Reynolds Seeks Success in ‘Total Tobacco Space’
It’s no secret that cigarettes, while on the decline, are still the essential element in tobacco sales. Reynolds American Inc. realizes this and will still devote 80 percent of its brand support budget and 90 percent of its other sources on combustible items; but, the company’s beginning attempts on smoke-free products will set Reynolds up for long-term success in the overall cigarette market.
“Everything the company is focusing on from an development standpoint has a higher margin than cigarettes,” Delen said, stating about the company’s recent forays into snus, electronic cigarettes and nicotine replacement therapy. He added that he considers the company is very well positioned in a growing market.
While Reynold’s Camel brand volume has decreasing at higher rates than the industry average of 3 percnet per year, these growing markets present an increasing, high-margin possibility. And it’s a possibility Reynolds wants to take benefit from by setting up itself as an industry leader at the beginning. Camel Snus, for example, brought 80 percent of the U.S. snus market and has seen yearly volume increases of 8 percent to 10 percnet per year.
Reynolds as well desires to grow to be the first cigarette maker to set up itself in the NRT market – a market the organization mentioned has been monopolized by pharmaceutical companies who do not deal with the needs of the average cigarette consumer. In order to move Reynolds’ innovation to the NRT category, the firm launched its first NRT product, Zonnic, in limited markets on September 2012. Rather than being sold in drug stores, Delen said Zonnic would mostly be sold in convenience stores with a similar cost as cigarettes.
And although Lorillard is theoretically the first big cigarette maker to enter the e-cigarette market, Reynolds thinks its new “digital cigarette,” Vuse, is well positioned to be a standout in the nascent segment.
Delen said that Vuse is truly “digital” rather than electric, applying computer chips to more closely reflect the smoking experience; further setting Vuse apart is the fact that it is created locally, in contrast to in China.
In the end, Delen wanted investors to understand such innovative attempts by Reynolds will set the firm apart in the future of the overall tobacco category and that “this ship is going to come into balance.”
He said that seriously believes at Reynolds. “These new product formats provide considerable growth potential for Reynolds. It includes shifting consumer choices that are crucial for long-term sustainability of the whole tobacco space.”