Premium's Growing Hold

Marlboro likeliest to increase market share, CSP-UBS survey says
NEW YORK -- The tobacco climate of 2010 is one without the plumes of fear projected one year ago with the gathering smoke of an increase to the federal excise tax and regulation by the Food & Drug Administration.

Instead of doom and gloom, convenience retailers are matter-of-fact about the state of tobacco. They see the leading tobacco suppliers holding share, if not growing it. They see the FDA moving cautiously, not headstrong, into the winds of restriction. And they see increased stability in the premium cigarette segment, a reflection that customers are willing to [image-nocss] meet the higher-priced tier to get the brand they most prefer.

In the fourth exclusive CSP-UBS Tobacco Survey, some 90 retailers, representing independents, midsized operators and large chains, shared their thoughts about the state of cigarette and several OTP brandswho was vulnerable, who most likely to grow share. The survey also explored innovation in the nascent oral segment, as well as manufacturer-based promotions, federal legislation and field execution.

"Retailers still seem to be pretty cautious on the overall economy and what that could mean for pricing and promo activity, but we get the sense that at least the threat of price wars or massive volume dislocations are in the past," UBS tobacco analyst Nik Modi told CSP Daily News.

Among the highlights:
Company Health: Among the Big 3 premium brands, 54% of survey respondents said they expect Marlboro to gain the most market share in 2010, compared to 33% for Camel and 13% for Newport. Conversely, nearly half the respondents said Newport was seeing the most negative pressure among the top 3 brands.

Of Marlboro, two retailer comments echo much of the broader sentiment. "Greatest ability to influence the retail marketplace due to their size," one operator said. Another noted, "They lost share last year and it is unlikely they will let that happen again."

Modi underscored the strength of Altria's current market share. "Most retailers," he said, "look at PM USA as a situation where the biggest will get bigger, as a result of regulatory changes and the company's larger spending budget."

Menthol: Almost 80% of retailers said they did not expect the FDA to ban menthol. Modi agreed: "We do not think menthol will be banned because of the large potential for a black market, which would not be beneficial for taxpayers, public health, and the industry."

Promo Power: More than 60% of retailers said they are seeing changes in promotional activities, most notably a shift from multipack to single-pack discounts and less pulse promotion on cigarettes, to ensure more consistent pricing.

That said, 6 of 10 retailers predicted manufacturer promotions would increase over the rest of the year. "Consumers' [are] looking for deals or cheap cigarettes due to tough economic times," one retailer said. Others said competitive market conditions will buoy new promotions.

Snus: Oral products, led by snus, remain a raindrop of activity, but retailers voiced optimism about their long-term growth potential. Asked if they believe snus will become a viable category in the tobacco category, 57% said yes. "It is still very early in the game for Snus and could be some time before it is a needle-moving category," Modi said.

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