The moves come about eight months after Altria became the biggest U.S. player in smokeless tobacco by buying UST Inc., owner of the Copenhagen and Skoal brands, for about $10 billion, said the report.
The deal gave Altria a foothold in a growing category of the tobacco sector, helping it counteract the prolonged drop in cigarette sales, where its Philip Morris USA unit is the U.S. market leader, the report said.
Altria is introducing the wintergreen version of Copenhagen because it has a relatively small stake in that segment, which is the largest smokeless-tobacco category. "It's the natural place for Copenhagen to go...and to begin to take some market share," Michael Szymanczyk, Altria's chairman and CEO, said in an interview with the Journal.
Altria has cut prices of Skoal and Copenhagen this year to better compete with discount moist-snuff brands like Grizzly. But the company has continued to cede market share to Grizzly and others, said the report.
"I would have thought the trends would have been somewhat better," David Adelman, an analyst with Morgan Stanley, told the newspaper.
The UST deal did come with risks, the report added. Market share for Skoal and Copenhagen had long been slipping, it said. In addition, Altria is paying high interest rates on its debt from the deal because credit was so tight at the time of the transaction.
Szymanczyk said the company has steadied the market shares of Skoal and Copenhagen after lowering prices for the brands by 62 cents per 1.2-oz. can in March. "Our objective was not to use price to grow the business, but simply to stabilize those brands," he said.
In the wake of the price cuts, the average U.S. price for premium moist snuff such as Skoal is about $4.15, compared with about $2.75 for discount brands such as Grizzly and Swedish Match AB's Timber Wolf, according to Morgan Stanley. That price gap of about 50% is down from about 100% in the second quarter of last year.
Grizzly's market share is a bit higher than Skoal's, though both are around 25%, according to analysts cited by the Journal. Copenhagen's is about 24%. In all, volume for Altria's moist snuff products fell 2% in the first half, adjusted for tax changes and the discontinuation of certain products. Sales of Grizzly, which is only about a decade old, are up about 14% by volume this year, Winton Jennette, vice president of marketing for Conwood Co., the Reynolds American unit that markets the brand, told the paper. The strategy of offering "an everyday honest price," rather than pushing lots of promotions, is paying off, he said.
Industry volume for smokeless tobacco has been growing at 6% to 7% a year, according to the report. That is in part because smokers are switching to snuff because of widespread smoking bans in public places. Another reason some smokers are switching is scientific research showing smokeless tobacco is safer for users' health than smoking cigarettes. But Rich Flaherty, president of the U.S. operations for Swedish Match, said he thinks few Americans are aware of the difference. "I don't think it's a real major impact on the growth of smokeless so far," he told the paper.
Szymanczyk declined to disclose the new markets where the company plans to test sales of Marlboro Snus. It has been testing the product in Dallas, Indianapolis and Arizona. The snus category is a small but growing segment of the U.S. tobacco industry.
Separately, Altria confirmed Wednesday that Daniel W. Butler, president of U.S. Smokeless Tobacco Co., the smokeless unit Altria acquired when it bought UST, is leaving the company. A spokesperson told trhe Journal that Butler decided to leave "with the integration of UST virtually completed." Veteran Altria executive Peter Paoli took over as president and CEO of the unit September 1, the report said.Click hereto view Altria's presentation at the Barclays Capital Back-To-School Consumer Conference.
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