Innovation Central to Reynolds' 2013 Investor Day

Wells Fargo optimistic about company's "total tobacco" strategy

WINSTON-SALEM, N.C. -- On Monday, Reynolds American Inc. hosted an Investor Day to showcase the Winston-Salem, N.C.-based company's "total tobacco" strategy. There were several key points of focus of the event, including innovation, driving growth across the total tobacco spectrum--which includes not just cigarettes, but non-combustible tobacco as well--and looking to the future of the company's digital cigarette, Vuse. Vuse

Wells Fargo analyst Bonnie Herzog described Reynolds as "one of the most innovative consumer product companies" due to its ongoing success in repositioning its brands, building excitement, successfully driving trial for its new products and increasing product value in the eyes of the consumer through technology.

"We believe Reynolds' ability to 'operationalize innovation' is one of its leading competitive advantages," Herzog wrote in a research note about the event.

Camel Crush serves as a key example of this innovation: the nonmenthol-to-menthol capsule technology showcased in Crush has been very popular with consumers, with Camel Crush accounting for the majority of premium menthol growth since its 2009 launch. Besides Camel Crush, Herzog said she sees Reynolds leading innovation with products like:

  • Vuse: "Reynolds is making great strides with its Vuse e-cig--one of the most differentiated, technologically advanced offerings on the market," Herzog said. At the meeting, Reynolds revealed exciting numbers from the brand's Colorado test launch: Vuse has achieved a roughly 62% market share in Colorado (which may have been higher if Reynolds could have met the high demand) with 72% of sales coming from cartridges--meaning there's high levels of repeat. The company is working on a nationwide expansion in the first half of 2014.
  • Camel Snus: "Reynolds' innovations are paying off in smokeless tobacco as well, given the company's leading position in alternative tobacco products such as moist snus," said Herzog. As of the third quarter of 2013, Reynolds had a nearly 80% market share of the snus category with the top four SKU's belonging to Camel Snus. 
  • Zonnic: "We are encouraged by RAI's 'thinking outside the box' and Zonnic is a prime example of this," Herzog said. Currently in test markets in Des Moines, Reynolds offers its nicotine replacement gum in two strengths--2mg or 4mg--in packs of 10 (unlike traditional NRT products, which are traditionally offered in 100-count packs). Zonnic also keeps its price-point similar to that of tobacco cigarettes, with the 10-pack retailing at $2.85.

"In our view, RAI has transformed itself into an innovative, comprehensive 'total tobacco' company, with leading brands and a solid strategy for long-term growth," Herzog said.

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