Part 2: Special Tobacco Analysis, Big Tobacco Shifts Strategies..

November 1, 2009 - Part 2: - In the past three months, the major tobacco companies have altered their promotional strategies, pulling back from umbrella programs and re-channeling efforts to specific brand promotions.

[Click here to view part 1 of this series: Big Tobacco Fights for Share.]

Based on an exclusive survey conducted by CSP (Convenience Store / Petroleum) Daily News and UBS Tobacco Analyst Nik Modi, nearly 80% of c-store chains said manufacturers have overhauled their total promotions, while only one of five said marketing promotions essentially have remained steady.


Among key comments from retailer respondents to the survey:
* "From Altria I have notice more regionalized promotion deals. From R.J. Reynolds, they have cut back on their monthly discounts. Lorillard has given extra dollars off to the state of Wisconsin," responded one retailer.
* "[Philip Morris] is changing to $1- and $2-off pack deals from the grouped deals with required maximum retails," said an East Coast operator. "Fewer deals than consumer demand. With the loss of the Basic buy-down, now that product is building up in back rooms as the customers choose another less-expensive style."
* "RJR has gone 'all in' with Pall Mall, and seems to be backing away from other brands in its portfolio," said a Pennsylvania-based merchant. "Altria has promoted specific pack styles within the brand family, e.g. Marlboro Medium, Marlboro 72s. Altria has also singled out Skoal Edge for promotional activity."

A Midwestern retailer pointed to greater efforts by some of the major players to drive volume by state. "Philip Morris is working harder on by-state discounting to raise volume," the retailer stated. "Lorillard has gone extra-deep discount in Pennsylvania and Ohio to drive up volume; first time I've seen them go extra deep in several years. RJR continues to fine tune its discounting by state on Camel and Pall Mall and eliminating discounting on Doral, Salem and Kool in some states."

The change in marketing strategies should not be misconstrued as a pullback by big tobacco, rather the contrary. "The major tobacco companies are becoming more sophisticated in how they promote their brands," Modi said. "The one-size-fits-all model is inefficient. The ability to generate positive net pricing is very important for tobacco companies to hit their external profit goals to Wall Street."

The survey is the second in an exclusive partnership between CSP and Modi concerning tobacco trends in the convenience-store channel. It was conducted in early October and includes nearly three dozen convenience chains representing more than 10,000 stores in the United States and featuring some of the industry's largest companies.

The study coincides with another Modi conducted, this one with the National Association of Tobacco Outlets, of the tobacco-shop sector. In that survey, 64% of tobacco outlets surveyed said manufacturers have cut promotional programs, while 36% said promotions have increased.

On Thursday, Dec. 3, Modi will provide insights into key tobacco segments during a CSPNetwork CyberConference.

Reference: Special Tobacco Analysis, Pt. 2 Big Tobacco Shifts Strategies Convenience retailers say majors have altered how they spend promotional dollars by Mitch Morrison, CSP Daily News, 10/30/2009.