Newport Sales Continue to Pace Reynolds Beyond Big 3 Rivals

Source from:  Winston-Salem Journal 05/06/2016

The acquisition of the Newport brand continued to propel Reynolds American Inc.'s sales surge past its chief rivals, according to Nielsen data as of April 23.

The data also demonstrated continued strengthening in traditional cigarettes sales, as smokers benefiting from lower energy costs are spending more of their disposable income on their habit.

Bonnie Herzog, an analyst with Wells Fargo Securities, said Reynolds overall had a 2.9 percent increase in traditional cigarette sales, compared with 1.2 percent for the industry.

Newport, the top-selling U.S. menthol brand and No. 2 overall, had the largest sales increase of top cigarette brands, up 5.7 percent over a 12-week period and 5.6 percent over April 2015.

The sharp rise has been seen ever since Reynolds acquired Newport in its $29.25 billion deal for Lorillard Inc. on June 12, 2015.

Sales of Camel, the No. 3 U.S. cigarette brand, rose 0.6 percent, while super-premium brand Natural American Spirit, a recent entrant into the Top 10 nationally, jumped 21.6 percent.

The data found price increases of 3.9 percent represented the bulk of the sales growth, offset by a 2.6 percent percentage point decline in volume.

In November, the Big Three tobacco manufacturers raised the list price on traditional cigarettes by 7 cents a pack for the third consecutive round. The list price is what wholesalers pay manufacturers. The increases typically are passed on to customers.

The April data reflect the fourth full month of sales related to Reynolds adding Newport to its everyday-low-price promotion.

The program is a voluntary retailer contract that provides pricing discounts to retailers of up to $4 a carton, or 40 cents a pack, off Reynolds' best-selling brands. In order to get the discount, retailers must agree that Reynolds’ Pall Mall will be the lowest-priced cigarette in their stores.

The current participation rate is 60 percent. Herzog projects that Reynolds could reach 75 percent participation.

Newport's market share was 14 percent as of March 31, up from 13.4 percent a year ago. Herzog projects that Reynolds will increase Newport's market share to at least 15 percent, in part through new line extensions, increased advertising and innovation.

Before Reynolds acquired Newport, the main leverage it had for participation was Camel, with an 8.2 percent market share. Pall Mall is fourth at 7.8 percent.

Philip Morris USA's sales rose 0.7 percent during the period, with top-selling Marlboro up 0.2 percent. Marlboro's market share is 47.3 percent.

Herzog cautioned that ITG Brands LLC continues to struggle to gain traction with the four cigarette brands — Kool, Maverick, Salem and Winston — that its parent company, Imperial Brands Plc, spent $7.1 billion to buy from Reynolds and Lorillard.

ITG sales were down 4.2 percent during the four-week period. ITG’s market share was at 7.2 percent, down from 10 percent when it gained the brands.

"Weak volumes continue to be driven by sizable volume declines in its top cigarette brands, including a 14 percent for Maverick, 3 percent decline for Kool and 8.2 percent decline for Winston," Herzog said.

The company acknowledged on April 22 that it is eliminating 375 production employees, or about one-third of that workforce, as it approaches the June 24 ending of a reciprocal production agreement with R.J. Reynolds Tobacco Co.

Declines in overall electronic cigarettes sales continued, down 8.1 percent over the previous 12 weeks. The Nielsen data tracks the mass channel and convenience store marketplace.

Herzog focuses on e-cigarettes, also known as cig-a-likes, rather than vaporizers, which typically are lower in price and mostly sold in tobacco and vapor shops where Nielsen has limited tracking.

After debuting nationally in June 2014, Vuse quickly became the top selling e-cig. It had a 38.1 percent market share, down from 38.9 percent in March.

ITG's blu eCigs was second at 19.8 percent, followed by Logic at 14.1 percent, MarkTen of Philip Morris USA subsidiary NuMark at 8.8 percent and NJoy at 4.4 percent.

The e-cig and vaporizer market had at least $3.3 billion in sales in 2015 — $1.9 billion in vapors, tanks, mods and personal vaporizers, and $1.4 billion from e-cigs.

Herzog is projecting $4.1 billion overall in 2016 e-cig sales: $2.5 billion in vapors, tanks, mods and personal vaporizers, and $1.6 billion from e-cigs.

Herzog said $1.5 billion will come from online sales, $1.4 billion will come from vape shops and $1.2 billion from convenience stores, food, drug and mass retail channels.

Over the past year, rechargeable refillable devices represented 59 percent of sales, along with 22 percent disposables, 15 percent kits and 4 percent was liquid nicotine. Enditem