Clearing the Smoke in the Tobacco Category

NATIONAL REPORT — As the makeup of the “Big Three” tobacco companies is poised to change, so too is the overall tobacco industry landscape — shaped by the fast-evolving desires of today’s consumers. 

Convenience Store News spoke with Mike Auger, executive vice president, trade marketing at R.J. Reynolds Tobacco Co. (RJRT), and Blake Benefiel, director, trade and state relations at Altria Group Distribution Co. (AGDC), to get their views on what the future holds. RJRT is a subsidiary of Reynolds American Inc. (RAI). AGDC is a subsidiary of The Altria Group Inc.

Here are a few excerpts from the conversation.

CSNews: How is your company evolving as today's tobacco consumer changes?

Auger: Driving innovation and redefining enjoyment for adult tobacco consumers are key parts of the “Transforming Tobacco” vision of RAI's operating companies. That includes offering a variety of products for adult tobacco consumers to consider, from combustible cigarettes, heat-not-burn technology and moist snuff, to modern smoke-free products like snus and vapor.

Benefiel: That's a good question. Our tobacco companies' research tells us that 50 percent of adult tobacco consumers are interested in trying innovative tobacco products. Their job is to develop the products adult consumers are looking for. E-vapor products like MarkTen or MarkTen XL [from Nu Mark, Altria's e-vapor and innovation company] are examples, but changing preferences influence other categories, too. For example, in smokeless tobacco, we've introduced pouch products and other easy-to-manage forms.

CSNews: Does the rise of alternative tobacco products, notably vapor, spell the end of traditional cigarettes?

Auger: Absolutely not. Traditional cigarettes continue to be very important to RJRT and our c-store partners, now and in the future. Adult smokers tend to visit c-stores at a higher frequency than many other consumers and they often purchase other high-margin items within their market basket along with their tobacco products. We see the growing interest in other tobacco products, vapor, moist snuff and snus as part of the transformation of tobacco. Alternative product innovation will continue to be a strength for RAI's operating companies, but we believe that cigarettes will continue to be the primary driver of volume and profit in the tobacco category.

Benefiel: Our companies estimate approximately $2 billion in e-vapor consumer spending in 2014. But when compared to the $86 billion in estimated total tobacco spending, it is very small.  Ultimately, the category is likely to be shaped by many factors, including adult consumer interest and regulatory and other policy decisions. Adult tobacco consumers are certainly interested in innovative products. Even though awareness of e-vapor products is high, today’s e-vapor products generally are falling short of meeting consumers’ expectations, which leads to relatively low rates of adoption.

For the full Q&A, look in the April issue of Convenience Store News.