Reynolds to Offer More Menthol Versions of Pall Mall Cigarettes

Source from:  Winston-Salem Journal 09/26/2012

R.J. Reynolds Tobacco Co. is aiming to expand the recent surge in Pall Mall cigarette sales by extending its reach in menthol. The company has introduced Pall Mall Black and Pall Mall White to complement Pall Mall Green, its standard menthol style. Reynolds spokesman Richard Smith said the black style offers "a full-flavor tobacco blend," while the white style "has a smoother tobacco blend." Smith said the new styles are being introduced gradually at retail nationally, with full distribution set to be completed in October. Smith said Reynolds is adding the menthol styles to reflect category growth nationally, as well as a shift in adult tobacco consumer preferences. "We believe Pall Mall is the right product at the right time, as the weak economy continues to affect adult tobacco consumer spending," Smith said. "We are seeing increasing rates of trial and increasing rates of conversion and sticking with the brand." Menthol sales have declined slightly in recent years, going from 27 percent of all cigarette sales in 2008 to 22 percent in 2010, according to the Federal Trade Commission's latest report, which was released Friday. "Reynolds is target marketing these new cigarettes to price-sensitive smokers of higher-priced menthol brands," said Bill Godshall, executive director of SmokeFree Pennsylvania. Reynolds officials are hopeful the new Pall Mall menthol styles will provide additional momentum for what has become the nation's No. 3 cigarette brand, trailing only Philip Morris USA's Marlboro and Lorillard Inc.'s Newport. Pall Mall not only has supplanted Camel as Reynolds' top brand but also chipped away at Marlboro's dominant grip on the top market share. In response, Philip Morris has expanded the marketing of Marlboro Special Blends – its lower-cost version of Marlboro. Discount competitors also have taken aim at Pall Mall by lowering prices. As a result, Pall Mall's market share slipped 0.2 percentage point from the first to second quarter to 8.4 percent. Its volume was down 0.2 percent to 5.6 billion cigarette sticks compared with a year ago. By comparison, Pall Mall had a 1.95 percent market share when Reynolds elevated it to a growth brand in 2006. Christopher Growe, managing director of Stifel Nicolaus Equity Research, said in July the stepped-up competition from Marlboro "is likely to serve as a headwind this year" for Pall Mall and "likely to temper the brand's growth paradigm." Bonnie Herzog, a Wells Fargo Securities analyst, said the rivalry between Pall Mall and Marlboro Special Blends has the potential to "turn into a blood bath" in terms of marketing. "Although we believe Pall Mall continues to resonate with value-seeking consumers, the brand is not immune to competitive pressures, and, therefore, we are projecting a deceleration in the brand's growth," Herzog said. Pat Shehan, owner of Tarheel Tobacco in Winston-Salem, said it's clear the marketing is attracting smokers to Pall Mall, L&M and Marlboro Special Blends over sales of lower-tier cigarettes. "I really believe smokers want a national brand, and the manufacturers are pricing their cartons to put some brands back in their range," Shehan said. Enditem