R.J. Reynolds' share of the cigarette market took a nose dive in the first six months of 1994. (chart) RJR GETS BURNED IN CIGARETTE WAR

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Nearly 16 months after Philip Morris USA kicked off a major battle in the cigarette industry, a surprise loser has surfaced: R.J. Reynolds Tobacco Co.

Second-quarter numbers confirm that RJR alone of the major tobacco companies has lost significant market share this year. RJR's share of industry volume fell to 27.4% for the first half of 1994, compared with 32.1% last year, according to the Maxwell Consumer Report from Wheat, First Securities, Richmond, Va.

Now RJR may be moving to do something about it. The marketer is readying a new round of aggressive advertising. And, according to at least one distributor, a return is planned to the discounting that last year's massive price adjustments were designed to end.

This distributor said he has been told RJR-in the face of a new round of $4-a-carton coupons for smaller rivals' brands-soon will initiate a $2-a-carton coupon program for its flagship, Winston.

Analysts expected a decline in RJR's share. When premium prices were cut nearly 40 cents a pack last year, RJR decided to abandon the generic and private label segment, where it had been a big player.

However, analysts and some distributors say RJR didn't do enough to keep those buyers. And while RJR's premium brands, including Winston, Camel and Salem, and its discount Doral brand grew, the growth did not match that of competitors.

RJR didn't act quickly enough at the retail level, said Paul Schwartz, CEO of Luce Wholesale Tobacco & Candy Co., Newark, N.J.

However another distributor said brand image problems also may have played a major role.

"Their brands are not as attractive," said Robert Huberman, VP-general manager for Starkman Distributors, Atlantic City, N.J. "Winston doesn't have the image that younger people think of ... and Salem at least in the Northeast can't keep up with [Lorillard's] Newport. Reynolds' only success story is Camel."

Barry Ziegler, an analyst with A.G. Edwards & Co., St. Louis, said RJR has targeted the second half for major ad spending.

RJR late last month launched new aggressive advertising for Doral from Long Haymes Carr Lintas, Winston-Salem, N.C. Aimed squarely at Philip Morris' Basic, the ads use the tagline "Doral: Only the price is basic."

And RJR acknowledges that it won't sit still for further share encroachment.

"In the beginning of the second half [of '93], we deliberately conceded some market share in the [discount] area," said John Singleton, RJR's manager of public communications. "The competition was willing to be more aggressive. Obviously there is a limit to how much we are willing to concede."

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