Lorillard - Newport - non-menthol may be a hit this time..

October 29, 2010 - As Lorillard Tobacco Co. prepares to launch Newport Non-Menthol cigarettes in early November, retailers seem ready for the new offering. According to "rough-math" research from UBS Securities LLC, the new cigarette could take as much as a 0.5% share of the total cigarette category (close to 5% of total Newport volumes) over the next 12 months.

"Factoring in an introductory, off-invoice discount of $1.65/pack (putting its effective wholesale price in line with Maverick), we estimate Newport Non-Menthol could generate about $100 million over the next 12 months," Nik Modi, an analyst with UBS, New York, wrote in a research note yesterday.

Although this is not Lorillard's first attempt at a non-menthol version of Newport, recent U.S. Food & Drug Administration (IFDA) scrutiny of menthol could make this launch "more meaningful," according to the report. The previous efforts were test marketed about 10 years ago, but a broader national launch wasn't pursued, the report states.

When Lorillard first announced the new non-menthol cigarette in August, the company said that it believes the new product will further strengthen its competitive position and its Newport brand family with the national introduction. It described the cigarette as a premium product with broad competitive consumer appeal that delivers the high-quality tobacco taste that adult smokers expect from Newport. (Lorillard to launch non-menthol variety of Newport in November 2010..)

"We are excited to leverage Newport, one of the most-recognized names in the cigarette industry," said Martin Orlowsky, chairman, president and chief executive officer at the time. "With the introduction of Newport Non-Menthol, Lorillard will be afforded greater opportunity to compete in the largest segment of the U.S. cigarette market, as the non-menthol category represents approximately 70% of total industry volume."

In other analysis from the UBS report, Modi said it is unlikely that Lorillard will foray into the moist smokeless tobacco (MST) category--despite now having Murray Kessler, former CEO of MST-maker UST Inc., at the helm. Explaining that launching a new MST product is "incredibly difficult," the report says Kessler understands the competitiveness of the category "better than anyone, which is why we ultimately do not believe Lorillard will launch its own MST product." (Kessler has been disappointed in the performance of snus products..)

Lorillard, Inc. is the third largest manufacturer of cigarettes in the United States saw its net profit surge by 16.6% to $274m, while revenue rose by 12.6% to $1.07bn in the third quarter of 2010. The company said cigarette volumes were up by 5.8% to more than 10 billion cigarettes while #1 Philip Morris USA had a decline in volume of 2.4 percent and #2 Reynolds American had a decline in volume of 2.6 percent. Sales of Lorillard's lower-priced brands such as Maverick jumped 30.9% for the quarter. (Lorillard - highlights q3 2010 earnings report..)

Reference: Big Impact for Newport Non-Menthol?
Analyst predicts new Lorillard cigarette could generate about $100 million in first year by Linda Abu-Shalback Zid, CSP (Convenience Store/Petroleum) Daily News, 10/29/2010.