Nik Modi UBS Tobacco Analyst - cigarettes will go from 80% to 45% of tobacco sales by 2025..

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August 6, 2010 - Comments from the 2010 CSP Tobacco Review Meeting..

Panelists agreed in a business environment of suffocating regulation, the job of communicating what new tobacco products are about will start falling to the retailer.

Denise Indovina, vice president of sales, ICOM, Epsilon Targeting of Dallas, revealed results of its internal marketing survey of U.S. smokers. In one finding, 80% of smokers in a "dark" scenario where no signage or visible product existed at the store said they would ask for their usual brand. "Trial and switching will be driven by couponing and communication with clerks," she said. In Indovina's research, the potential for switching and trial lies among younger consumers, who are more likely to be influenced by couponing, direct mail and even out-of-stocks than their older counterparts.

According to fellow panelist Nik Modi, household products, cosmetics and tobacco global consumer staples coordinator for UBS Investment Research, New York other evidence points in this direction.. He said international examples of successful retailer-based training exist, such as what Winston-Salem, N.C.-based Reynolds American Inc. (RAI) learned from marketing Colgate in other countries. "With tobacco, [the responsibility] will move to the retailer to build brand equity," he said, adding that RAI may be one of the first companies to initiate consumer education through the retailer.

Creating ways to better inform retailers about new products will become increasingly more important, Modi said. He projects that cigarettes will steadily lose its share of the tobacco category, going from 80% today to 70% in 2015 and then to 45% in 2025.
Near-term, the news for the category is positive, Modi said. With cigarette use skewing towards lower-income demographics, stimulus efforts by the federal government and growing consumer optimism indicate a positive trend.

While agreeing for the most part on this trend, a couple of attendees raised contradictory thoughts. One supplier, Steve Sandman, vice president of sales and marketing for Republic Tobacco, Glenview, Ill., noted that the Colgate example was partly one of educating the population on the values of brushing teeth as well as how to do it, so its relevance may be a consideration.

A retailer, Anne Flint, senior manager of tobacco for Cumberland Farms Inc., Framingham, Mass., noted the difficulty of communicating messages to consumers in a fast-paced, c-store environment. She said cashiers are trying to move lines and at the same time, promote any number of in-store food and drink specials.

Reference: Teaching Tobacco Consumer messaging falling to retailers? by Angel Abcede, Convenience Store/Petroleum (CSP) Daily News, 8/6/2010.

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August 6, 2010 at 8:17 AM