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SPECIAL REPORT: Altria Sales & Distribution: What it Means for C-stores

By Mehgan Belanger

RICHMOND, Va. -- Altria Group, parent company to the nation's largest cigarette maker, Philip Morris USA, restructured its business effective June 1, in an effort to increase efficiencies and create synergies between the recently acquired cigar maker John Middleton Co. and smokeless tobacco company U.S. Smokeless Tobacco Co.

The restructuring's most noticeable change to retailers is the creation of Altria Sales & Distribution, a new organization that will serve as the sales force for all three tobacco companies. Pete Paoli, who will lead the new organization in his role as senior vice president and general manager for Altria Sales & Distribution, recently sat down with CSNews Online for an exclusive, first-to-the-industry look at what the reorganization will mean for convenience store retailers.

"We thought this was the time to create a structure that would more efficiently and effectively focus the departments on what they were responsible for," Paoli said.

In 2008, Altria Client Services was created when Altria Group purchased John Middleton. Today, this division handles the human resources, legal, finance and other corporate functions for the tobacco companies. At the time of the acquisition, Middleton's sales and distribution company was folded into PM USA's. In January 2009, Altria bought USSTC and wrapped that company's corporate functions into Altria Client Services. That acquisition was completed in four phases, the last of which -- rolling out retail trade programs -- is currently underway, according to Paoli.

Under the new organization, the single Client Services group will be responsible for the human resources, investor relations, consumer engagement and other corporate functions for the tobacco companies. The Sales & Distribution company will cover everything relative to its trade customers, including wholesale and retail programs, while the three tobacco companies will solely be responsible for brand management and manufacturing, Paoli explained, adding he sees this new division as serving the needs of both the retail community and the three tobacco companies.

"We have a big responsibility to retailers to represent these brands in the best way, so they can squeeze every dollar of profitability and revenue out of the category," Paoli told CSNews Online. "We know retailers are demanding more. We know alignment is more important to us than it ever has been, given that we now represent big brands in three significant categories."

Retailers will be called on more often under this new model. The USSTC sales force served between 100,000 and 125,000 stores, with twice the amount of accounts per territory compared to Altria, which resulted in store visits about once per quarter, said Paoli.

"Our workload is very different. We cover 240,000 to 250,000 locations, and 140 accounts per territory, which means we're going to contact those stores roughly 1.5 times per month," he said. "What does a retailer want from us in the end? They want us in their stores with greater frequency and greater efficiency. And this model does that in a much more significant way."

Helping the sales force in its mission is a new retail trade program for its USSTC brands, which began rollout to retailers beginning this month.

The program also addresses a critical factor of OTP success -- freshness -- which is "hugely important in the moist snuff business," said Paoli, describing it as the "essence" of USSTC's Copenhagen brand. "Freshness is a big deal, so we want to make sure we invest in a trade program that supports it and gives ways for the retailer to execute that," he said.

It is important for retailers to understand participation in one of the tobacco company's retail programs does not require participation in another program, Paoli said. Moreover, the level of participation in one program does not dictate the level of participation in other tobacco companies' trade programs.

In addition to the new retail trade program, retailers will have access to a new online category management tool that offers store and marketplace data down to the item level.

The breadth of promotions offered by USSTC will also change under the new program. The shift is evident in the indefinite price reduction on Skoal and Copenhagen that Altria conducted just days after closing the acquisition.

"While their volume was stable, their brand share was beginning to slip," explained Paoli, adding consumers overwhelmingly told Altria the single can price for the products was too high. "We had to make sure we had a handle on what the single can price was in the marketplace, to offer the consumer a value price everyday," he said.

The company reduced the price of these brands in the southeast U.S., then followed on a national level in April.

"[The markets] saw the best prices on Skoal and Copenhagen in several years," Paoli said, noting the business as since stabilized in the southeast as a result. It was too early to determine the effects of the national price reduction as of press time.

The multitude of changes to Altria's business as a result of these acquisitions will have an impact on the tobacco category in convenience stores. Paoli said it will improve attention paid to the category, especially to the growing cigars and moist snuff business, which will drive additional sales and profits as the space at retail becomes more organized.

For more exclusive details on Altria Sales & Distribution, the USSTC retail trade program and retailers' thoughts on tobacco industry consolidation, watch for the cover story in the July 13 issue of Convenience Store News.
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