dosal’s plant at 4775 NW 132nd St., tobacco is poured through a chute that catches tobacco stems. The tobacco fills cigarette paper to create a rod, which is then sliced by a saw to make cigarette sticks.
The sticks then go through a filter-attachment device. Nader says as part of her goal of ”vertical integration,” she wants Dosal to eventually make its own filters.
Hundreds of cigarettes are stacked by another machine into waiting trays, which then wind their way to the packing area. Packing machines produce the cigarette packs, which are wrapped in cellophane. A boxer forms the cartons, which hold 10 packs each. Yet another machine places the excise tax stamps on packs Dosal will distribute.
The company employs about 115 people in Opa-locka, where workers earn an average $15 or $16 an hour plus benefits.
Distribution facilities in Lakeland and Clearwater employ another 30 people. About 25 percent of Dosal’s revenue comes from its distribution business.
FEARING DEEP POCKETS
Five independent distributors also deliver Dosal cigarettes to independent convenience stores and gas stations in other parts of the state. Dosal does no marketing other than posters hung in stores.
Dosal has increased its market share despite not appearing on the shelves of major convenience stores like 7-11 and drugstore chains like Walgreens and CVS.
Nader says chains don’t want to sell Dosal products largely because of potential tobacco litigation. ”There’s fear that because Dosal, in the scheme of things, is a small manufacturer, that they [the chains] would be a deeper pocket than Dosal,” she says.
Though Dosal has been occasionally named in tobacco lawsuits, Nader says, so far it hasn’t lost any cases.
Dosal was a defendant when the state sued the tobacco industry in 1995 to recover the cost of treating Medicaid patients suffering from cancer or other smoking-related illnesses.
About a month before the state reached the massive settlement with tobacco companies, it dropped Dosal from the case. Dosal’s share of the market was so ”de minimus” that it really was ”irrelevant” to the case, says W.C. Gentry, a Jacksonville lawyer who was part of the legal team that represented the state.
”We were dealing with something more egregious and sinister than just selling cigarettes,” Gentry says, referring to how Big Tobacco used advertising to hook teenagers and hid the dangers of smoking from consumers. There was no evidence Dosal did anything like that. “Dosal was not in the same category as the other defendants.”
The settling companies agreed to pay the state billions. So far, the state has collected about $6 billion from Big Tobacco, which passed the cost — about 50 cents a pack — to customers.
Now, Big Tobacco wants Florida to make Dosal and other small firms that didn’t participate in the settlement pay the same fee. Lobbyists for both sides have taken their cases to lawmakers.
”The market is out of equilibrium,” says Philip Morris USA spokesman David Sutton. “Everyone’s not competing on the same playing field.”
Requiring small cigarette companies to pay the state a fee of 40 cents for every pack sold would generate about $88 million in revenue for cash-strapped Florida, Philip Morris calculates.
Nader bristles at the idea.
”All this is about is a market-share grab” by Big Tobacco, she argues. “It has nothing to do with equity.”
LAWYERS DIFFER
Some of those who hammered out the 1997 settlement with Big Tobacco have differing takes on whether the state can now hit up Dosal and the other small companies who weren’t part of the deal.
”I have no love lost towards the tobacco companies, but I think Dosal has a very valid point,” says Gentry, whose mother died of lung cancer. “They were dismissed out of the case. I don’t understand the legal basis [for how] you can enforce something against them.”
Bob Butterworth, Florida’s attorney general at the time of the settlement, disagrees.
”I don’t know how we can defend any longer these companies not paying as much as the others,” Butterworth says. “It’s a health issue.”
Sutton adds that Dosal was dismissed from the case ”without prejudice,” meaning the state never released its right to pursue claims against Dosal. Nader agrees, but says if Florida wants to make Dosal pay the fee it should sue rather than pass legislation.
Removing the price disparity would deter minors from buying the cheaper brands, Sutton contends. Nader counters that a 2005 study by the Substance Abuse and Mental Health Administration found 86 percent of smokers aged 12 to 17 smoked one of the five most-used brands for their age group. None of Dosal’s brands made the ranking, which was a national survey. Dosal says 97 percent of its sales are in Florida.
NO REFUGE
Eliminating the price disparity between discount cigarettes and other brands means that smokers can’t simply switch brands to avoid the increased cost, notes Eric Lindblom, director for policy research with the Campaign for Tobacco-Free Kids.
”By closing the gap, there’s nowhere for that smoker to go but to quit or cut back, and that’s what we want smokers to do,” Lindblom says.
Requiring the fee also would eliminate the need for the state to increase the excise tax on cigarettes by $1 a pack, Sutton says. Florida legislators are considering raising the tax to raise about $1 billion a year. Florida’s excise tax is 33.9 cents, the fifth-lowest in the country. However, a plan to hike the tax likely will be an uphill battle given Gov. Charlie Crist’s opposition to any tax increases.
Sutton says it’s just ”speculation” that big cigarette makers will agree to a tax hike as long as legislators vote to require the small companies pay the 50-cents-a-pack fee.
Nader says Dosal has no problem with raising the tax, provided it’s the same for everybody. But she rails against what she calls the unfairness of the 50-cents-a pack-fee.
‘I’ve had legislators tell me to my face, `I don’t care if it’s fair or not, lady. You sell death and cancer.’ My response is, if you feel that strongly about it, make us illegal,” she says. “Give up the billions [in taxes from cigarettes]. But don’t talk out of both sides of your mouth.”
Margarita Dosal, meanwhile, wants to ensure that Dosal’s long history doesn’t end on her watch.
”I would hate [that] the company just not continue,” she says. “I want to leave it to my family.”
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