Retailers Are Taking to RAI's New EDLP Program

NEW YORK — Just weeks after implementing its new contracts, Reynolds American Inc. (RAI) is finding success with tobacco retailers, according to the results of a new survey. 

According to the latest Tobacco Talk survey by Wells Fargo Securities LLC, RAI's Everyday Low Price (EDLP) program is on course to exceed the tobacco company's participation target of 70 percent.

Tobacco Talk regularly surveys tobacco retailer and wholesaler contacts representing approximately 30,000 convenience stores in the United States.

"Reynolds' new EDLP retailer program, with the addition of Newport, has garnered greater retailer participation than we originally thought, possibly as much as 75 percent of industry volume represented," said Bonnie Herzog, managing director of tobacco, beverage and convenience store research at Wells Fargo Securities.

Based on the survey results, RAI appears to have made the biggest gains in shelf space. According to Herzog, retailers expect to increase the company's allocation by an average of 200 basis points in 2016.

In addition, retailers expect Newport to gain almost 80 basis points of incremental share in 2016 on greater promotional support and better visibility. 

"Based on our Tobacco Talk survey, we have increased conviction that RAI's entire portfolio is poised for faster growth, specifically for Newport, driving incremental share for RAI and catapulting its long-term profitability," Herzog said.

Tobacco Talk also found that RAI's new EDLP program is generating increased interest, with around 25 percent of EDLP participants in the survey recently signing on to the program. In addition, nearly 60 percent of retailers believe RAI's EDLP participation will increase now that Newport has been added.

However, retailers still believe the program is not flexible enough. A key reason some retailers opted out was RAI's "all-or-nothing" approach. More than 40 percent of survey respondents indicated they would consider participating in the program if it was more flexible, Herzog explained.

While RAI has put more promotional support behind Newport for EDLP participants, respondents don't believe it's enough either. The survey also found that the majority of retailers believe Newport will grow faster on EDLP driven by unit growth and greater net pricing realization.

Aside from RAI's moves, Tobacco Talk uncovered that The Altria Group's new Retailer Leader Program is viewed as a decided "win" for the company.

In addition, several retailers continue to believe ITG Brands LLC will be restricted in growing/maintaining its share and the company is at a competitive disadvantage vs. Altria and RAI. 

Even though ITG Brands is increasing promotional support behind both Winston and Kool, the outlook for share gains is "generally bleak," Herzog stated.