Fuel for Growth

Lorillard CEO details three-pronged strategy at consumer analyst conference

BOCA RATON, Fla.-- Delivering 7.8% net sales growth over the last five years and bumping that up to 9% growth last year involved some "robust volume growth within a declining category," according to Murray Kessler, CEO of Greensboro, N.C.-based Lorillard Inc.

And the company hopes for continued growth using three core strategies, he told analysts during the Consumer Analyst Group of New York (CAGNY) conference last week, including protecting and growing its core, building out capabilities and building out adjacencies.

Protecting and growing core."The beauty of what makes Newport so successful is simplicity, consistency and focus," Kessler said, adding that the company has a narrow product line vs. competitors. For example, he said the company has 43 SKUs, with Altria Group Inc. and Reynolds American Inc. having about 200 SKUs each in cigarettes. "We are very cognizant of focus, we understand that is key to our core, but we have plenty of room to add a few SKUs and still be a very focused and very simple product line that has plenty of room at retail to grow."

At its core, Newport primarily is a full-flavor menthol cigarette sold east of the Mississippi, with a 74 share of those sales, while it has a 12 share nationally.  In the "all-important legal age to 25 market," Kessler pointed out, Lorillard has a 21 share, which he attributed to the relevance of the Newport brand. "This is sort of the fuel for the growth of the brand."

Building out capabilities. Because the company has grown billions of sticks over the last few years, it has moved to around the clock manufacturing. Kessler said the company also has made 10 key hires in different areas of the company, including compliance activities and efforts to fill its "innovation pipeline."

Adjacency opportunities."We came to the conclusion that the biggest single opportunity that was in front of Lorillard was to stay a pure cigarette company." Kessler said the company had looked at snus, which has .3% of the market "and didn't think it could move the needle" for the company. And while he felt moist smokeless tobacco was a great category, he said the company was simply "late to the game" and that it was "pretty well played out right now."

He added, "And then we looked at within the cigarette market and we said, 'Wait a minute, there is just huge white space available to this company." Opportunities, he said, existed in expansion in regions outside of its core markets, growing in the discount segment and, he added, "Frankly, we haven't been that successful in our low-tar portion of the business, even with menthol. You just assume that Newport, because we're the number one menthol brand, we must be winning there too, and we haven't been."

Kessler added that the company's growth strategy over the next few years will be "to iteratively and carefully broaden" that product line.

"When I stand up here four or five years from now, every one of these spaces will be filled, and there will be a Newport franchise."

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