Every six weeks or so, the guy from Philip Morris, as his customers still think of him, swings by for a chat.
But this summer, salespeople like Winfred Hayes are changing hats. He now works for Philip Morris USA's parent, Altria Group.
Last week, tapping on the Plexiglas display for Black & Mild on the counter of Cigarettes Unlimited in eastern Henrico County, Hayes told store owner Harold Price that a somewhat taller case to handle additional varieties of the cigars was headed his way. A few weeks earlier, he was talking up the smaller "logs" of snuff Altria's new smokeless-tobacco operation, UST, would be shipping this summer -- packs of five instead of 10 cans.
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Whether he's talking Marlboro cigarettes, or Altria's recently acquired Black & Mild cigar or Copenhagen snuff lines, Hayes is on the front line of one of the fiercest battles in business.
The main battlefield is at the counters of convenience stores, drugstores and smoke shops such as Cigarettes Unlimited.
The objective is more shelf space.
The main weapon is money.
The Federal Trade Commission's latest report on cigarette sales, advertising and promotions, released last week, said major tobacco companies spent $9.2 billion on discounts to retailers and wholesalers in 2006, largely in return for shelf space. Cigarette companies keep their contracts closely guarded secrets.
The gains, sometimes, are counted in inches.
"It is amazing," Price said of salespeople for tobacco companies. "They will argue over one pack on that rack: 'He's got one more pack than I do.'"
For tobacco companies these days, growth comes largely by winning other tobacco companies' customers -- smokers keep quitting and the number of high school students who start has tumbled.
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So those inches matter.
But there are signs that the cigarette giants are trying to introduce the same kinds of financial incentives they offer on cigarettes for the smokeless tobacco and cigars they are adding to their product lines, said Gary Poehlmann, vice president for sales at Chesterfield County-based Swedish Match North America, a major producer of snuff, chewing tobacco and cigars.
"The question is whether retailers are going to want to give up full control for" other tobacco products, he said.
"The jury is still out on that."
Poehlmann said tobacco companies are feeling squeezed in what's already a tough competition for space for their products and displays.
"We don't have a lot of other places to reach people these days," he said.
In Price's case, a bigger display for Black & Mild is not a big deal. His tobacco specialty store has plenty of space.
But the competition for space at convenience stores, where the cigarettes behind the counters will soon be joined by other tobacco products under new federal regulations, is usually much tougher. Tobacco products account for roughly 37 percent of convenience stores' non fuel sales, according to the National Association of Convenience Stores. Tight space is going to get tighter.
That's why one of Altria's biggest guns these days is an online data system that lets retailers track, practically square inch by square inch, profits from the various products on their tobacco shelves. Linked to the system are tools to manage inventory, so storeowners can keep a close eye on how fast each line of cigarettes, cigars and snuff are moving.
"Cigarettes cost $1,000 a case," Price said. "It adds up fast."
Swedish Match has a similar service, though its salespeople bring printed reports to the stores, rather than linking online, Poehlmann said.
"It helps build a relationship," he said.
Altria offers retailers a range of financial incentives to gain a variety of marketing advantages, spokesman William Phelps said. So do the other big tobacco companies. Few ever talk about their programs.
"The major tobacco companies have really stepped up over the last 15 years or so and have become much more engaged in helping retailers grow their sales and profits in this category," said Terry Kailey, 7-Eleven's category manager for tobacco products.
"Topics of frequent discussions include promotional activities, new brand introductions, best-in-class merchandising techniques and important attributes of the products, such as freshness."
Altria will not disclose terms or incentives paid -- or, for that matter, even the number of salespeople working with retailers -- but a recent paper in the medical journal Tobacco Control estimates that roughly two-thirds of stores that sell tobacco in the U.S. have some kind of contract with Philip Morris.
Working with retailers is critical to other tobacco companies, too.
"We have to work where we are allowed as hard as possible," said Reynolds American spokeswoman Maura Payne. Reynolds, the second-biggest cigarette company also owns the second-largest smokeless company, but keeps its cigarette and smokeless sales teams separate.
Their aims are simple, even if terms of contracts and incentives are among the most closely guarded business secrets in the tobacco industry, retailers say.
"They want people walking into your store to know the product they want is in stock, that it's fresh," said Lou Sheetz, executive vice president of the Sheetz chain, which operates more than 350 stores from Pennsylvania and Ohio south to North Carolina.
"If you adhere to their terms, about carding people, about the displays, then you get a discount on the wholesale price, which allows you to sell to customers for less."
One key goal of the contracts is to make sure retailers stick to the rules on selling tobacco, Phelps said. To qualify for incentives, stores have to train employees to check IDs, to make sure they aren't selling to minors. They have to keep tobacco advertising near their cigarette shelves, and they can get even bigger incentives if they keep cigarette displays or ads from cluttering cashiers' counters.
But the heart of the program involves shelf space and ordering practices.
A classic example -- and a sign of a store that's participating to the maximum in Altria programs -- hangs just above one of Price's cigarette shelves: a relatively small, roughly 2-foot-long brownish-beige "Guaranteed Available" display, with a lineup of a dozen Marlboro varieties.
The deal is this: Price promises to have enough stock of those varieties on hand so that no customer asking for them is disappointed, which means tying up a healthy chunk of cash. Altria offers some of its most generous incentives to him in return.
The payments allow Price to reduce the prices he quotes to customers on those brands. That helps sell more cigarettes. The more cigarettes, the better the incentives, the lower the prices Price can offer and the more he sells.
It's a self-feeding cycle that has helped Philip Morris grow even bigger, with half the national cigarette market, despite ever-tightening constraints on advertising. Now that shelf space is tightening, other brands could be squeezed out, retailers say.
"They're building one-to-one relationships with customers and a much tighter one-to-one relationship with retailers," said Dr. Alan Blum, director of the University of Alabama's Center for the Study of Tobacco and Society.
Price thinks the impact of Altria marketing on snuff and cigars will be huge. Altria bought UST for $10.4 billion this year and acquired cigar maker John Middleton 19 months ago for $2.9 billion.
On its own, Middleton was too small to send a field team out to work with retailers, but now "I'm talking directly to the company now about Black & Mild," Price said. "They respond a lot faster now."
And these days, he's talking about smokeless tobacco -- with Hayes -- about twice as often as he did with UST salespeople. Hayes is sticking to the old Philip Morris USA cycle of swinging by every six weeks or so; UST had been on a once-a-quarter cycle.
With more frequent visits this summer comes a push on the freshness of the product, Altria spokesman Phelps said. Shipping smaller packs -- the logs -- more often is part of that. So is an effort to streamline returns.
That matters, Price said. Snuff users are particular.
"They'll go up to the Copenhagen rack and go can by can looking at the date to find one that is acceptable. If they don't, they'll go somewhere else. It has a shelf life of about four weeks, and you'll have people who like two weeks old, three weeks old. You'll never see anything like it."
Price said the incentive programs let him and Altria's Hayes target their marketing efforts to fit the people who shop at Price's Laburnum Square Shopping Center store.
"If you take a look, you'll find tobacco is a lot of little markets, different consumers, different kinds of competition at different stores," he said. "It's really a very micro business." Enditem
