PHILIP MORRIS WANTS EXCLUSIVE STORE DEALS

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Leveraging the power of its Marlboro brand, Philip Morris USA is pushing convenience store chains to advertise and display only its tobacco products.

Beginning Jan. 1, Philip Morris will move to form exclusive display deals with convenience stores participating in the marketer's Retail Masters program, according to convenience store marketing executives. Retail Masters is a plan Philip Morris began in 1992 to reward retailers for displaying Philip Morris products prominently. An estimated 80,000 convenience stores participate.

In early 1994, Philip Morris has added a "maximum level of participation" to Retail Masters, whereby stores continue to sell other brands but devote all permanent display and signage to Marlboro and other Philip Morris products. They are rewarded with higher display allowances and access to special promotions.

A Philip Morris spokeswoman said retailers choosing to participate at the maximum level are allowed to use competitors' temporary promotional displays but not permanent fixtures like sales racks.

For competitors like R.J. Reynolds Tobacco Co., loss of minimart display is no small matter: Convenience stores are the No. 1 outlet for tobacco sales, representing 23% of the $47.1 billion in 1994 sales, according to the Tobacco Institute. RJR says convenience store volume has doubled since 1985 due to the high visibility of displays and promotions.

While the nation's largest convenience store chain-Southland Corp.'s 7-Eleven-dropped the exclusivity deal after testing it last year, Philip Morris has made inroads with smaller chains.

For example, WaWa Inc., in suburban Philadelphia, began testing the Philip Morris proposal in August in 450 of its 517 stores. WaWa used to dedicate one of its countertop fixtures to RJR's Camel and Winston brands. Now both units sell Marlboro.

"The RJR salespeople aren't too happy about it," said Kathy Pinto, WaWa's tobacco buyer. "They're meeting with our marketing people to discuss '96."

WaWa continues to feature some RJR brands in WaWa-owned endcap displays, Ms. Pinto said.

Defending itself against Philip Morris' push, RJR bashed the exclusivity strategy at the National Association of Convenience Stores convention in Chicago last week. Brochures and displays covering the RJR booth argued that chains promoting only Philip Morris brands lose RJR customers while overall cigarette sales drop.

"The bestselling brand family [Marlboro] accounts for 36% of all c-store cigarette sales nationwide," said one brochure. "What about the other 64%?"

Bryan Stockdale, RJR's director of wholesale and retail trade marketing, said 75% of the roughly 7,500 stores that have tested an exclusive arrangement with Philip Morris have switched back.

"C-stores say to us, `I wouldn't partner with one beer supplier or one candy supplier, and I won't do it with my biggest bottom-line contributor of sales,"' Mr. Stockdale said.

The 7-Eleven chain agrees with that assesment. For six months last year, the 6,478-unit chain displayed only Philip Morris brands in 40 stores. "We recognized shortly it wasn't the right thing to do," said Kenneth Fries, category manager at The Southland Corp., Dallas.

Sales of RJR brands dropped while the stores didn't see noticeable growth in Philip Morris sales.

"Certain customers didn't recognize the store as carrying their brands anymore" once the prominent displays were removed, Mr. Fries said. "We were making choices for the customer that we shouldn't have."

Still, small convenience stores trying to clean up countertop clutter might benefit from an exclusive display arrangement, Mr. Fries said.

The Philip Morris spokeswoman said there is no push to sign convenience stores to the maximum level. "We offer a menu of options to the accounts we call on," she said.

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