NEW YORK -- They might not completely agree with Philip Morris USA Inc.'s decision to extend its Marlboro Leadership Price (MLP) option, but retailers seem to have begrudgingly accepted the program.
In essence, the program asks operators to forgo part of their typical markup in exchange for incentives. And according to the latest UBS-CSP Tobacco Survey, 39% of retailers feel that MLP has helped Marlboro's share trends—up from 35% in a July survey. "I think people are accepting it," UBS tobacco analyst Nik Modi told Tobacco E-News. "It created a lot of turmoil, but people have settled into the 'it is what it is.'"
The total responses represented nearly 3,500 convenience stores. Some expressed a clear acceptance of the program, which began in April:
- "In our current market, aggressively priced varieties attached to the premium Marlboro name sell very well. Perceived quality via discounting. 'Yay, I got a great deal on some Marlboros.'"
- "Our Marlboro sales are up since April. Many chains did not participate. We did."
- "It does reward those who like to run low margins versus those who were using the extra funds to increase profits. I understand what they did and why they did it."
Others were more hesitant:
- "MLP will help Marlboro short term but not long term."
- "The MLP program has shifted some chains out of the 'price game,' and brought many single operators into the game by shrinking the price gap between them and large chains. This shift will move volume to retailers who can't execute at a high level and hurt long term share."
And despite some acceptance, the majority (61%) of respondents still don't believe it has helped Marlboro's share trends, with one retailer expressing that "any changes to price was met with price changes to competitive products."
And still others expressed continued discontent with the program:
- "It helped their sales but dropped my margin—sales didn't increase enough to compensate for the decrease in margin."
- 'Speaking as an individual retailer, they have pushed consumers to buy one pack versus 2 pack value that we are known for."
As for PM USA, CEO and chairman of Altria Group Inc. (PM USA's parent company), Mike Szymanczyk, said in a July earnings call that MLP had "pretty much" met company expectations, noting, "we've had broad acceptance and participation in this program, and that's occurred pretty rapidly."
Greg Mathe, company spokesman, reinforced for Tobacco E-News that the company is "still pleased with the MLP results so far" and that the company has extended the program from its original October 1 expiration date to December 31st—and hasn't announced anything beyond that. Altria will release 2011 third quarter earnings on Thursday, Oct. 27, at 9 a.m. eastern time. To access the webcast at that time, please click here.
For previous CSP/Tobacco E-News coverage on MLP, please click here.
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