RICHMOND, Va. — As cigarette volumes return to historical decline levels — about 4 percent in 2017 — Altria Group Inc. is taking a three-pronged approach to maximize income from its combustible tobacco segment.
Speaking at the 2018 Consumer Analyst Group of New York Conference in Boca Raton, Fla. on Feb. 21, Altria Chairman Marty Barrington noted that over the past five years, the tobacco leader's combustible products segment grew adjusted operating companies income (OCI) by 6.4 percent on a compound annual basis.
Adjusted OCI margins grew 10 percentage points to reach 51.2 percent, added Barrington, who also serves as president and CEO.
Altria's combustible products segment includes Philip Morris USA (PM USA), John Middleton Co., and Sherman Group Holdings LLC and its subsidiaries including Nat Sherman.
PM USA's Marlboro remains the market leader, growing every year from 2011 through 2016; however, the brand hiccupped slightly in 2017 driven by California's state excise tax increase in April and increased competitive activity, Howard Willard, chief operating officer, explained at the conference.
According to Willard, PM USA has several key initiatives planned to stabilize the Marlboro brand in 2018:
Product and packaging news;
Enhanced trade programs; and
Equity-building engagements and promotions.
On the product front, PM USA recently expanded Marlboro Black Label to a two-state lead market. And in menthol, PM USA expanded Marlboro Ice nationally at the end of January.
As for trade programs, the company recently enhanced its retail trade programs by reallocating resources from underperforming programs into those that better support Marlboro leadership. Plus, a new Loyalty Fund rewards retail partners for featuring Marlboro promotions through their store loyalty programs, according to Willard.
Alongside all this, PM USA is continuing to build brand equity and increase its digital leadership. It recently launched a redesigned Marlboro website with digital tools that are more mobile-friendly, offering a personalized experience based on an individual adult smoker's behaviors and preferences.
"Beyond digital, PM USA is conducting retail intercepts to highlight PM USA products and promotions to competitive adult smokers," Willard said.
The tobacco company is also testing a new rewards program for Marlboro in Texas as a limited-time "Points West" promotion. Under the program, adult smokers aged 21 and older can earn points by scanning unique codes printed on Marlboro packs, and redeem those points for gear, coupons and charitable donations.
"Together, we believe these actions will help stabilize Marlboro share while maintaining PM USA’s focus on income growth," Willard said.
PM USA is also putting some investment behind other cigarette brands. For example, it expanded the reach of Benson & Hedges Menthol, which is now in 19 states plus Washington, D.C., and repositioned Nat Sherman's Nat's brand in Colorado.
"After only 11 weeks in market, Nat's has achieved very strong share performance for a new cigarette brand. It also appears to be sourcing competitive share in the segment," Willard reported.
"While it's still early and we have much more to do, we're excited about the brand's promise," he added. "You can expect to see a significant geographic expansion of Nat's around the middle of this year."
Richmond-based Altria Group Inc. is the parent company of Philip Morris USA, John Middleton, U.S. Smokeless Tobacco Co., Nu Mark, and Ste. Michele Wine Estates. The brand portfolios of Altria's tobacco operating companies include Marlboro, Black & Mild, Copenhagen, Skoal, MarkTen, and Green Smoke.