The Wall Street Journal wrote last week that although both Altria and Reynolds American have responded to less cigarette smokers with new product entries, such as smokeless, Lorillard is “betting it can buck the trend.”
That strategy, notes the Journal, is so far paying off: “Cigarette shipments at the No. 3 U.S. tobacco company are up for the second year in a row, and revenue rose 9.1% to $4.85 billion in the 2011 nine months. Volume, meanwhile, rose 7.4% in the period, while it sank roughly 5% at both Altria and Reynolds. Lorillard’s overall share of the U.S. cigarette market is up to 14% from 11% in 2008. …The performance has shown up in Lorillard’s stock price, which is up 37% this year.”
One of Murray Kessler’s first decisions as the new CEO of Lorillard (he took over in September 2010) was to drop plans for a smokeless product at the company. The newspaper notes that he said it could be decades before smokeless products surpass cigarettes.
However, one of Lorillard’s biggest challenges may not be coming from new product innovations — the FDA is considering whether to ban menthol cigarettes as part of its new authority of the manufacturing and retail marketing of tobacco products. About 90% of Lorillard’s sales are generated from menthol cigarettes, notably the Newport brand. The menthol category accounts for 30% of U.S. cigarette sales, writes the Journal.
The Journal notes that in coming weeks, FDA is expected to publish results of a scientific peer review on the health effects of menthol cigarettes.
According to Kessler, banning the $25-billion menthol cigarette industry would eliminate billions of dollars in U.S. tax receipts, jeopardize thousands of jobs and create a dangerous black market. “You would create havoc the likes of which this country hasn’t seen since Prohibition,” he told the newspaper.
Meanwhile, David Adelman, a tobacco analyst at Morgan Stanley, told the Journal that Newport smokers are more urban and less likely to switch to a smokeless product. “It’s pretty unacceptable to spit walking down Fifth Avenue,” he observed.