WSJ: Altria Plans New Copenhagen Product

Source from:  Dow Jones Newswires 09/10/2009

Tobacco giant Altria Group Inc. (MO) said Wednesday it plans to unveil a new version of Copenhagen this fall, one of several moves aimed at boosting smokeless-tobacco sales amid tough competition from lower-priced brands. Altria said at a Barclays Capital investor conference that it will launch a long-cut wintergreen version of Copenhagen, a premium brand that will compete with Reynolds-American Inc.'s (RAI) fast-growing Grizzly long-cut wintergreen variety. Altria also said it plans to expand the number of markets where it is testing the sale of Marlboro Snus, a type of spit-free smokeless tobacco. (This story and related background material will be available on The Wall Street Journal Web site, WSJ.com.) The moves come about eight months after Altria became the biggest player in smokeless tobacco in the U.S. by buying UST Inc., owner of the Copenhagen and Skoal brands, for about $10 billion. The deal gave Altria a foothold in a growing category of the tobacco sector, helping it counteract prolonged declines in cigarette sales, where its Philip Morris USA unit is the U.S. market leader. The Richmond, Va.-based company said it is introducing a wintergreen version of Copenhagen because it has a relatively small stake in that segment, the largest within the smokeless-tobacco category. "It's the natural place for Copenhagen to go … and to begin to take some market share," Michael Szymanczyk, chairman and chief executive of Altria, said in an interview. Altria has slashed prices of Skoal and Copenhagen this year in an effort to compete better with discount moist-snuff brands such as Grizzly. But the company has continued to cede market share to Grizzly and others, prompting concerns from Wall Street analysts. "I would have thought the trends would have been somewhat better now," said David Adelman, an analyst with Morgan Stanley. The UST deal came with risks. Market share for Skoal and Copenhagen had long been in decline. In addition, Altria is paying high interest rates on debt used to finance the UST deal, reflecting the tight credit markets at the time of the transaction. Szymanczyk said the company has "stabilized" the market share of Skoal and Copenhagen after lowering prices for the brands by 62 cents a can in March. "Our objective was not to use price to grow the business, but simply to stabilize those brands," he said. The company knew it would take time to revitalize Skoal and Copenhagen, he added. "We never intended on trying to get that accomplished in eight months," he said. In the wake of the price cuts, the average U.S. price for premium moist snuff such as Skoal is about $4.15, compared with about $2.75 for discount brands such as Grizzly and Swedish Match AB's Timber Wolf brand, according to Morgan Stanley. That price gap of about 50% is down from about 100% in the second quarter of 2008. Grizzly's market share is a bit higher than Skoal, though both are around 25%, according to analysts. Copenhagen's is about 24%. A challenge for Altria is that the total discount category now accounts for more than half of industry volume, compared with less than 10% in the mid-1990s. Szymanczyk declined to reveal the new markets where the company planned to test sales of Marlboro Snus. It has been testing the product in Dallas, Indianapolis and Arizona. The snus category is a small but growing segment of the U.S. tobacco industry. Scientific research has shown that smokeless tobacco, and particularly snus, is safer for users' health than cigarettes. Separately, Szymanczyk said the company plans to retain its roughly 28% stake in beer giant SABMiller PLC (SAB.JO). It also has no plans to put up for sale its wine business -Ste. Michelle Wine Estates - that it acquired when it bought UST, he said. Enditem