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Retailers weigh in on which of the Big Three will gain market share this year

NEW YORK – The results are in, and nearly half of retailers expect Marlboro to gain market share this year. In the latest UBS-CSP Tobacco Survey, 46% of retailers said Marlboro would be the Big Three premium brand to gain the most market share in 2012; Newport and Camel were nearly even at 28% and 25% respectively.

Nik Modi, UBS analyst, told CSP/Tobacco E-News, that he was somewhat surprised by the results of the survey, which included 50 respondents representing nearly 8,000 stores. "I would have thought Newport would have been higher," he said, pointing out, however, that the percentage of retailers that chose Newport is about double the brand's current share.

During Lorillard's third-quarter earnings call, CEO Murray Kessler said the company's retail volume had grown "briskly in a declining industry," with total Newport gaining 1.1 share points vs. in the previous year to 11.9%. Retailers who expected that growth to continue explained their reasoning in the survey, with one commenting, "Menthol Newport continues to perform well with no gimmicks to make that happen. It is a solid performer."

Another said the continued growth will be tied to the brand's strength. "Newport continues to show increasing sales even though we have almost zero promotional activity. Strength of brand recognition appears to be the only contributing factor."

Another surprise for Modi was how well Marlboro fared, due to a challenging year for Philip Morris USA and retailer concerns about the company's controversial Marlboro Leadership Price (MLP) option. (The program, implemented last year, in essence, asks operators to forgo part of their typical markup in exchange for incentives). "So for the majority of them to say Marlboro is going to gain share, I actually thought was quite interesting," Modi said.

Altria Group Inc., PM USA's parent company reported that market share in third-quarter 2011 decreased .9 share points vs. the previous year to 41.7.  At the time, CEO Mike Szymanczyk, said that following PM U.S.A.'s July 2011 list price increase, Marlboro's retail price increased more than major competitive brands. PM U.S.A.'s objectives in the cigarette category,  he said, were to maximize income growth and maintain "modest retail share momentum on Marlboro."

As for retailer optimism for the brand's share in the upcoming year, one retailer said, "the shrinking price gap with the low tier brands will help Marlboro in some accounts," while another said that "compressing retails thru MLP will gain them share."

One retailer said, however, that while a downward trend would likely continue, retailers would "be more engaged in ways to make the share appear better," such as "reduce other SKUs, plus out Marlboro even if you don't need it or convert current customers of other brands to the Marlboro brand via suggestive selling it."

Others pointed to the continuously struggling economy as a factor for any negative pressure on Marlboro share. "People can't afford the higher-priced cigarettes, so they are turning to cheaper ones, or buy one get one offers."

As for Camel's share, Modi said he thought the R.J. Reynolds brand's performance on the survey was "in line with where it should be." One retailer said that it "appears RJR will continue to send camel Blue and Reg promotional product that seems to also drive customers from Marlboro."

Reynolds American Inc. CEO Daniel M. Delen said during his company's third-quarter call, "This environment is putting pressure on all premium priced products, and Camel is no exception." He added that although the brand's market share saw a slight decline of 0.1 share point in the third quarter vs, last year to 7.9 percent, Camel delivered steady, sequential market share growth in 2011, benefiting from the performance of its menthol styles.

Look for more coverage of the UBS-CSP Tobacco Survey in next week's issue of Tobacco E-News.

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