Retailers participating in MLP forgo part of their typical markup in exchange for incentives. And Szymanczyk said MLP is an evolution of a program approach the company has had for more than a decade. "So what happens when we make evolutionary changes in these programs is we always have a [image-nocss] group of customers that jump on them immediately, and then we have other customers who don't see that program as a strategic fit for their business. And then we have customers who watch what happens in the marketplace, and come on to the program over time."
While he declined to discuss what percentage of Marlboro's volume is part of the program, he said, "I would say in this particular case, we've had broad acceptance and participation in this program and that's occurred pretty rapidly."
He added, "We evolve these programs; we'll evolve this one as time goes on. But so far, it's pretty much in line with what we would have expected it to do, and it's pretty consistent with the way these programs have functioned in the past."
As for revenue per pack for the quarter, Szymanczyk said that relative to the cost side of the business, MLP really didn't have an impact. "So it's transitioned from one program to another. And when you look at our total value spend, as a percentage of our total revenue, that's remained pretty flat as well both for the quarters relative to the previous year."
"So I can't tell you that that carves out a significant impact," he said. "More the impact is really in how retailers have chosen to compete in the marketplace."
As reported in CSP Daily News on Wednesday in an exclusive UBS-CSP Tobacco Survey, retailers expect Marlboro to gain share, but also said it would see the most negative pressure--with both attributed to the Marlboro Leadership Price option. (Click here for coverage.)
MLP was also on the minds of analysts, according to written reports issued after Wednesday's earnings call.
Nik Modi of UBS wrote: "As expected, Marlboro gained share sequentially (likely due to benefits from the MLP program), but lost share year over year (Marlboro share was up over 1 point a year ago)."
And Bonnie Herzog of Wells Fargo wrote: "Despite PM USA's Marlboro Leadership Price (MLP) program and line extensions that were in place during Q2, Marlboro retail share declined slightly on a [year-over-year] bases as we expected; however, on a sequential basis, Marlboro's 2Q retail share increased slightly (up 0.4 points)."
Other highlights of the earnings call:
Cigarettes. Marlboro's sequential retail share growth of 0.4 points brought it to 42.6%. "Marlboro's performance was driven in part by growth in Marlboro Menthol and the continued success of Special Blend, which launched two new packings last quarter," Szymanczyk said. Smokeless. Copenhagen increased its retail share 1.1 percentage points vs. the prior year, and .7 sequentially. Skoal gained sequential retail share for the second consecutive quarter as it benefited from first-quarter 2011 introduction of Skoal X-tra and Snus.
"Copenhagen remains on a nice growth trend. And I think while it's early on Skoal, the signs are right," Szymanczyk, said, adding that there is still some remodeling to do on that franchise. "It has a lot of SKUs and so as we adjust the franchise, we're also pruning some of that, so we'll continue to have some effect from that kind of activity and we're also migrating share a bit from the discount portfolio that had been built up in USSTC before we acquired it."
As for the "snus phenomena," he said, "I tend to see more interaction relative to total pouch segment of the total smokeless business, which would include snus and MST pouches as time goes on--more so than seeing snus as kind of a separate business relative to the MST pouches business, which is larger." Cigars. Black & Mild's retail share grew .9 of a share point vs. last year. Szymanczyk said John Middleton Co. has been investing in promotional resources for Black & Mild and launching new products. Middleton has also entered into a contract manufacturing arrangement to source a portion of its cigars outside of the United States.
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