By Richard Craver
Winston-Salem Journal
April 20, 2009
http://www2.journalnow.com/content/2009/apr/20/camel-dip-to-be-test-marketed/news/

Reynolds American Inc.’s bid to make Camel a comprehensive tobacco brand has placed the manufacturer between the cheek and gum of users.

The company will launch Camel Dip, a premium moist smokeless product, in test markets in Colorado and Florida beginning in mid-June.

Camel Dip will be distributed through Reynolds’ Conwood Co. subsidiary, making it the first time that the manufacturer has marketed a Camel product outside R.J. Reynolds Tobacco Co.

Camel Dip, which is expected to sell at retail for $4.50 to $5 a tin, will compete with Conwood’s Kodiak and Philip Morris USA’s Copenhagen and Skoal brands. It will make its debut in two styles — Dark Milled, a traditional, fine-cut product, and Wintergreen Wide Cut.

David Howard, a spokesman for Reynolds, said that Reynolds is not worried about hurting its Kodiak sales with the Camel brand expansion.

“We’re introducing another high-quality product through an iconic brand name into a definite growth category for the company and in the industry,” Howard said.

It is the latest smokeless spinoff for Camel, which includes a snus product in national distribution and three dissolvable smokeless products in test markets — a pellet (Camel Orbs), a twisted stick the size of a toothpick (Camel Sticks) and a film strip for the tongue (Camel Strips).

It also represents another potential major rival in the increasingly competitive moist smokeless category.

Skoal, Copenhagen and Grizzly all have between 22 percent and 24 percent U.S. market share, according to Bill Godshall, the executive director of SmokeFree Pennsylvania. Godshall is an outspoken advocate of noncombustible tobacco products as a reduced-risk option for smokers.

Reynolds is staking its future on smokeless tobacco products, investing resources into innovation and pushing hard for language creating a niche for tobacco products with potential reduced health risk in any potential federal regulation of the industry.

Smoking bans and health concerns have led to declines in cigarettes of between 3 percent and 4 percent a year. By comparison, smokeless-tobacco sales are growing by about 4.5 percent a year.

“If marketed to smokers, Camel Dip will benefit public health since smokefree tobacco products are far less hazardous alternatives to cigarettes, and there’s no secondhand smoke,” Godshall said.

However, other anti-smoking activists oppose marketing smokeless tobacco under cigarette brand names. They view smokeless products as a gateway to cigarettes, particularly for youth.

Tommy Payne, the executive vice president of public affairs for Reynolds, said that Reynolds is not rushing smokeless products to market to beat potential FDA regulation.

“The devil is in the details regarding how smokeless innovation would be handled in the House bill,” Payne said. He said that there is a different standard for new-to-the-marketplace products compared with the introduction of products similar to those already available.

Expanding the Camel brand into moist snuff is a calculated risk for Reynolds, said Stephen Pope, the chief global-market strategist with Cantor Fitzgerald Europe.

“If Camel Dip is really dip, and not snus, an unwelcome side effect is that the use of dip is often related to spitting, which is not a pleasant habit,” Pope said. “There could be a backlash of adverse publicity against the Camel name if the Dip products lead to this behavior.”

Richard Craver can be reached at 727-7376 or at rcraver@wsjournal.com.

Despite the SCHIP bill, smokeless tobacco products will see a strong year packed with innovation, new flavors and increased consumer demand.

A perfect storm of societal, legislative, retail and economic factors in
2009 appears poised to push sales of smokeless products – the fastest-growing tobacco category – higher than ever.

Convenience store retailers and marketers of such leading brands as Copenhagen, Skoal, Redman, Timberwolf, Kodiak, Red Seal, Rooster, Grizzly, Husky and Longhorn have already seen a flurry of activity on several fronts whose effects will undoubtedly carry into the new year and beyond.

Over the last 24 months, for example, Americas two largest cigarette makers, R.J. Reynolds and Philip Morris USA, have made major inroads into the smokeless category to support the decreasing number of cigarette smokers. Each has acquired smokeless companies and introduced smokeless pouches, or snus, spit-free products that are placed under the lip.

New products and line extensions are coming rapidly. As CSD reported in January, Pilot Travel Centers in Knoxville, Tenn., has begun testing an e-cigar, a product that looks and feels like a premium cigar but uses a microchip and nicotine-infused liquid to produce an inhalable vapor.
Ultimately, it lets users get the smoking experience without secondhand smoke.

Star Scientific Inc.s Ariva and Stonewall dissolvable smoke-free tobacco is also gaining a national audience and attracting attention from other tobacco companies. At the NACS Show last October, Reynolds showed off a dissolvable tablet called Camel Orb that hit store shelves in Portland, Ore., Columbus, Ohio and Indianapolis in January.

Beyond that, President Barack Obama is said to be eager to sign a bill he co-sponsored with Sen. Ted Kennedy (D-Mass.) that would give the FDA power to regulate tobacco. Congressional Democrats have also pushed legislation that would raise cigarette taxes by 61 cents, to $1 a pack, and use the money to fund an expansion of SCHIP, the State Childrens Health Insurance Program. A version of that bill passed Congress twice in recent years, but was vetoed by former President Bush. At presstime, Congress passed SCHIP and it is expected to be signed into legislation by President Obama.

Focusing In

“The last two years have been great with smokeless tobacco, with double-digit increases,” said John Kelly, chief operating officer and vice president of operations for Mountain Empire Oil Co. in Johnson City, Tenn.., which operates nearly 50 convenience stores under the Roadrunner Markets banner. “We really started focusing in on the category more than we ever had two-and-a-half or three years ago, and weve really seen great returns on that. Because weve had such great growth with it its kind of gotten exciting, so weve dug more into it than we might have in the past.”

“Digging into it” has meant expanding the number of SKUs it carries from 40 to 58, more promotions and planogram reviews twice a year with all major suppliers. “We try to have a consistent set in all our stores,” Kelly said.
“About 80% of stores share the same layout. Well never get to 100% exactly the same, but we try and get a consistent layout in our tobacco planogram..”

A majority of Mountain Empires units are located in northeast Tennessee, but a few of the stores are in southwest Virginia and western North Carolina. Most stores use a 3-foot-wide-by-84-inch-tall fixture for all smokeless, cigars and scrap tobacco. “Its a large piece,” said Kelly, “so some of the smaller stores might not be able to handle that.”

Much of what will happen to the category in 2009, Kelly said, has to do with what goes on with tobacco regulation and tobacco taxes. “Whether or not the tax structure changes is going to determine a lot,” he said, adding that much will also hinge on what companies like RJ Reynolds do with snus, which was set to roll out nationwide in the first quarter of 2009.

“I still think that category is going to take several, several years to come into play, so that might not be much of a factor,” Kelly said. “I think its a great product, and its going to be interesting to watch it. I just dont think right off the bat people are going to understand just what it is. Theyre going to think its just another tobacco product.”

“I think that the category is going to continue moving forward the way it has,” said Lou Maiellano, president of TAZ Marketing & Consulting Group in Levittown, Pa., “This is especially true as folks learn more about the relative reduction in harm that comes from moist smokeless tobacco.”

Smoking restrictions are the other major factor, Maiellano said, though he pointed out that “you are finding in places that people are imposing restrictions even when it comes to moist tobacco.”

Category Growing

David Sutton, spokesman for Altria Group, which owns Philip Morris USA, recently said smokeless category sales are rising between 6-8% per year, even as cigarette sales fall 2-3% each year.

Upon acquiring UST, Altria told CSD that category success with Marlboro Snus in test markets like Dallas/Ft. Worth, Indianapolis and Atlanta has come as a result of “clear communications, product availability and freshness.” In early January, Altria Group Inc. said it completed its $10..4 billion acquisition of smokeless-tobacco maker UST Inc.

“Conwood Tobacco several years ago became much more of a player, even before RJ Reynolds purchased them, and I think that forced USST to focus more on their game and get sharper,” Kelly suggested.

But future growth in the category could depend on what happens with the SCHIP bill, said Jody Benson, tobacco category manager for Kum & Go, the West Des Moines, Iowa-based operator of 430 units in 12 states.

“Any federal regulation that is put in place is going to be critical for cigarettes as well as smokeless,” Benson said. SCHIP is a federal program that gives funds to states in order to provide health insurance to families with children. It would increase the federal excise tax on both cigarettes and smokeless products.

“Such an increase in the excise tax means a higher cost to the consumer because obviously we would pass that cost along, as all retailers would,”
Benson said. “It also would mean loss of volume and less sales, obviously..”

For Kum & Go, as for other operators, the task ahead is “more about making sure were competitively priced so that consumers will continue to shop in our stores for that product,” Benson said. “Its making sure we have the right products in stock, the right distribution for our consumers. If people are unsure about whether youre going to have the product today they might shop somewhere else tomorrow. Its making sure were in stock of all the brands people want.”

Due to regional differences in the market, Kum & Go sets all of its store planograms on a state-by-state basis. “Promotions are always great because they help us bring the prices down for the consumers. We always look for promotions,” Benson said.

Like other retailers, Kum & Go has responded to trends by increasing the amount of space it devotes to smokeless over the past year, from two feet to three feet, or about half of its UST fixture. “There has been so much growth thanks to new brands that have been launched, and those that have extended their brand styles,” Benson said.

More Change Ahead

The changes associated with growth will continue to reshape the smokeless category through 2009, most agree. Maiellano pointed to societal trends as supporting the categorys growth. “Over time, in the minds of consumers, the social acceptability of smokeless use has been on the rise,” he said.
“Smokeless has also been getting more media attention, which has helped drive awareness of the category.”

The national rollout of Camel snus in 2009, like the acquisition of UST by Philip Morris, shows the tobacco companies commitment to the category, Maiellano said.

Evolving consumer segments also offer opportunity. Some industry watchers have suggested that smokeless companies need to work harder to reach new adults.

According to the annual “Monitoring the Future” study at the University of Michigan, cigarette smoking rates among new legally-aged adults continued to drop last year while their smokeless tobacco use remained steady.

Kelly concurred with those who say cigarette smokers are switching to smokeless due to restrictions on smoking. “People who choose to use tobacco products are going to use them in one form or another, whether its smoke or nonsmoking. Weve just got to have it available for them,” he said.

Continued success at Mountain Empire will be based on its ability to team up with vendors it trusts and who can help them develop planograms.

“Relationships and trust go a long way,” Kelly said. “I suggest everyone should talk to several vendors, see who you think is shooting straight with you, and work with those guys.”

One thing that will probably not change is the medias volley of negative health coverage.

“Some experts say using snus is less risky than smoking a cigarette, but its like saying you can reduce your harm if you jump out of a fifth-story window instead of a 20th-story window,” said Stanton Glantz, director of the Center for Tobacco Control Research and Education at the University of California-San Francisco.

The future of smokeless, however, is still very bright, Maiellano insisted, especially with the addition of snus products. “Retail execution is much better than its ever been,” he said. “Folks realize there is an opportunity here. It is also a very crowded field. Not that its everywhere, but there is an array of snus-like products that is also going to encourage the growth in moist smokeless tobacco.”

Helping retailers get the message, Maiellano said, are the tobacco companies themselves who are working hard to educate them.

Snus caused oral lesions have been extensively studied, and there is no evidence that they develop into oral cancers. And well over 99% of oral lessions (caused by US moist snuff or chewing tobacco) never develop into oral cancers.

Cigarettes cause the deaths of about 440,000 Americans each year (including nearly 5000 from oral cancer), while smokeless tobacco is attributable for no more than several hundred oral cancer deaths.

The chief public health priority (in regulating tobacco) should be to reduce cigarette diseases and deaths, which can be achieved by truthfully informing the public (especially smokers) that smokefree tobacco/nicotine products pose 1% of the risks of cigarettes.

That said, the first product regulation standards for smokeless tobacco products (if/when FDA is authorized to regulate tobacco) is likely to be something similar to the voluntary GothiaTec standard in Sweden. And I’d likely support that.

But I don’t understand why some folks think it a greater public health priority to further reduce the health risks of the least hazardous tobacco products ever made, even if doing so continues to perpetuate the deaths of 440,000 smokers every year for future decades.

Seems like the tail wants to wag the dog.

One of the issues on smokefree products is how different commercial smokeless products are from medicinal nicotine in terms of their chemistry and toxicology. One point of potential contention is that even products that meet the GothiaTek (TM) standard cause a reportedly high percentage of oral lesions (snus-induced lesions). The toxicants and/or toxins responsible for such lesions apparently have not been identified. Some contemporary products also give positive responses with in vitro bioassays for genotoxicity. The regulators need understanding of the chemistry, microbiology, and toxicology of smokeless products along with an understanding of what is there in terms of additives, processing aids, and agrochemical residues. In terms of regulatory acceptance, it would be better if the data and interpretations came from independent sources such as my company. I know where and how to get the work done and how to interpret the data. I just need funding.

Interestingly, last summer the FDA recently issued a formal response to the NY State Health Commissioner (regarding his petition to make nicotine gum, lozenges and skin patches more accessible and affordable) claiming that the FDA didn’t have sufficient expertise to evaluate the petition.

But my point is that there is no evidence that any regulation or standards for cigarette contents or smoke emissions can reduce the health risks of deeply inhaling cigarette smoke 200 times daily for decades.

Filtered, lights, ultralights, no additive, no nicotine, and organic cigarettes are just as hazardous (to users and to secondhand smokers) as nonfiltered full flavor cigarettes made in countries without pesticide regs.

All cigarettes are 100 times deadlier than any commonly used smokeless tobacco product in the US, while snus and other low nitrosamine smokeless tobacco products pose even fewer risks (with some beiing nearly identical to nicotine lozenges and gums that are marketed as smoking cessation aids).

Smokefree tobacco/nicotine products are the only viable harm reduction alternatives to cigarettes.

Also, a journal article, which I coauthored with scientists at Labstat, detailing the toxicology and some chemistry of contemporary smokeless products on the Canadian market will be in March 2009 issue of Regulatory Toxicology and Pharmacology. Please let me know if you would like a reprint.

So what are you inferring regarding moist smokeless tobacco in your earlier entry. Aren’t there folks out there that have similar reports on moist tobacco?