Altria CEO presents at NACS Leadership Forum, February 9-11, 2010..

February 18, 2010 - SAN FRANCISCO -- On a recent February day, the man behind Marlboro spoke about a business under siege. Whether from increased federal taxation to municipal smoking bans, cigarettes and its OTP brethren—together muscling some 40% of total inside convenience store sales—are often portrayed as gasping from the onslaught of legislative assaults.

Yet, a deeper look suggests the air is clearer than one might think. States have not exploited tobacco as harshly as feared to narrow budget shortfalls. The federal excise tax to fund a children's insurance program swung its executive cleaver across the entire tobacco slate, arguably damaging weaker niche segments more than cigarettes or moist smokeless.

So on February 9, Altria Group chairman and CEO Michael Szymanczyk—whose premium brands Marlboro, Skoal and Copenhagen headline the cigarette and MST segments—spoke not of doom and gloom, but of optimism.

"I tend to see opportunities where others might see barriers to success," he said in his speech. "Many of the perceived barriers to success in tobacco can be viewed as opportunities. These opportunities are developing due to changing adult consumer behaviors regarding the tobacco products they choose to use." That is not to say the picture is scenic. Indeed, the landscape is clearly mixed, with retail tobacco revenues up, while transactions are generally down 3% to 7% across much of the country. To that end, Szymanczyk acknowledged the challenge of delivering a message that is authentically upbeat and not just spinning a yarn.

"Some people believe that the best times are behind us, and that the times we're in now may offer the hardest test we have ever faced," he said. "That's an understandable mindset, especially when you consider the toll this economic recession has taken on America's businesses and families. Even as we see gains on Wall Street, there is still a lot of pain on Main Street, and probably on your street as well.

"When the news reports are full of bad news," he continued, "it can be hard to remember what 'good' felt like. So, it's natural for people to worry, to see only problems on the horizon, and to focus intensely on the things they perceive as barriers to success. That's certainly true of the people writing and talking about the tobacco industry these days."

Not Cigarettes Alone.. No, Szymanczyk is not in denial. Hardly. Rather, as Apple and Starbucks found wedges in businesses that faced institutional challenges, the Altria Group sees opportunities ripening in smokeless tobacco and large cigars. As a result, the Richmond, Va.-based outfit has been noticeably aggressive on the acquisition front and in R&D over the past few years in the other tobacco products (OTP) sector.

"The fact is that smokeless tobacco and machine-made large cigars have largely offset the decline in overall cigarette sales," he said. "In fact, one of the fastest-growing categories in c-store dollar sales is OTP, which has grown its average sales per store by over 12% per year over the past five years. Once you factor in those increases, you see that the total tobacco space volume based on poundage historically declined by about 1% per year."

This may be an exaggeration.. Volumes may be declining, but cigarettes remain Altria’s biggest business by far, accounting for $14.4 billion in revenue in 2009 compared with Smokeless category that brought in $1.2 billion. In general, cigarettes account for approximately 91% of expenditures on all tobacco products in the U.S.. Total United States expenditures on tobacco were estimated to be $88.7 billion in 2005, of which $82 billion were spent on cigarettes. In 2005, consumers in the United States spent $2.61 billion on smokeless tobacco products, and more than $1 billion on cigars each year. (CDC Smoking and Tobacco Use: Economic Facts About U.S. Tobacco Use and Tobacco Production)

He continued, "The reality is that the increasing diversity of products out there gives adult tobacco consumers a wider and increasingly innovative variety of options within the total tobacco space. So we can no longer measure success by one category alone. And we shouldn't. Instead, we should adjust our focus so that we can see the bigger picture and take advantage of the opportunities it offers.

Reference: Upbeat at Altria CEO voices optimism as he focuses on total tobacco opportunities by Mitch Morrison, CSP (Convenience Stores/Petroleum) Daily News, 2/17/2010.