Marlboro Goes Smokeless

Philip Morris to test new moist tobacco in Atlanta market beginning in October

RICHMOND, Va. -- Between its familiar brand name, moderate price and masculine appearance, all indicators suggest Philip Morris USA is making a solid move with its unveiling of Marlboro Moist Smokeless Tobacco.

The largest cigarette-maker in the country announced yesterday that it will begin testing Marlboro MST in the Atlanta area in October. Introducing Marlboro Moist Smokeless Tobacco is a natural fit for our growth strategy, said Michael Szymanczyk, chairman and CEO of PM USA. This new offering builds on the premium tobacco experience that [image-nocss] Marlboro represents.

The product will be offered in Original and Wintergreen flavors and will be available in Long Cut and Fine Cut varieties. While retailers ultimately determine the price of the product at retail, PM USA anticipates a retail price around $3 a can, midway between the highest-priced products and the lowest-priced products in the Atlanta market.

Tobacco analyst Bonnie Herzog of Citigroup, New York, said that's a positive move by Philip Morris. By marketing Marlboro Moist as a premium brand with premium quality (which the company plans to do), yet pricing it below premium leaders such as Copenhagen and Skoal and above price-value leader Grizzly, we anticipate that Marlboro Moist will be able to successfully draw users from both price-value consumers and premium consumers, she said in a research note yesterday. Not to mention, leveraging the Marlboro name should significantly help the product with instant name-brand recognition both among smokers and moist-only users.

Analyst Nik Modi of UBS Securities LLC, New York, said investors may be concerned about the low price undercutting profit potential. He noted, however, that the Atlanta store placement is only a test and will take several more quarters before a national launch [and price-point] is even considered.

For PM USA, the test continues a slow string of tobacco product tests outside of cigarettes:

In July 2006, the Richmond, Va.-based company began testing its Taboka Tobaccopaks in the Indianapolis market.

This month, the company unveiled Marlboro Snus in a test in the Dallas/Fort Worth market.

Smokeless tobacco is the largest tobacco category behind cigarettes and has been growing for a number of years, said Szymanczyk. Marlboro Moist Smokeless Tobacco represents premium quality and flavor and will be introduced at an attractive price for the adult moist smokeless tobacco consumer.

Philip Morris USA's growth strategy is to add tobacco or tobacco-related products that are adjacent to its existing business, cigarettes. And Herzog said Marlboro MST looks to do just that.

PM USA has said that it intends to place it new Marlboro Moist product alongside other moist smokeless products, therefore signifying that it will be going after current moist users, rather than smokers crossing over into the smokeless category, she said in her research note. Marlboro Moist has a very masculine appearance, with the original blend being a dark brown color, and the wintergreen blend being a dark, forest green. Both flavors are placed in a tin with a gold metallic rimmed top. We believe the label's appearance allows Marlboro Moist to compete most effectively with UST's Copenhagen brand, given Copenhagen's dark colored tin, and metallic top.

She added, We believe PM USA will significantly leverage its vast distribution network and trademark Retail Leaders Program to get Marlboro Moist on the shelves and in a position PM USA feels is most beneficial to the success of the brand.

Tom Briant, executive director of the National Association of Tobacco Outlets (NATO), told CSP Daily News the introduction of Marlboro MST should be good for both PM USA and retailers.

Philip Morris is trying to expand and diversify; there's no question, he said. They see with these smoking bans a move toward smokeless tobacco products. So they're positioning themselves for the broadening of that market.

Some product facts about Marlboro Moist Smokeless Tobacco:

Original and Wintergreen flavors.

Long Cut and Fine Cut varieties.

Sold in individual cans and five-can logs.

At retail in the Atlanta area test market in October.

In explaining why PM USA is unveiling the product now, a company statement says: The moist smokeless tobacco segment has been growing for a number of years. The smokeless tobacco category is the largest tobacco category behind cigarettes. Our research shows that branding is very important in this category and that adult moist smokeless tobacco consumers believe that the Marlboro brand stands for flavor and premium quality.

It added, The introduction of Marlboro Moist Smokeless Tobacco is part of our growth strategy, offering a new product in the smokeless tobacco category. Philip Morris USA's growth strategy is to add tobacco or tobacco-related products that are adjacent to its existing business, cigarettes.

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