RAI Gives Sneak Peek of VUSE's Next Generation

NEW YORK — Two years after moving into the vapor space, Reynolds American Inc. (RAI) offered a sneak peek at the next generation of VUSE products during its Investor Day Monday.

"The vapor category has brought excitement to our industry and is still very early on in its lifecycle," said Debra Crew, president and chief operating officer of R.J. Reynolds Tobacco Co. "Everyone is wondering what is going on with vapor, but we are still bullish on this category."

Vapor is second only to cigarettes in preference among adult tobacco consumers, Crew noted, and more than 58 percent of adult smokers have tried vapor products.

"Consumers want this category to be successful, but many products have simply not lived up to expectations. What we are seeing now is some brand failures and consolidation, and a fragmentation of volume and sales across channels," she said.

Vapor is at an inflection point, according to Brice O'Brien, executive vice president, consumer marketing for R.J. Reynolds Tobacco Co. "Adult tobacco consumers are looking for a vapor experience that delivers the performance and satisfaction of a tank, with the simplicity of a cig-alike. And that's what the next generation of VUSE will deliver," he told investors Monday. 

The next generation includes:

VUSE Connect: Bluetooth and smart technology that works with the VUSE app to check battery and cartridge status, and prevent unauthorized use with child-lock settings.

VUSE Fob: Uses existing VUSE cartridges that retract into the unit, which has a screen to display battery and cartridge status levels. It also works with the VUSE app to allow the user to enable child-lock settings and track cartridge usage.

VUSE Port: Liquid tank system that uses a Dock & Lock system to refill the device. The closed system prevents users from opening the top or the tank. To refill, the port and bottle must be locked together.

VUSE Pro: Closed cartridge system that provides the performance of a tank system in an easy-to-use, cartridge-based format.

"The vapor experts at Reynolds have created four truly game-changing innovations; innovations designed to exceed the expectations of adult tobacco consumers, as well as our retail partners," O'Brien said.

The tobacco company has been meeting with retailer customers in Pennsylvania in advance of the VUSE Port launch, which will happen in February. The product will be available in eight flavors and three nicotine strengths.

VUSE Connect will be available online Nov. 23, and VUSE Fob will be available online shortly, O'Brien noted. More details on the VUSE Pro launch will be made available after the new year.  

In addition to these next-generation products, RAI's R.J. Reynolds Vapor Co. recently expanded the VUSE line with four new flavors: Crema, Chai, Berry and Mint. These new styles joined VUSE's existing Original and Menthol offerings. 

"We are willing and able to responsibly compete in all areas of the vapor category," Crew said. "We think our next-generation products have what consumers are looking for: superior craftsmanship, superior performance, [and] the convenience of a cig-alike with the performance of a tank."

Checking Things Off Post-Acquisition

In addition to its robust product innovation pipeline, RAI has been busy integrating its $27-billion Lorillard acquisition. RAI President and CEO Susan Cameron discussed the company's post-acquisition to-do list during Investor Day. 

"This is what we have been focused on since we closed on the Lorillard acquisition and related divestitures on June 12, and it will continue to be our focus between now and the end of next year," she shared.

First and foremost on the list, according to Cameron, is making sure every aspect of the Newport integration is "as flawless as it can be." Newport's integration is progressing smoothly on all fronts and R.J. Reynolds' new retail contracts are in the process of being implemented, which the company expects will drive further growth on all brands, the chief executive stated. The first retail contract to include Newport will go live this week.

Every employee of every RAI company plays an important role in making sure the Lorillard integration is a success. At the same time, the company needs to make sure it takes care of its other businesses. That means maintaining its strong dividends and paying down debt. In addition, RAI has a goal of achieving $800 million in synergies by the end of 2016, Cameron explained.

"Although it's been only five months since the transaction closed, it's fair to ask at this point, 'How are we doing?' And the answer is quite well, actually," she said.

RAI's operating companies delivered strong year-to-date performance through the end of the third quarter, and the company increased its dividend by 7.5 percent and saw a stock split earlier this year. RAI also paid down $450 million in debt since the acquisition and is on track to meet its synergies target by the end of 2016.

"As you can see, we've been able to start making some checkmarks on our to-do list even in these early days of integration," she said.