Tobacco Companies, Retailers Form Coalition

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Tobacco Companies, Retailers Form Coalition

ORLANDO, Fla. -- A group of six tobacco companies is teaming with retailers nationwide to create an initiative to combat what it calls "anti-competitive practices" by larger cigarette makers. Philip Morris Cos. Inc. reacted yesterday claiming the coalition would adversely affect a retailer's ability to maximize sales in the cigarette category.

The coalition initiative, called Retail Rights, was spearheaded by Louisville-based Brown & Williamson. Other tobacco companies to join so far include JT International USA, Lane Ltd., Liggett Group Inc., S&M Brands Inc. and WindRiver Tobacco Co. The coalition, launched Sunday at a press conference at the National Association of Convenience Stores (NACS) show, claims that almost 13,000 retailers representing some 16,000 stores have expressed an interest in the program.

Retailer Rights, which applies only to cigarettes and not other tobacco products, will involve lobbying state legislatures to pass laws that would prohibit cigarette manufacturers from being able to use promotional fees on top of the merchandising payments they make to retailers for space and signs, according to spokesman Al Alfano, a seasoned industry lobbyist who has worked with numerous state associations in the past on other controversial issues including below-cost sales.

"Under the Retail Rights banner, these manufacturers and thousands of retailers are seeking state legislation to help retailers take back control over how they merchandise and market cigarettes," Alfano said. "In today's competitive environment, [the layout of the cigarette category] needs to be in their control."

The alliance believes Phillip Morris' and others' trade programs deprive retailers of the ability to manage the cigarette category in their own stores. "These monopolistic programs exclude or limit the sale, display, advertising, discounting and promotion of other manufacturers' products, and retailers who do not accept restrictive contracts are often penalized by a denial of promotions."

Under the proposed legislation, retailers could continue to enter into merchandising agreements with tobacco companies, as well as continue to receive display allowances, slotting fees, discount programs, promotions and buy-downs. However, Alfano said, the legislation would prohibit a tobacco manufacturer from imposing terms on retailers that essentially force them to relinquish control over tobacco retailing.

But Philip Morris officials said Retail Rights is an attempt by Brown & Williamson to shut down its Retail Leaders program, which 160,000 retailers are using, according to company spokesman Tom Ryan.

Ryan said the Retail Leaders program sets standards for the way Philip Morris products are displayed, encouraging retailers to sell the products from behind the counter or in settings where they will not be available to minors. He said the program is not designed to discourage competition

"The legislation is unnecessary and it is a dangerous attempt to create a legislated advantage for some cigarette manufacturers in an already extremely competitive marketplace. It would provide an artificial competitive advantage to specific manufacturers who have failed to successfully compete for the legitimate market share of adult smokers," Ryan told Convenience Store News. "Contrary to the stated purpose, this legislation would severely restrict the ability of cigarette retailers and suppliers to enter into contracts."

According to Alfano, the coalition's efforts are already underway in all 50 states. "The [group] is pleased to support retailers in seeking much-needed legislative relief through the political process."

Michael Litwak, operator of Family Bargain stores in New York, said his convenience store chain supports the coalition because he believes he is losing sales of other cigarette brands "primarily because customers can't see them on the shelves. "

Under most of the current agreements between tobacco companies and retailers, the cigarette makers pay retailers for product shelf space. But Retail Rights members claim that some manufacturers, such as category leader Philip Morris, create a system that pressures retailers into giving them premium shelf space and signs.

Ryan disputed that claim, adding that as proposed, "the coalition's legislation would prohibit retailers from receiving compensation from a cigarette manufacturer in exchange for providing a percentage of shelf space equal to that manufacturer's market share of sales generally -- even if that formula is preferred by, or would generate the most revenues for, the retailer," he said. "The assertion that our program has stifled competition in the marketplace is not supported by the facts. "In 1998, smaller cigarette manufacturers' market share was about two percent of the U.S. market. Today, that number is about 8 percent of the market."

ABOVE: Michael Litwak (left) and Al Alfano announce the formation of the Retail Rights coalition.