Should Altria Enter the E-Cigarette Market?

Altria Business

Altria is the biggest tobacco company in the U.S. The stock is a in demand because of its high dividend yield, and the firms’s powerful cigarette brands such as Marlboro and L&M. Nevertheless, there are several inherent threats in the U.S. cigarette industry which Altria investors should be cautious with. These contain the decreasing market for cigarettes in the U.S., increasing excise duties and the risk of raised and tough regulation from the government against the industry.

The firm has already entered into smokeless tobacco, and by means of its Copenhagen and Skoal, has obtained the leading spot in the market. It as well lately introduced a nicotine flavored lozenge with the brand name Verve. It can be estimated potential entry of Altria into the market for electronic cigarettes.

The market for e-cigarettes, which is presently about $300 million in size, may increase to over $1 billion over the next three years, in accordance with some projections. This results in yearly growth rate of almost 50 percent over the next three years.

Why does Altria need to enter this market?

Altria is presently the leader in U.S. cigarette market but confronts decreasing earnings and a shrinking user base caused by the aspects mentioned earlier. In 2011, the cigarette market size in the U.S. was about 270 billion cigarettes. With the market for cigarettes decreasing, Altria is limited to driving top line growth for the division through price boosts, which is unsustainable.

Altria’s rivals, such as Lorillard and Reynold’s, have already entered e-cigarette market via the acquisition of Blu cigs. Altria, on the other hand, has yet to take a step and stands to miss the opportunity on what could be a highly profitable and quickly growing market if it does not take action soon.

How will Altria enter the market?

A way in which Altria can enter the e-cigarette market is to obtain a well established e-cigarette manufacturer in the United States, just like Lorillard’s purchase of Blu ecigs. Reported by Wells Fargo analyst Bonnie Herzog, Altria may be searching to obtain NJOY, an e-cigarette company with a 40 percent share of the U.S. e-cigarette market.

Similar Posts:

Be Sociable, Share!

Leave a Reply

Your email address will not be published. Required fields are marked *