Philip Morris USA, one of the world's most powerful marketers, is moving into b-to-b e-commerce.
The company-whose flagship brand, Marlboro, is among the most recognized in the world-is making its entrÃ©e with an investment in and a commitment to use RetailersMarketXchange Inc., an e-hub that connects convenience stores and combination gas station/snack shops with their suppliers. This marks the first time a U.S. tobacco company has entered a b-to-b e-commerce pact.
Executives at Philip Morris USA, an operating company of conglomerate Philip Morris Cos. Inc., view RMX as a b-to-b marketing tool that will profoundly change the way it sells to the nation's 120,000 convenience stores, its most important client base.
Adding Philip Morris USA as one of its backers is a boon for RMX, whose formation was announced in March. Its other equity investors and participants include Chevron Corp.; convenience store distributor and Wal-Mart Stores Inc. subsidiary McLane Co. Inc.; and Oracle Corp. So far the exchange has signed on some 3,000 gas station/convenience stores owned by Chevron, and is working to enlist others both from within and outside the Chevron network.
Philip Morris USA will begin using RMX solely as a marketing vehicle. Convenience store owners will be able to order signage through the exchange, or research prices and best marketing practices. Within the next year, they will be able to buy cigarettes through it as well.
Executives at both Philip Morris and RMX said their main goal is to help convenience store owners become more technologically savvy, which would make marketing much easier for suppliers. Their task, however, is gargantuan, as many convenience store owners are likely to resist doing business over the Internet.
The stakes for Philip Morris USA couldn't be higher. Ongoing lawsuits have hobbled the stock price of the company's New York-based parent. Its share price has ranged from $18.69 to $38.63 over the past year, despite solid sales and earnings growth. A perception among brokerage analysts and investors that the company is a technology leader could help buoy its shares.
Marketing, sales connection
Philip Morris USA plans to leverage its convenience store marketing programs and its 2,000 sales reps with RMX, said Howard Willard, group VP of e-business and information services. Reps will continue making their sales calls-by some accounts, some 300,000 a month-and use them as opportunities to pitch storeowners on the RMX system.
Willard declined to disclose the company's equity investment in RMX.
Merrill Lynch & Co. tobacco company analyst Sandhya Raju said Philip Morris USA's sales force is probably the only group that could get convenience store owners onto the Web. "Nobody would be able to do it but Philip Morris," Raju said. "PM's sales reps have been very instrumental in helping stores merchandise their categories. This is because they have access to technology."
It is also because of the power Philip Morris USA has over the convenience store owners' bottom line. The company owns half of the domestic tobacco market and cigarette sales make up more than 30% of the average convenience store's business.
Philip Morris USA wants RMX to help its sales force concentrate more on marketing and less on administrative tasks, Willard said. "Our sales force is a very valuable advantage to us," he said. "But in recent months we've decided they have too many administrative matters on their plate. This will make their jobs more efficient."
Indeed, Philip Morris USA executives want RMX to be a round-the-clock marketing agent. "Right now retailers are in a position of waiting for a salesperson to come to the store," Willard said. "Now we can communicate with the retailer on their time schedule instead of ours. We could get the retailer into a routine where he logs on to RMX in the morning, looks at our promotional activities, and plans how he's going to use them on through the month."
The initiative fits in with the company's longtime internal marketing program, called "extension selling," said an ex-Philip Morris USA salesperson who asked not to be identified. "They ask stores to take ownership for the [tobacco] category and use the salesperson as an asset," the former company salesperson said.
RMX, meanwhile, is seeking to enlist other suppliers, including other tobacco companies. Executives at the No. 2 U.S. tobacco company, R.J. Reynolds Tobacco Co., did not return calls by press time. Mark Smith, a spokesman at Brown & Williamson Tobacco Corp., declined to comment on whether his company is speaking with RMX.
There is speculation among some industry observers that Philip Morris Cos. Inc.'s ongoing legal woes, and the resulting damage to its brand, could impede its RMX plans. Tom Ryan, a Philip Morris spokesman, said the corporate nature of the deal shields the company from any fallout from its consumer-oriented problems. "This is a b-to-b initiative," he said.