Philip Morris Enters Capsule Market

Announces arrival of Marlboro Black NXT, company's first regular-to-menthol cigarette

Melissa Vonder Haar, Freelance Writer

RICHMOND, Va. -- Camel Crush is about to have some competition in the growing capsule market:  Philip Morris USA recently announced its soon-to-be-distributed Marlboro Black NXT, which offers a crushable menthol capsule.

"NXT is Philip Morris USA's first and only regular-to-menthol cigarette," said Brian May, a spokesperson for PM USA's Richmond, Va.-based parent company, Altria. "We designed it in response to changing adult smoker preferences. The nonmenthol option has a smooth tobacco flavor--one pinch of the filter changes the cigarette to have a unique, bold menthol taste."

Andrew Kieley, a research analyst for New York's Deutsche Bank, praised the move in a September 10 report entitled "Capsule Clash."

"NXT is another example of MO's stepped-up brand-building on Marlboro, and innovation momentum versus competitors," Kieley said. "Although we don't believe capsules are pulling new users into cigarettes, they are attractive as offering smokers a new experience, are briskly growing sales, and only one competitor."

Although SymphonyIRI reports that capsules only make up 1.8% of c-store single pack sales, capsules have also enjoyed a rapid growth of 34% YTD. Currently, Winston-Salem, N.C.-based Reynolds American Inc. is the only major company to offer a capsule product--released in 2008, Camel Crush now represents 17% of Reynolds' pack dollar sales.

Starting September 26, Crush will have some competition in the capsules market--although initially, NXT will only be released to regional markets with limited distribution in select stores.

"We expect NXT will mean some slowing of Crush," Kieley said. "Crush has first-mover advantage and should keep growing, but NXT is a direct overlap and attractively priced."

According to Kieley, Crush's loss will be Altria's gain, writing "NXT should add to [Altria's] market share momentum, via [the] small but growing capsule segment.