Tobacco Promos Flat

Menthol ban? Manufacturer increases? CSP-UBS survey provides answers

OAK BROOK, Ill. -- Tobacco promotions, the less-frequently spoken of underbelly to a robust program and planogram, leveled off in the second quarter after a flurry of activity since mid last year to help offset higher taxes triggered by SCHIP and Food & Drug Administration (FDA) oversight of tobacco products.

Manufacturer promotions swing widely depending on how much independence a retailer is willing to forfeit. For greater space and control, some manufacturers wield buydowns and upfront incentives. Other suppliers, with fewer upfront drivers, offer across-the-board [image-nocss] deals, such as two-fors or coupons.

In the latest CSP-UBS Tobacco Survey, more than 50 retailers, from one-store shops to 5,000-site chains, addressed a number of issues, from supplier field execution and promotion value to new products.

This third and final installment explores what new, if any, promotional activity retailers are seeing.

From April through June, few new programs were advanced, and those that were, were generally more modest in scale. Asked whether they saw "sequential changes in the promotional environment during the second quarter (April-June 2010)," retailers were divided, with 28 (51%) saying yes, and 27 (49%) responding no.

On the yes side were increased promotions on single-pack cigarettes, federally-mandated changes in packaging and descriptors, and modest changes in point-of-purchase signage.

"Manufacturers are offering more and more deals like [money] off on a single pack or two packs," said one retailer.

An Indiana-based operator added, "R.J. & PM have gone to single pack promotions for cigarettes, usually $1 off a single pack purchase. For moist snuff, most items were pre-booked to hit before June 22."

Others cited Altria's promotion of an extra $1-per-pack buydown on Marlboro Special Blend. A Virginia merchant also pointed to brand buydowns as a way manufacturers are competing during a recessionary period: "More and more monies are being thrown toward buydowns on popular brands such as Pall Mall, Newport and Marlboro. Brand loyalty is taking a hit with the extreme price increases and these brands must now compete at a lower price point than normal."

For those retailers finding little alterations in promotions, most said the biggest changes were driven by the June 22 FDA deadline concerning packaging changes and moving product to the back bar.

This general sentiment is echoed by UBS tobacco analyst Nik Modi. "We expect the promotional environment to remain stable with what we have seen since the implementation of the FET. We expect the Big Three to be more strategic on what brands are promoted were. An example of this is PM USA's reallocation of promotional monies from Virginia Slims, BASIC and Parliament to Marlboro."

In other issues covered in the survey:

Menthol Ban?: Not likely according to survey respondents. Asked whether they expect the FDA to ban menthol cigarettes, 49 retailers, or 89% said no, while six operators said yes. Another Cigarette Hike?: Probably, retailers say. Asked if you expect further price increases in cigarettes this year, 48 retailers (87%) said yes, while seven said no.

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