How ITG Looks to Move Up

'A new company with a lot of intellectual capital and people who grow brands'

Angel Abcede, Senior Editor/Tobacco, CSP

Dan Carr (left) of ITG Brands, the No. 3 tobacco company in the country, discusses business challenges with Terry Gallagher of Smoker Friendly.

As the third-largest U.S. tobacco manufacturer behind Altria and Reynolds, ITG Brands continues to invest and maneuver in the market, with brands such as Winston, Kool, Salem and Maverick. In a Q&A session at the Smoker Friendly Conference & Tobacco Festival in Broom­field, Colo., this past summer, Dan Carr, president of ITG, Greensboro, N.C., spoke with Terry Gallagher, president of Smoker Friendly, Boulder, Colo., about the future. Carr took the reins of the company last fall, moving from his role as president of General Cigar (now owned by Scandinavian Tobacco Group). Here are excerpts from that on-stage conversation.

Terry Gallagher: What do you see as challenges and opportunities?

Dan Carr: We bought brands and, in doing so, have seen management changes. But we’re excited. We’re a new company with a lot of intellectual capital and people who grow brands. We know cigarettes, cigars and OTP. We can be more nimble and flexible in the marketplace.

TG: Where do you see growth?

DC: Starting with cigarettes, we have a lot of everything. In premium, a lot of our portfolio sits there, as well as deep discount. Cigars are a big story; handmade continues to grow. People are also gravitating to mass-market cigars, where there’s double-digit growth. There’s not a lot of categories in the c-store that can say that.

TG: How do you see the FDA today?

DC: We’re bullish with the (U.S. Food and Drug Administration). We welcome its new [attitude] regarding innovation with both new and existing offers. For us, Blu (e-cigarettes) is a great product. It registers with consumers on trust and satisfaction. It has good equity. But innovation is key; I don’t think anyone’s gotten there yet. Our strategy is about building and buying. And we will [do so] around e-liquid.

TG: What about heat-not-burn technology?

DC: It’s hard to say what might be on the horizon. [Philip Morris International] spent over $3 billion to bring [its iQOS product] to market. They’re placing a big bet on that, and they’re seeing traction in Japan. As for us, we’re doing enormous analysis. We’ve done evaluation on vape, and with already 9 million customers, we’re seeing usage and awareness increase. It doesn’t contain tobacco and we think there’s more interest on the vape side.

[That said], we’ll continue to take a close look at all [options].

TG: So you weren’t surprised by the FDA’s deeming-deadline delays and changes in policy?

DC: We weren’t surprised. They introduced the strategy initially (prior to the deeming rules) of a “pendulum of risk.” But they are saying [that introducing] new vaping products and new premium cigars has to be based in science. We welcome that. [FDA Commissioner Scott] Gottlieb said we need to understand [other issues such as] unintended consequences, which could be challenging. What about the illicit trade that would come up? And consumer usage—would people smoke more? And what about altering product [and unregulated manufacturers] making their own menthol? We agree with studying those things. It could take a long time. Still, at least it’s no longer quit or die.

TG: What other challenges do you see facing the industry?

DC: I see taxation, regulation. Look at the age-21 [battles], where states are raising the minimum age to buy tobacco products from 18 years old to 21. That hurts retailers, our customers. We [as a company] can do more. The question is: How? Where do we think we can win? Take drug stores. There’s a lot of dynamics there. [When it stopped selling tobacco in 2014], CVS took a [financial] hit with its stand on health. For Walgreens, it’s about convenience and they’re going to stick with [selling tobacco]. Then you see places where legislatively, a pharmacy now cannot sell tobacco. Hopefully they’ll learn.