Tobacco

Leaders of the Pack, Part 2

Reynolds American weighs in on UBS-CSP Tobacco Survey

NEW YORK -- Last week, Part 1 of this report showed how Philip MorrisUSA and Lorillard Inc. fared in the latest UBS-CSP Tobacco Survey. But what of Reynolds American Inc. (RAI)? When retailers, representing 55 chains and at least 7,500 stores, were asked how they would rate the health of tobacco companies on a scale of1 to 10, RAI fell right in the middle of the Big Three with a 7.1 score. PM USA inched out Reynolds with a 7.24, while Lorillard scored a 6.56.

And as reported last week, PM USA's Marlboro was expected to gain the most share by 47% of the retailers, but it [image-nocss] also was chosen by 41% as seeing the most negative pressure.

Conversely, R.J. Reynolds' Camel brand was chosen by the fewest retailers (21%) to gain the most market share in 2011, but also was chosen by the fewest retailers (24%) as seeing the most negative pressure.

Retailer's survey comments ranged from "Camel is underdeveloped in my area" to "In my market, Camel is the growth leader."

During RAI's second-quarter earnings call last week, CEO Daniel Delen said that Camel's second-quarter cigarette market share was steady at 7.8%, with menthol being a key driver. Camel's share of the growing menthol market increased by 0.3 of a percentage point in the second quarter to 2.1%.

In addition to Camel in the premium category, R.J. Reynolds Tobacco Co.'s Pall Mall is a value-segment offering and Santa Fe Natural Tobacco Co.'s Natural American Spirit is RAI's offering in the super-premium category. Retailer comments on those brands, included "American Spirit continues to grow" and "Pall Mall will continue to grow at a discount price."

Pall Mall increased market share by 1.5 percentage points to 8.5% for the second quarter. Delen said that Santa Fe Natural Tobacco delivered strong volume, share and earnings growth.

In the survey, one retailer commented that RJR dropped share due to dropping private label.

David Howard, RAI spokesperson, addressed that and other retailer comments for Tobacco E-News, companion newsletter to CSP Daily News. He said the company had been delisting private-label brands for a couple of years and that they were a "small business in terms of share." He added, "The productivity efforts we have made in some of our decisions in delisting smaller-non-support brands has resulted in productivity gains and savings, enabling us to invest in continued growth with Camel and Pall Mall."

In response to one retailer's comment of having gone through several company reps in one year, Howard said the company has consolidated the sales force of American Snuff Co. and R.J. Reynolds Tobacco Co., which might have led to some "growing pains as this consolidated sales force has taken shape."

He added, "But now you have a consolidated sales force that increased the strength of American Snuff Co.'s communications and sales force, and utilizes the expertise of the current trade marketing sales force with R.J. Reynolds Tobacco. So now you have sales reps that are talking about not just cigarettes and not just smokeless, but total category management."

Howard declined to comment on specifics of the company's promotional strategies for proprietary reasons, but did say, "Our focus in terms of promotion really is that we want to grow market share obviously, but we want to do it wisely. It's not just about throwing out as much promotion as you can to essentially buy market share. ... We're getting market share through more rings at the register and people identifying our products."

For a copy of the UBS report on the UBS-CSP Tobacco Survey, by Nik Modi and Benjamin Schmid, please click here. For last week's coverage of the survey, please click here.

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