NEW YORK -- Whether retailers like the addition of the newly acquired Newport brand to Reynolds American Inc.’s Every Day Low Price (EDLP) program or not, it appears the majority believe it will have a positive effect on the Winston Salem, N.C., manufacturers’ business, according to a recent Wells Fargo tobacco retailer survey.
“Based on our ‘Tobacco Talk’ survey, we have increased conviction that Reynolds’ entire portfolio is poised for faster growth, specifically for Newport, driving incremental share for Reynolds and catapulting its long-term profitability,” Wells Fargo senior analyst Bonnie Herzog wrote in a research note.
Key reasons include for her optimism included:
- Higher Than Expected EDLP Participation: Nearly 60% of the “Tobacco Talk” respondents indicated participation in the newly structured EDLP program will increase now that Newport has been added, resulting in as much as 75% of industry volumes being represented in the program. Herzog described these figures as “greater participation than we originally thought.” Supporting this theory: approximately 25% of EDLP participants indicated they had recently signed up and 40% of respondents said they’d consider EDLP if it were “more flexible.”
- Greater Shelf Space in 2016: When asked which tobacco manufacturer they expected to gain shelf space in the New Year, Reynolds was the uncontested winner: retailers expected Reynolds to pick up an average of 2% more share space, versus just over 1% for Altria Group Inc., 0.7% for ITG Brands and a 1.3% decline for Liggett.
- Expected Newport Growth: At 61%, the majority of retailers surveyed said being on Reynolds’ EDLP will help Newport grow its share thanks to greater promotional support and better visibility. One such retailer responded, “Our Newport share was basically non-existent. Now that they are more visible and will have some marketing dollars thrown at it I assume it will grow some.”
“We continue to believe Reynolds’ position in the overall tobacco industry is stronger than ever and the addition of Newport will propel its growth,” Herzog surmised.
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