Exclusive Tobacco Analysis, Part 2: Altria Group's Big Promotion Tobacco-maker took a risk with its MST pricing strategy to mixed results
By Mitch Morrison
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[This is the second story in a three-part series analyzing the effect this spring's federal-excise-tax (FET) hike has had on tobacco retailing thus far. Watch for more in CSP Daily News this week.]OAK BROOK, Ill. -- With its portfolio buttoned up and a new name in order, the Altria Group looked to parlay a major federal tobacco tax increase into a market-share opportunity.
The Richmond, Va.-based maker of the nation's dominant cigarette brand, Marlboro, flexed its muscle and skill in the rapidly growing other-tobacco-products (OTP) sector by taking the two leading brands and lowering its pricing in order to start regaining share.
So far, the strategy isn't working, according to a recent analysis by CSP and tobacco analyst Nik Modi.
Despite a 62-cent drop in prices for Altria Group-owned U.S. Smokeless Tobacco Co.'s Copenhagen and Skoal brands in March—timed to coincide with the April 1 across-the-board increase of the federal tobacco excise tax—premium-moist-smokeless can volume continues to slip.
According to Modi of UBS, New York, volumes of the two brands now controlled by the Altria Group have continued to fall and lose share. Meanwhile, budget brands such as Grizzly are enjoying double-digit gains.
In an exclusive report by CSP Daily News and Modi—the first significant survey to study FET's effect on the c-store channel—it is clear that Altria's strategy has delivered mixed results.
Asked whether the price reduction of Copenhagen and Skoal have rendered a positive impact on volumes, 55% of retailer respondents said yes, while 45% answered in the negative.
And within these two groups, a consensus emerged that the price reduction, while growing brand sales for some, has not grown the overall moist smokeless category.
"I believe they hurt themselves by ending the [price promotion]. USST promo items accounted for 18% of our total USST volume. The decrease in everyday pricing did not offset those sales," one retailer said in the survey.
Two other retailers offered contrasting experiences. "It has had a positive impact on Copenhagen and Skoal, and has slowed the growth of Grizzly product for right now," wrote one.
Yet another operator said, "Not sure why, but these brands have slowed down in our area. Grizzly is the king in sales here."
Modi said he's not surprised by the mixed response.
"Based on our field work, it seems that Copenhagen and Skoal continue to lose share at the expense of Grizzly and other low-priced brands," Modi said. "I expect the trend to improve over time, but consumers will have to get used to the new everyday low pricing vs. UST's old strategy of pushing two-pack deals."
Tomorrow, CSP and Nik Modi examine the impact the FET increase has brought on in-store inventory. Modi will deliver a complete report of the survey at the sixth annual CSP Tobacco Category Review Meeting, August 5-6. Space is limited. Click here to learn more.
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Despite a 62-cent drop in prices for Altria Group-owned U.S. Smokeless Tobacco Co.'s Copenhagen and Skoal brands in March—timed to coincide with the April 1 across-the-board increase of the federal tobacco excise tax—premium-moist-smokeless can volume continues to slip.