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Slow Burn for [link widoczny dla zalogowanych] Non-Menthol
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Exclusive Tobacco Analysis:
Slow Burn for Newport Non-Menthol
Exclusive CSP-UBS Tobacco Survey shows discounts helping new product
NEW YORK -- Convenience store retailers have found initial trial levels of the new Newport Non-Menthol cigarettes to be about average, with much of the initial consumer interest attributed to temporary pricing, according to an exclusive CSP-UBS Tobacco Survey.
"Most customers buying Newport Non-Menthol don't have a strong loyalty to another brand and are trying them because of the price and the Newport name recognition," one retailer stated. "After the buy down expires, only those customers that have developed a loyalty to the brand will continue to buy them."
Retailers ranked the trial level at an average of 5.1 on a scale of one to 10, according to the survey, which included 108 retailers representing more than 15,000 convenience stores.
Trial primarily was attributed to the temporary $1.65 buydown, which is set to expire in January. About 76% of respondents said they didn't feel Newport Non-Menthol would sell as well when the buy-down ends.
As one retailer put it: "Sales will fall when off-invoice is pulled. The drop will be predicated on the amount of discounting removed and when. If moved in line with other Newport discounting, sales will fall by 66% minimum."
Lorillard declined to comment on the survey. "We do not comment on future marketing and/or promotional plans for any of our brands," a company spokesman said, adding that it is also too soon to comment on how Newport Non-Menthol is doing as it only entered the market in November.
UBS tobacco analyst Nik Modi,[link widoczny dla zalogowanych], however, explained that now was a good time to begin tracking Newport Non-Menthol sales. "While we realize it's still too early to make an ultimate assessment on the success of Newport Non-Menthol, we wanted to pursue this survey in order to create a point of comparison for future surveys."
A majority (89%) of respondents said Newport Non-Menthol users switched from other brands, with the remaining 11% saying they were new customers. Retailers also ranked expectations of initial repeat levels at a little below average, at about 4.4 on a scale of one to 10.
"It appears that it will pull from Pall Mall and some of the low-ends for now,[link widoczny dla zalogowanych]," one retailer stated. "It could also pull from Marlboro and Camel,[link widoczny dla zalogowanych], if they keep emphasizing that this is an introductory price on a well-known brand-name extension."
Most respondents characterized the overall in-store execution of the launch as good (38%) or excellent (16%). "Product was available the day they said it would be; there have been no out-of-stocks or shortages,[link widoczny dla zalogowanych]," one retailer said. "The sales have been very strong,[link widoczny dla zalogowanych], which I expected with the deep discount."
However, not all retailers were happy with the launch, with 30% rating it fair,[link widoczny dla zalogowanych], and 17% rating it as poor: "Some stores struggled to get reps in upon launch. Many stores had advertising placed in unauthorized positions not following instructions agreed to by the account manager."
An area of optimism for Lorillard is that it newest cigarette appears to be drawing from other non-menthol brands,[link widoczny dla zalogowanych], such as Marlboro and Camel, and not from the core users of Newport Menthol. Although 78% percent said Newport Non-Menthol was competing with the core Newport product, 77% said they did not believe Newport Non-Menthol was confusing the core Newport customer. "Most trials are not from menthol customers; it is Marlboro and Camel customers trying it," one retailer said.
"The good news is that Newport Non-Menthol is largely incremental to the Newport franchise with minimal cross-over consumption," Modi told CSP Daily News.
In late October, UBS tobacco analyst Nik Modi estimated that Newport Non-Menthol could take 0.5% share of the total cigarette category over a 12-month period. Factoring in the $1.65 off-invoice discount, the report estimated that the launch could produce $100 million in incremental sales but remain neutral to earnings.
In late October, Lorillard's director of investor relations Bob Bannon told CSP Daily News, "As the non-menthol segment of the cigarette industry accounts for approximately 70% of total sales, our recent national launch of Newport Non-Menthol was an opportunistic move designed to leverage Newport's strong brand equity among adult smokers into this large market segment."
So what might the future hold for the product? Modi summarized, "The true test will be how Newport Non-Menthol sells once the introductory pricing ends. Retailers don't seem to think it will,[link widoczny dla zalogowanych], but it's still very early."
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