Reynolds American Inc. reported that its main focus on innovation and the development of new tobacco products will help the company stay involving in the face of decreasing smoking rates. Reynolds American President and CEO Daan Delen explained that during Investors Day presentations Monday morning that the company is focusing over the long-term on arising smoke-free products such as snus and its new e-cigarette Vuse that offer larger margins and greater potential for growth.
“Everything we’re working on from an innovation standpoint has a higher margin than cigs,” Delen argued. “I think we’re very well positioned in an evolving tobacco market.”
Authorities with the Winston-Salem-based tobacco company (NYSE: RAI) said volumes have risen this year in smoke-free categories such as moist snuff and snus, particularly among younger demographics, while cigarette amounts continue to drop.
But Delen emphasized that cigarettes are still the essential focus and business for the tobacco industry. He offered an internal mantra of “80/90/90,” which reflects that 80 per cent of the company’s resources are still in the combustible tobacco space, 90 per cent of its organizational resources focus on that area, and 90 per cent of its investigation and development budget is centered on combustibles.
“That is the main category that is still going to deliver a lot of growth in the future,” Delen declared, noting that the U.S. cigarette market continues to offer approximately a $14 billion “profit pool,” about 85 per cent of which comes from cigs.
But Reynolds American’s strategy on “transforming tobacco” is evident, as Delen spent substantial time talking about other categories besides cigarettes in advertising the company’s efforts toward new innovation.