Philip Morris Faces Tough Competition

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Philip Morris Faces Tough Competition

NEW YORK -- Staring at stiffer competition from deep discount cigarettes, Philip Morris U.S.A., manufacturer of tobacco category leader Marlboro, may introduce a reduced risk product next year, its top executive said.

"Recently, the competitive environment has become even more challenging, characterized by weak economic conditions, erosion of consumer confidence, a continued influx of cheap products and higher prices due to higher state excise taxes and list price increases," Philip Morris U.S.A. Chairman and Chief Executive Michael Szymanczyk said in a statement. "As a result, the deep discount products of manufacturers of numerous small share brands have grown market share, putting pressure on the industry's premium segment."

U.S. cigarette shipments and revenue fell during the second quarter for Philip Morris, the top U.S. cigarette maker. In July, Philip Morris announced plans to invest about $350 million in its premium cigarette brands and retail presence in an effort to beef up volume and market share, Reuters reported.

Philip Morris U.S.A., said Szymanczyk, is focused on increasing promotional spending in the second half of the year and expanding retail promotion for its four core brands: -- Marlboro, Parliament, Virginia Slims and Basic. He said most of the impact of these new initiatives will be seen in the fourth quarter.

Philip Morris and other cigarette manufacturers have been faced with pressure from health groups on the dangers of smoking. It is one of many companies working on reduced-risk cigarettes.

"We are working toward putting a conventional cigarette line extension and a first-generation reduced risk product into the marketplace in 2003," Szymanczyk said in the statement. He did not disclose details of the products in the statement.

Vector Group Ltd's Omni, touted as a reduced-carcinogen cigarette, has been on the market since November 2001.