Innovation Defines RAI's Investor Day

NEW YORK — It's been 10 years since Reynolds American Inc. (RAI) became a publicly listed company and during that time, it's moved from being a pure-play cigarette company to include moist snuff, snus, nicotine replacement therapy and vapor. Now, Winston-Salem, N.C.-based RAI is once again eyeing innovation to lead it into the future.

According to President and CEO Susan Cameron, the company's vision is to achieve market leadership by transforming the tobacco category. Part of this strategy is innovation across all segments and as such, RAI's operating companies are introducing new products to address the shifts in consumer preference.

During the company's Investor Day on Monday, which was held in New York, RAI announced it is repositioning its former Eclipse brand as Revo. The new product will mark RAI's re-entry into the heat-not-burn segment of tobacco.

"Heat-not-burn is a technology whose time has now arrived," said Brice O'Brien, executive vice president and chief marketing officer. As he explained, heat-not-burn fits between traditional cigarettes and vapor products. "Over the past 20 years, this space didn’t exist because e-cigarettes didn’t exist."

Revo — what RAI calls "the unconventional cigarette" — will launch in Wisconsin in February. It will be premium priced and supported by a full marketing mix, O'Brien said.

Also on the alternative tobacco product front, RAI's operating company R.J. Reynolds Vapor Co. (RJRV) will introduce flavored VUSE vapor cigarettes in Colorado beginning in December. The four flavors will be Rich Mint, Crema, Chai and Mint. The move comes as flavors are gaining a lot of attention, O'Brien noted.

On average, vape shops carry 118 flavors, but the top five flavors account for about 50 percent of the volume. Top flavors include tobacco, menthol/mint and fruit. "This tells us quantity isn't important, but quality and satisfaction is," he added.

RAI is preparing to expand its Camel White cigarettes and Grizzly Dark Wintergreen moist snuff in 2015 as well, O'Brien reported during Investor Day.

"Smoking and adult smokers have changed and will continue to change," he said. The company’s research shows that 91 percent of adult tobacco users consume cigarettes, while only 7 percent consume moist snuff and 2 percent consumer vapor products. However, "they tell us a different story." 

Notably, adult smokers say they are more interested in vapor/aerosol products and switching to smoke-free tobacco products. This is an indication of products not meeting consumer demands or needs, O'Brien explained.

RAI subsidiary Niconovum USA Inc. is also making strides in the nicotine replacement therapy (NRT) space with ZONNIC, reported Tommy Payne, president of Niconovum USA.

The overall NRT market has annual sales of approximately $1 million and the United States accounts for almost 40 percent of the global NRT market. In the U.S., Food and Drug Administration over-the-counter forms are gum, lozenges and patches.

Traditionally, NRT products are found in the drug, grocery and mass-merchandise channels. Less than 1 percent of NRT products is sold in convenience/gas, which presents an opportunity for ZONNIC because RAI has the "experience, expertise and resources" in the channel, Payne said.

The company rolled out ZONNIC nationally in September after piloting it in the Des Moines, Iowa, market in September 2012. In mid-2013, the nicotine gum expanded to the rest of Iowa and Omaha, Neb. ZONNIC ads hit national cable networks on Monday.