Marketing war brewing between Pall Mall and competitors
Von buycigarettes, 13:01The remarkable sales surge of Pall Mall over the past three years has gotten the attention of R.J. Reynolds Tobacco Co.'s main competitor. Bonnie Herzog, a Wells Fargo Securities analyst, said in a report last week that the rivalry between Pall Mall and fellow discount brand Marlboro Special Blends — made by Henrico County-based Philip Morris USA — has the potential to "turn into a blood bath" in terms of marketing.
Pall Mall's market share rose 0.3 percentage point in the past 12 months to 8.6 percent, unchanged from the third quarter. That's up from a 1.95 percent market share when Reynolds elevated it to a growth brand in 2006. Pall Mall cigarettes not only has supplanted Camel as Reynolds' top brand but also has chipped away at Marlboro's dominant grip on the top market share.
Because high gasoline prices have left most consumers with less disposable income, Pall Mall's move over Camel could be more than a short-term shift, analysts said. Herzog said she formed her prediction after conducting a survey of tobacco industry retail and wholesale trade contacts representing thousands of retail stores.
"The majority of our respondents indicated that promotional activity behind second-tier brands such as Pall Mall, L&M and Marlboro Special Blends has increased," Herzog said. Philip Morris USA "appears to have stepped up its game with L&M, and promotional spending behind Marlboro Special Blends continues to be aggressive, which could result in Marlboro share starting to stabilize," Herzog said.
As part of her report, Herzog raised her rating of Henrico-based Altria Group Inc., parent company of Philip Morris USA, to "outperform" and lowered Reynolds American Inc.'s rating to "market perform" because of "our concerns that Pall Mall is under siege." Herzog said Reynolds will need to expand its promotional support behind Pall Mall, which could put pressure on its margins in the near term. "Although we believe Pall Mall continues to resonate with value-seeking consumers, the brand is not immune to competitive pressures, and, therefore, we are projecting a deceleration in the brand's growth," she said. David Howard, a Reynolds spokesman, said the company "does not comment on pricing or promotional strategies" as part of its policy.
Reynolds reported its overall cigarette market share was down 1.1 percentage points to 27 percent in 2011 compared with the previous year. Its cigarette volume was down 7.4 percent for the quarter and 5.1 percent for 2011, compared with an industry decline of 3.5 percent for the year. The company said at that time the cigarette volume was affected by rivals aggressively promoting brand extension.
Daniel Delen, Reynolds' chief executive and president, has said for months that he thinks Pall Mall "is the right product at the right time." Delen said Reynolds "remains very much focused on Camel above all else, but we're very happy and confident that we can continue the growth on Pall Mall as well." "As we go through different economic cycles, they both play an extremely important role within the portfolio," he said.
