From Hong Kong to Zimbabwe: Independent Leaf Suppliers

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Features

As part of our continuing series on independent leaf suppliers we are introducing a Hong Kong-based company that has spread its wings around the globe and a Zimbabwean start-up attempting its first successful baby steps.

By Thomas Schmid

Independent suppliers of leaf tobacco have a lot going for them. Often operating with only a few employees, they can fill orders quickly because they are not bogged down by an overly complex, sluggish corporate management structure spread out across continents. They are willing to accept smaller orders – because every buck counts. Since they generally also maintain extremely close relationships with their own suppliers, sourcing specialty tobaccos rarely poses a problem even on short notice. Furthermore, their competitive pricing makes independents attractive to smaller tobacco product manufacturers who have to calculate tightly.

Prestige Leaf: from Hong Kong to the world

A case in point might be Hong Kong-based company, Prestige Leaf. Although it was only founded in 2016, its owner and managing director Zafer Atici looks back at 23 years of professional experience in the tobacco business. A truly standalone outfit, Prestige Leaf is not affiliated with any of the large global tobacco suppliers yet prides itself in having spread its wings in pretty much every corner of the world and notwithstanding the fact that it is a still very young enterprise. Hong Kong was consciously chosen by Atici as the company’s home base.

“Asia is one of our key markets,” said Atici. “Besides, Hong Kong is easy to travel to and from and it also is simple to hire qualified and experienced staff here.” Indeed, Atici claims that currently 35% of Prestige Leaf’s customers are located in the greater Asia region. Another 30% hail from North America, while South America accounts for a respectable 20% of the company’s clientele. Its smallest key market - but nevertheless an important one - is Europe, to where Prestige delivers 15% of its merchandise. MENA currently plays only a negligible role for Atici, who says that “a lot of other companies are already entrenched there and – at least at this point - it would be hard for us to try compete with them.” But that doesn’t mean that establishing a presence in the future is not on the books. “The time has to be right, though.”

Impressive trade growth thanks to one-stop philosophy

Meanwhile, the company is content with plying its trade where it has gained a secure foothold. And rather positive sales growth figures show that Atici’s marketing approach is spot on. After all, in 2017 – a mere 12 months into the founding of Prestige Leaf – the company enjoyed a year-on-year sales volume increase across all of its merchandise categories of 50%, according to Atici. And for 2018, he even projects a remarkable year-on-year jump of 100%. Broken down by individual product categories, this means that for 2017/2018 Prestige has enjoyed an annual trade volume increase of 40% both for its oriental and semi-oriental tobaccos, 20% for its FCV, 30% for burley, and 10% for byproducts such as reconstituted sheet, CRES, and DIET. In terms of byproducts, Atici explains that he offers them “because we see ourselves as a one-stop company where a customer can have their entire order filled conveniently in one go and without having to approach multiple suppliers.”

A business partnership of mutual benefit

Prestige Leaf sources its products globally. However, the bulk of it is acquired from Asia and the Americas. India stands out in particular when it comes to the company’s oriental and semi-oriental tobaccos.

“From the very beginning, we entered into a marketing partnership with Vezir Sultan Tobacco [VST], which is located in Hyderabad and is one of India’s biggest tobacco producers, exporters, and manufacturers,” Atici explains, claiming that his relationship with VST reaches back nearly two decades. He adds that VST contracts farmers to grow the orientals and semi-orientals that Prestige Leaf subsequently offers to customers around the globe. Byproducts are meanwhile purchased as ordered by the customers.

“In all my years of being affiliated with VST,” Atici recounts, “I have observed that our crop has continuously improved.” That, he elaborates, encompassed “pretty much every facet, from full traceability back to the farmer to cost-efficient and sustainable growing practices and farmer training, the latter of which is essential in deriving high-quality tobacco.” Farmers sell their produce at VST’s buying center and Prestige Leaf’s partner then processes it at its own facilities before Atici offers the merchandise to his customers. “VST thus has had considerable influence in the favorable business development we at Prestige Leaf have enjoyed in those two short years since our founding.”

‘Giving back’ to the community and environment

But at the same time, Atici also stresses the company’s success certainly also is down to his firm’s uncompromising focus on quality at the lowest price possible, as well as following through with well-honed service all the way.

“We are committed to establishing long-term relationships with our customers. Satisfied customers are more important than [sales] figures and although we might be deemed [by others] as being a low-cost operator, we nevertheless deliver first-class service,” he said, adding that in the end only constant improvement of its product quality and customer services, as well as social development of farming communities, is going to keep Prestige Leaf in the loop. “Our motto is ‘give back’… to the [farming] community and the environment by way of CSR activities and to our customers through our continued business investments. Prestige Leaf grows with its farmers, suppliers and customers.” He adds that his company measures its success by whether customers come back for a second time and whether farmers and business partners have smiles on their faces. “Other than that, nothing really matters.”

Zimbabwe, global supplier of fine virginias

Similar to India, Zimbabwe produces some of the finest virginia tobaccos in the world owing to its rich soil and favorable microclimates. With its economy ravaged and utterly destroyed by decades of mismanagement under the since-ousted Mugabe regime, the country is only recovering at a snail’s pace. Tobacco is a particularly valuable commodity helping in that recovery process, being one of the preciously few cash crops Zimbabwe is currently able to export. It also provides the livelihood for literally tens of thousands of smallholder farmers who otherwise would have few other options to survive in this difficult economic situation, receiving preciously little assistance – if any at all – from the cash-strapped government.

Sub-Sahara Tobacco Company: newest kid on the block

The second company introduced in this edition of our ongoing series on independent leaf suppliers, Sub-Sahara Tobacco Company is perhaps the youngest tobacco firm that we’ve ever had the pleasure of introducing. It’s truly the “newest kid on the block”, so to speak. Headquartered in Zimbabwe’s capital of Harare, the company was only founded earlier this year. And while it still lacks a historical trade record reaching back years into the past, it has nevertheless already been able to attract quite some interest from tobacco buyers.

“The growing demand for quality FCV in the world market provided an opportunity for the company to explore the business,” says Sub-Sahara Tobacco’s managing director, Getmore Mangundu.

Focusing on Asia… for now

As a brand new start-up that has yet to celebrate its first anniversary, Sub Sahara Tobacco has so far only managed to attract customers from Asia, claiming that 100% of its exports were shipped to that particular market region. The reason for this may be that import licenses in many Asian countries are generally not nearly as troublesome to obtain as in Europe, for example. Initially going the “way of least resistance” perhaps also helps the company to streamline and hone its operational procedures before tackling the more difficult markets.

Until that happens, the company intends to continue focusing on the Asian region, with Mangundu saying that Sub-Sahara Tobacco “would like to further expand [its] presence there, especially in Indonesia, Vietnam, and Cambodia.”  Still, the firm already plans to eventually also make inroads in Europe, Russia, and the Middle East. “This would help [us] diversify our customer portfolio and hence diffuse the risk and maximize our price premiums that can be obtained in different market regions.”

Positive trade figures and more markets

The merchandise offered by Sub-Sahara Tobacco presently is restricted to Zimbabwean FCV (traded as strips, rag, fines, and stems) as well as burley strips from neighboring Malawi. The company projects a total trading volume of 800 metric tons for FCV before the year 2018 is over, expecting a year-on-year increase of 100% in 2019 for both FCV and burley. Buying some of its merchandise from auctions, especially its Malawi burleys, the bulk of Sub-Sahara Tobacco’s FCV is acquired through contract farming.

“In fact, we have at this point about 8% of smallholder growers under contract in Zimbabwe but intend to raise that number to up to 10% by next year if our business continues to develop at the same pace as it is now,” Mangundu explains. Obtaining its merchandise through contract farming, she says, provided the company with enough stocks for the foreseeable future. She adds that supplementing the current portfolio with further tobacco varieties – including niche products like recon or CRES – also wasn’t out of the questions but would largely depend on how the company market positioning developed.

“It’s basically a matter of financial investments and whether or not we are successful in gaining access to traditional markets such as Europe and the Middle East.”

Agents wanted

Yet Mangundu harbors no illusions that building a global presence for her company is going to be a tough challenge on the background of stiff competition from other traders.

“Providing competitively priced quality products certainly is a crucially important aspect in driving that future expansion,” she asserts, adding that Sub-Sahara’s tobacco blends are always customized to the individual customer’s exact specifications. Collaborative networking likewise is something that Mangundu wishes to pursue actively. “We are a company still at growth, hence we are looking to establish cooperation with other firms that are interested in acting as agents for our Zimbabwe FCV and Malawi burley.”