Reynolds May Introduce Camel Snuff to Go After Altria

Source from:  Bloomberg 07/30/2009

Reynolds American Inc. may expand its Camel cigarette brand into snuff to take customers from Altria Group Inc., the head of Reynolds' smokeless-tobacco division said in an interview. In a test in Florida and Colorado, Reynolds is offering its new Camel Dip snuff to distributors for the same price its bigger competitor charges for Skoal and Copenhagen, said Bryan Stockdale, chief executive officer of Reynolds' Conwood unit. A national expansion of Camel Dip may help the company reverse declining market share in higher-priced snuff, he said. Reynolds and Altria, the country's two largest tobacco companies, are going after the snuff market to counter shrinking cigarette demand. Altria's UST division cut the price of Skoal and Copenhagen March 29, spurring Reynolds to lower prices of its more-expensive Kodiak brand in a move that hurt second- quarter profit. Camel's share of U.S. smokers was unchanged at 7.5 percent in the period, the Winston-Salem, North Carolina- based company said July 23. "We're stretching the brand to figure out whether or not you can take a well-known cigarette trademark and expand it into this category," Stockdale, 51, said July 27 in his first interview since taking charge of Conwood in February. "There's a whole lot of early-on feedback that says we may have something that's got some legs to it." Altria won't comment on Camel Dip, David Sylvia, a spokesman for the Richmond, Virginia-based company, said in an e-mail. Kodiak, Grizzly Grizzly and Kodiak are Reynolds' top-selling smokeless tobacco brands. It also makes tobacco twists, Levi Garrett chewing tobacco and Tube Rose snuff, according to Conwood's Web site. Altria's UST division sells Red Seal and Husky snuff in addition to Skoal and Copenhagen. Reynolds is testing its Camel version of moist snuff as part of an effort to boost sales of higher-priced products. While the Kodiak brand generates lower sales than less-expensive Grizzly, it's about twice as profitable, Stockdale said. Price reductions on Skoal and Copenhagen may eventually spur growth of higher-priced snuff, creating a need for Reynolds to establish a brand stronger than Kodiak, Thilo Wrede, an analyst at Credit Suisse, said yesterday in a telephone interview from New York. Aggressive Promotions "The challenge for them is to convince consumers to try the product," Wrede said. Conwood may need to offer aggressive promotions, he said. He rates Reynolds as "neutral" and Altria as "outperform." Camel Dip's Wintergreen Wide Cut variety comes in a metal can and contains tobacco that has longer-lasting flavor and is cut wider than other snuff, making it easier to pack in the mouth, Stockdale said. "If you can stabilize Kodiak and establish Camel, then you have growing premium and growing Grizzly," said Stockdale, a 30-year Reynolds veteran and former senior vice president of marketing operations for the R.J. Reynolds Tobacco Co. cigarette division. "Camel showing the ability to grow in the moist segment is a big deal." Reynolds rose 74 cents, or 1.7 percent, to $43.31 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have advanced 7.4 percent this year, compared with Altria's 17 percent gain. Reynolds lowered the price of Kodiak by 72 cents a can April 1, following the move by Altria to decrease distributors' list price of Skoal and Copenhagen by 62 cents a can. The price reductions on those two brands haven't slowed Grizzly's growth, Stockdale said. Reynolds has introduced four new varieties of Grizzly since last year, he said. Retailers in Colorado are selling a 1.2-ounce (34-gram) can of Camel Dip for about $4.65, said David Howard, a Reynolds spokesman. Altria's Copenhagen sold for a U.S. average of $4.16 a tin in June, the company said last week. Reynolds' Grizzly brand sold for about $2.75 a can in the second quarter, Howard said. The company started selling Camel Dip in Florida and Colorado in late June. It hasn't set a timetable for the test or possible expansion, Stockdale said. Enditem