Cameron Elected President & CEO of Reynolds American

April 17, 2014

Cameron Elected President & CEO of Reynolds American

WINSTON-SALEM, N.C. — The board of directors of Reynolds American Inc. has elected Susan M. Cameron president and CEO, effective May 1.

Cameron served as president, CEO and a member of the RAI board from 2004 to 2011. She also served as chairman of the board of RAI between 2006 and 2010. In 2011, she retired from the company and the board. She rejoined RAI’s board of directors in December 2013.

Cameron replaces Daniel M. Delen, who has chosen to retire and resign from the RAI board. Delen has served as president and CEO of RAI since 2011.

Winston-Salem, N.C.-based Reynolds American is the parent company of R.J. Reynolds Tobacco Co.; American Snuff Co. LLC; Santa Fe Natural Tobacco Co. Inc.; Niconovum USA Inc.; Niconovum AB; and R.J. Reynolds Vapor Co.

Durbin Report Finds E-Cigarette Marketing Reaches Substantial Youth Audiences

April 15, 2014 : http://www.csdecisions.com/2014/04/15/durbin-report-finds-e-cigarette-marketing-reaches-substantial-youth-audiences/

“We must close this new gateway to addiction to protect our children,” says Durbin.

Eleven Democratic lawmakers from the Senate and the House of Representatives released a report that shows a dramatic recent increase in the marketing of electronic cigarettes with extensive resources being dedicated to social media, sponsorship of youth-oriented events, and television and radio advertisements that reach substantial youth audiences.

The report, “Gateway to Addiction? A Survey of Popular Electronic Cigarette Manufacturers and Marketing to Youth,” is the first comprehensive investigation of e-cigarette marketing tactics and was compiled using responses from eight e-cigarette manufacturers received by the lawmakers from their investigation into the industry and other publicly available information.

In light of the findings in this report, and following investigative reports recently released by the New York Times and Centers for Disease Control & Prevention, the group of lawmakers once more called on the Food and Drug Administration (FDA) to promptly issue deeming regulations that would expand the agency’s regulatory authority over tobacco products, including e-cigarettes.

The report was released on April 14 by U.S. Senator Dick Durbin (D-IL), who was joined by U.S. Representative Henry A. Waxman (D-CA), Ranking Member of the House Energy and Commerce Committee; U.S. Senator Tom Harkin (D-IA), Chairman of the Senate Health Education Labor and Pensions Committee; U.S. Senator John D. Rockefeller (D-WV), Chairman of the Senate Commerce, Science and Transportation Committee; and U.S. Senators Richard Blumenthal (D-CT), Edward J. Markey (D-MA), Sherrod Brown (D-OH), Jack Reed (D-RI), Barbara Boxer (D-CA), Jeff Merkley (D-OR); and U.S. Representative Frank Pallone, Jr. (D-NJ).

The major findings of the report include: • All surveyed e-cigarette companies appear to use various marketing practices that appeal to youth, such as social media outreach, sponsorships of and free samples provided at youth-oriented events, and radio and television advertisements played during events and programs with significant youth viewership.

• Six of the nine surveyed e-cigarette companies market e-cigarettes in flavors, like Cherry Crush, Chocolate Treat, Peachy Keen, and Grape Mint, that could appeal to children and teens.

• E-cigarette manufacturers have significantly increased marketing spending, more than doubling marketing expenditures between 2012 and 2013. Last year, six leading e-cigarette companies spent a total of $59.3 million on marketing alone.

• Six of the eight respondents support some form of regulation, including restrictions on the marketing and sale of e-cigarettes to children and teens.

“Six months ago, with growing public health concerns regarding liquid nicotine and growing e-cigarette use among young people, my colleagues and I reached out to nine leading e-cigarette companies with questions about their distribution and marketing to children and teenagers,” Durbin said. “The answers came back: from candy flavors to rock concert sponsorships, every single company surveyed in this report has employed a marketing strategy that appears to target youth. For years, federal regulations prohibiting tobacco companies from targeting young people have helped to protect a new generation of smokers from getting hooked on nicotine. Now, we must close this new gateway to addiction to protect our children.”

“E-cigarette makers are starting to prey on kids, just like the big tobacco companies,” said Waxman.  “With over a million youth now using e-cigarettes, FDA needs to act without further delay to stop the companies from marketing their addictive products to children.”

“This report provides clear evidence that e-cigarette manufacturers are marketing to kids and teens using tactics that would be illegal if these were traditional cigarettes.  This should not be a surprise since some of the e-cigarette makers examined are owned by large tobacco companies well-versed in marketing nicotine products to kids and teens,” Harkin said. “The report shows that e-cigarette manufacturers are investing millions of dollars to create a new generation of nicotine addicts—which is shameful and must be stopped immediately.  As the Chairman of the Senate committee with oversight of the FDA, I urge the agency to swiftly issue deeming regulations that give the agency the authority to regulate e-cigarettes and to stop these marketing practices that are already illegal for traditional tobacco products.”

“I am deeply disturbed that e-cigarette companies are mimicking tactics that tobacco companies used in the past to glamorize smoking for youth,” Rockefeller said. “Recent reports on rising poison center calls involving e-cigarettes and children under age six is yet another red flag regarding potential health consequences posed by youth exposure to e-cigarette products.  No matter what profit may be involved with encouraging young people to use nicotine products, marketing e-cigarettes to kids should be absolutely off-limits.”

The group of lawmakers also recommended several steps that regulatory authorities and e-cigarette companies should take to ensure that children and teens are adequately protected from deceptive advertising practices or unsubstantiated claims. These recommendations include:

E-cigarette companies should take immediate action to prevent the sale of their products to children and teenagers. This should include refraining from the use of television and radio advertisements.

E-cigarette companies should terminate marketing campaigns that target children and teens, including product promotion through social media and event sponsorships intended for youth audiences.

The FDA should promptly issue deeming regulations asserting the agency’s authority to regulate e-cigarettes.

The FDA should issue regulations to prohibit the sale of e-cigarettes to children and teenagers by requiring age verification and face-to-face sales, and by limiting purchases through vending machines.

The FDA should implement restrictions on e-cigarette companies marketing to children and teens, and, where appropriate, should work with the Federal Trade Commission to enforce such restrictions.

The FDA should prohibit misleading product claims on e-cigarettes, and should require clear, uniform labels to inform consumers of the health risks associated with their use.

Following a September 2013 Centers for Disease Control & Protection report that showed a dramatic increase in the use of e-cigarettes among children and youth, 12 members of Congress called on nine e-cigarette makers to provide additional information regarding the sale, distribution, labeling, and marketing of their products to children and teens.

The letter was sent to the following companies: NJOY, Lorillard Inc., Reynolds American Inc., Altria Group, Inc., LOGIC Technology, Eonsmoke, GreenSmoke, VMR Products, and Lead By Sales LLC. Every company but one—Lead by Sales LLC, the maker of White Clouds Cigarettes— responded to the lawmakers’ request, and their responses formed the basis of the report.

The Balancing Act: Premium vs. Value-Priced

Published in CSP Daily News

The right little-cigar plan-o-gram can keep profits growing

By Traci Carneal, Freelance writer

OAKBROOK TERRACE, Ill. – Little-cigar margins and profits are shrinking, but strong volume shows the category holds great potential for convenience store retailers who strike the right balance of premium and price/value options. Premium cigars may comprise less than 30% of little-cigar sales volume, but their profit margins can be as much as 10 times greater than value brands. (See related story “Capitalizing on the Premium Segment.”)

The numbers support the case for a stronger focus on premium brands. Despite a sales decline of nearly 8% in the first 10 months of 2013 compared to the same period in 2012, monthly volume averages an impressive 550+ million products sold (27.5 million 20-count packs). While 70% of volume comes from price/value options, some experts assert that retailers devote adequate attention to the premium segment. Premium-priced little cigars account for more than 24% of small-cigar category unit sales, with an average of 82.3 million premium little cigars—more than 4 million 20-count packs—sold per month (Tobacco and Trade Bureau).

“Too much emphasis on lower-end value items will devalue the little-cigar category and strip away profitability,” said Lou Maiellano of TAZ Marketing & Consulting Group. “Consumers want to save money, but they also want quality products.”

According to LaRese Armstrong, brand manager-little cigars for Scandinavian Tobacco Group, premium offerings are vital in the little-cigar category “to help c-stores maintain margins and create upsell potential for existing and newly created little-cigar enthusiasts.”

The logic behind a premium strategy is clear. “Premium brands account for over 36% of all dollar sales in the category, so you can have fewer SKUs and less stock, but still maintain excellent margin,” Armstrong said. “The premium brands may have slower turns than the value options, but they remain a very viable part of the category because they bring a loyal consumer base.” She added that Winchester, the original little cigar, has the best dollar-velocity-to-turn ratio in the category, making it the most profitable brand to stock.

Joe Teller, senior manager, category management for cigar-maker Swedish Match North America, advises retailers to consider premium brands such as Al Capone Filtered Cigars and Djarum Little Cigars that often get left out of plan-o-grams because they are not owned by major cigar manufacturers. “Very few cigar manufacturers bring these premium brands up for discussion and potential placement in plan-o-grams. These brands are worth a look as they are very high priced and continue to grow,” he said.

Teller also urges retailers to understand trends in their marketplaces to ensure the most profitability. “Most retailers don’t carry the best price/value brands because they aren’t aware of regional preferences, which is vital to selling lower-end products,” he said.

“Volume may be shifting from premium little cigars to price/value products, but retailers are leaving gross profit on the table if they don’t carry the best brands in both of these segments,” Teller said.

It’s not easy, Maiellano said, but “you want to be sure you are giving premium little cigars the attention they deserve. Frequent re-evaluation of your plan-o-gram is a must.”

Convenience Stores Hit Record In-Store Sales in 2013

April 2, 2014

Convenience Stores Hit Record In-Store Sales in 2013

CHICAGO – U.S. convenience stores reached record in-store sales in 2013, with sales climbing 2.4% to $204 billion. Combined with motor fuels sales of $491.5 billion, overall convenience store sales were $695.5 billion, according to figures released today by the National Association of Convenience Stores (NACS).

The industry’s 2013 numbers were announced at the NACS State of the Industry Summit, a two-day conference that reviews and analyzes the industry’s key economic indicators.

The convenience store industry’s in-store sales have seen rapid growth over the last decade, as consumers seek out more food and beverages on the go. In-store sales in 2013 were led by continued growth in foodservice (2.4%), driven by prepared food and commissary.

Motor fuels sales also hit new highs on a per-gallon basis, with sales climbing 0.9% to 132,029 gallons per store per month. While fuels sales per store increased on a unit basis, a 2.9% decrease in gas prices led to an overall 2.1% decrease in fuels sales.

Although the industry again realized strong sales, store-operating costs increased at a faster rate than sales and led to a decrease in industry pretax profits, which fell from $7.2 billion in 2012 to $7.1 billion in 2013.

The biggest increase in costs was wages and payroll taxes. The industry saw a dramatic 19.5% increase in employees, a function of the industry’s continuing embrace of foodservice, which requires more labor to manage.

The link between fuels and convenience retailing continues to grow. Overall, 83.7% of convenience stores (126,658 total) sell motor fuels, a 2.7% increase (3,369 stores) over 2013, according to the 2014 NACS/Nielsen Convenience Industry Store Count. The U.S. convenience store count increased to 151,282 stores as of Dec. 31, 2013, a 1.4% increase (2,062 stores) from the year prior.

Convenience stores also account for 34.3% of all retail outlets in the United States, according to Nielsen, which is significantly higher than the U.S. total of other retail channels including drugstores (41,378 stores), supermarket/supercenter (37,459 stores) and dollar stores (24,853 stores).

Beyond sales, convenience stores are an important part of the economy. They employed 2.2 million people and generated $174.5 billion in federal, state and local taxes in 2013. Overall, convenience stores sales represent 4.0%–or one out of every 25 dollars–of the entire $17.4 trillion U.S. gross domestic product.

“Our industry numbers demonstrate that convenience and fuel retailing continues to grow, despite economic and retail environment challenges,” said NACS chairman Brad Call, vice president of adventure culture at Maverik Inc. “These numbers show that we continue to meet the needs of our diverse consumers throughout the United States.”

Motor fuels continued to drive revenue dollars, but in-store sales drove profit dollars. Overall, 70.7% of total sales were motor fuels, but motor fuels only accounted for 35.6% of profit dollars. Motor fuels gross margins were 18.5 cents per gallon before expenses, or 5.3%.

The industry’s bifurcation also continues, with a considerable difference between top-quartile and bottom-quartile performers. Top-quartile performers had hot dispensed beverage gross profits that were 7.3 times greater than those of the bottom quartile; prepared food gross profits 3.0 times greater than the bottom quartile; cold dispensed beverage gross profits 3.9 times greater than the bottom quartile; and packaged beverage gross profits that were 2.4 times greater than the bottom quartile.

Of major interest to retailers this year was the breakout of industry numbers into regional benchmarks, allowing them to compare key metrics against more companies in their respective markets.

Here’s how in-store sales were broken down in 2013:

  • Tobacco (cigarettes and other tobacco products): 37.0% of in-store sales.
  • Foodservice (prepared and commissary food; hot, cold and dispensed beverages): 18.0%.
  • Packaged beverages (soda, alternative beverages, sports drinks, juices, water, teas, etc.): 15.5%.
  • Center of the store (candy; sweet, salty and alternative snacks): 9.9%.
  • Beer: 7.9%.
  • Other: 11.7%.

Meanwhile, foodservice was the category that drove profits, accounting for 29.1% of gross profit dollars. Packaged beverages were second, accounting for 19.6% of gross profit dollars. While tobacco products constituted 37.0% of in-store revenue dollars, they accounted for only 18.7% of gross margin dollars.

The industry’s 2013 metrics are based on the NACS State of the Industry survey powered by its wholly owned subsidiary CSX, the industry’s largest online ​database of financial and operating data. Complete data and analysis will be released in June in the NACS State of the Industry Report of 2013 Data.​

Founded in 1961, NACS is the international association for convenience and fuel retailing. The U.S. convenience store industry, with more than 151,000 stores across the country, posted $696 billion in total sales in 2013, of which $491 billion were motor fuels sales. NACS has 2,100 retail and 1,600 supplier member companies, which do business in nearly 50 countries.

CSP Business Media is the exclusive media partner of the NACS SOI Summit.

N.Y. A.G. Sues FedEx Over Untaxed Smokes

Published in CSP Daily News March 31, 2014

Alleges racketeering for illegally shipping 80 million contraband cigarettes

ALBANY, N.Y. – New York State Attorney General Eric T. Schneiderman said that his office has filed a $70 million lawsuit against Federal Express Corp. for unlawfully shipping nearly 80 million contraband cigarettes to consumers across the state in violation of federal and state laws. The lawsuit joins and expands upon a complaint filed in December in Manhattan federal court by the City of New York and adds extensive claims of FedEx’s unlawful shipments around the state.

The joint complaint alleges that, between 2006 and 2012, FedEx made nearly 33,000 illegal shipments of cigarettes to consumers in the state of New York, amounting to more than 400,000 cartons of untaxed cigarettes and a direct tax loss to the state of more than $10 million. Each illegal shipment carries a maximum penalty of $5,000.

The shipments were in “clear violation” of an agreement FedEx entered into with the state AG’s Office in 2006, in which it agreed to cease all unlawful cigarette deliveries to consumers both in New York and throughout the country. The lawsuit further alleges that the company engaged in a pattern of racketeering activity with various cigarette retailers to traffic contraband cigarettes in violation of the federal anti-racketeering statute.

“FedEx’s blatant disregard for its longstanding agreement with New York, as well as federal and state law, enabled tens of millions of cheap, untaxed cigarettes to be shipped to New Yorkers,” Schneiderman said. “Not only has FedEx cheated the state out of millions in tax dollars–but many of these cigarettes may have ended up in the hands of teenagers, who are particularly vulnerable to low-priced cigarettes.”

New York City corporation counsel Zachary W. Carter said, “The city is pleased to continue its partnership with Attorney General Schneiderman to eliminate trafficking in bootlegged cigarettes and fight on behalf of New Yorkers to recover millions of dollars in fines and unpaid taxes.”

These shipments by FedEx are prohibited by the federal Contraband Cigarette Trafficking Act (CCTA) and Prevent All Cigarette Trafficking (PACT) Act, as well as by New York State tax and public health laws.

The Attorney General’s investigation and lawsuit is based on documents subpoenaed from FedEx as well as documents received from the federal Bureau of Alcohol, Tobacco, Firearms & Explosives. The documents show that, since 2006, FedEx made thousands of shipments of cigarettes to New York consumers from cigarette vendors in Kentucky, California and Long Island’s Shinnecock Reservation. All the shipments violated New York Public Health Law 1399-ll, which prohibits direct shipments of cigarettes to consumers in the state. In addition, as these cigarettes did not bear New York state or New York City tax stamps, the shipments violated the federal CCTA, which specifically prohibits shipments of 10,000 or more untaxed cigarettes in a jurisdiction where such taxes are required by state or local law.

With multiple violations of the CCTA, FedEx engaged in a pattern of racketeering activity with the various cigarette retailers. Thus, in addition to the tax loss, New York State is entitled to treble damages under the federal Racketeer Influence & Corrupt Organizations Act, also known as the RICO act, amounting to nearly $35 million in penalties.

Because the federal PACT Act requires shippers to affix specified labels identifying the contents as cigarettes and to report all sales into a state, which FedEx did not do, New York is entitled to significant penalties for these violations. Last, the assurance of compliance agreement reached with FedEx in 2006 provides that that company must pay a stipulated penalty of $1000 per violation, amounting to approximately $34 million.

The case is City of New York v. FedEx Ground Package System Inc. et al, U.S. District Court, Southern District of New York

What Will C-stores Gain From CVS’ Tobacco Exit?

March 31, 2014, 05:45 pm By Melissa Kress, Convenience Store News  – See more at: http://www.csnews.com/product-categories/tobacco/what-will-c-stores-gain-cvs%E2%80%99-tobacco-exit?cc=3#sthash.KYwLfZvo.dpuf

NATIONAL REPORT — As the various segments of the tobacco category fight for space on the back bar — and for customer dollars — the competitive landscape outside the convenience store industry is seeing its own evolution. On Feb. 5, CVS Caremark Corp. made headlines with its announcement that it was exiting the tobacco retailing business effective Oct. 1. Convenience industry insiders hailed the decision because, after all, less competition can’t hurt. However, it may not actually be a boon for c-stores. “I don’t think them getting out of tobacco is going to help convenience stores,” said John Call, a convenience industry veteran and managing partner at Mentor, Ohio-based CF Capital Assets LLC. “It will help if the convenience store is next to a CVS, but by and large, the typical CVS shopper is female and females typically don’t come by our stores to buy cigarettes.” Ray Johnson, operations manager at Speedee Mart Inc., a 20-store chain in the Las Vegas market, echoed those thoughts. “It was exciting news when CVS said it would stop selling cigarettes. Everyone said how wonderful it is going to be, but the majority of the people buying cigarettes at CVS are female or seniors, and they are more likely to go to the grocery store to buy cigarettes than they are to go to a convenience store,” he reasoned. Nevertheless, Johnson does intend to go after CVS’ tobacco customers. “Our goal is to capture half of that business,” he said. “And I hope other drugstores, like Walgreens, follow suit.” Since CVS’ announcement, the attorneys general of 28 states and territories have written to the CEOs of Wal-Mart Stores Inc., Walgreen Co., Rite Aid Corp., Safeway Inc. and The Kroger Co., asking them to remove any and all tobacco products from their shelves. Walgreens also operates Duane Reade stores. To date, Walgreen Co. has not announced any plans to follow CVS’ lead. During a recent earnings call, CEO Gregory Wasson told financial analysts: “What we’re focused on is to help encourage our customers to make healthy choices and not only just with cigarettes, but with daily habits. That includes helping people quit.” CVS, the Woonsocket, R.I.-based operator of 7,600 drugstores, has stated its removal of cigarette products will cost it approximately $2 billion per year. Circle K Stores Inc., a division of Laval, Quebec-based Alimentation Couche-Tard Inc., is also looking to attract the CVS tobacco customer. “We are counting on being able to capture some of those customers,” said Lee Maxwell, field marketing manager. “Some, and who knows how many, will migrate to other channels of trade such as grocery and maybe even the Internet.” The extent to which CVS’ decision benefits convenience stores will depend largely on the market. For instance, CVS’ presence is limited in Nice N Easy Grocery Shoppes’ market, Vice President of Category Management Matthew Paduano said, noting that “a bigger win would be if Rite Aid and local drug chains pull tobacco.” Even more important than drugstores, though, c-store operators must keep an eye on dollar stores. “Dollar stores selling cigarettes may be more of a threat, primarily because c-stores and dollar stores appeal to a similar demographic in terms of income,” advised David Bishop, managing partner at Barrington, Ill.-based sales and marketing firm Balvor LLC. “Dollar stores tend to be more price competitive than drug and they are opening more locations,” he continued. “I think they definitely present much more of a threat to the tobacco retail business than the drugstores have, at least from a CVS perspective.” By Melissa Kress, Convenience Store News  – See more at: http://www.csnews.com/product-categories/tobacco/what-will-c-stores-gain-cvs%E2%80%99-tobacco-exit?cc=3#sthash.1iKqeCOV.dpuf

Altria To Acquire Green Smoke Inc.

Altria Group Inc. is set to acquire electronic cigarette company Green Smoke Inc. for about $110 million, ABC News reported.

The Richmond, Va.-based owner of Philip Morris USA announced that the transaction is expected to close in the second quarter.

The deal with Altria’s Nu Mark subsidiary also includes up to $20 million in incentive payments. Altria began test marketing its own electronic cigarette under the MarkTen brand in August.

Altria noted that Green Smoke’s experience in the category, along with its supply chain, products and customer service, will complement its business.

Green Smoke was founded in 2008 and has operations in the U.S. and Israel. Its revenue in 2013 was about $40 million.

http://www.csdecisions.com/2014/02/03/altria-acquire-green-smoke-inc/

CVS To Stop Selling Tobacco Products

CVS to sacrifice $2 billion in annual sales as it looks to solidify its position as a healthcare provider.

CVS Caremark Corp announced on Wednesday, Feb. 5 that it plans to stop selling tobacco products at its 7,600 stores by October, Reuters reported.

CVS, the second largest drugstore chain in the U.S., is now the first national drugstore chain in the U.S. to take cigarettes off the shelf. Public health experts called the decision a precedent-setting step that could pressure other retailers to follow suit.

President Barack Obama, a former smoker, also responded to the decision. “Today’s decision will help advance my Administration’s efforts to reduce tobacco-related deaths, cancer, and heart disease, as well as bring down healthcare costs,” Obama said in a statement.

CVS, whose Caremark unit is a major pharmacy benefits manager for corporations and the U.S. government’s Medicare program, said the decision would strengthen its position as a healthcare provider, according to Reuters. “I think it will put pressure on other retailers who want to be in healthcare,” said CVS Caremark Chief Medical Officer Dr. Troyen Brennan.

“We believe this will have no impact on tobacco manufacturers as smokers will still buy cigs and other tobacco products—rather, they will simply go to other retailers, such as c-stores, dollar stores and tobacco shops,” according to Wells Fargo Securities. “Therefore, this is a positive for c-stores as we believe a portion of the 15% of total tobacco volume sold through drug stores and supermarkest will move to c-stores and other retailers, especially if more drug retailers follow suit and discontinue sales of tobacco products. Further, if more tobacco consumers are going into c-stores this bodes well for the c-stores’ other non-tobacco merchandise sales.”

Walgreen Co, the largest pharmacy chain, said it would still sell cigarettes for now but will continue to evaluate the product category.

“The company has been evaluating its tobacco line for ‘some time,’ and said it ‘will continue to evaluate the choice of products our customers want, while also helping to educate them and providing smoking cessation products and alternatives that help reduce the demand for tobacco products,’” Michael Polzin, Walgreens spokesperson toldCSD.Walgreens has also announced a partnership with GlaxoSmithKline Consumer Healthcare to launch a free, Internet-based smoking cessation program called Sponsorship to Quit. The program will provide smokers with customized tools to track their progress in quitting smoking.

Third-ranked Rite Aid Corp did not immediately respond to a request for comment by Reuters.

CVS noted that the cost of eliminating cigarettes and other tobacco products would be about $2 billion in annual sales and six cents to nine cents in profit per share this year. Analysts expect CVS to report 2014 revenue of $132.9 billion and earnings of $4.47 per share, according to Reuters.

CVS executives told Reuters that the company would replace some of lost cigarette sales through smoking cessation programs at its pharmacies and through Caremark.

http://www.csdecisions.com/2014/02/05/cvs-stop-selling-tobacco-products/