Despite the early success of Lorillard’s Blu in topping the sales charts, “there is very little brand equity that has been built by anyone,” said Altria’s chairman and CEO Marty Barrington.
“The products continue to change over time. So I think the idea that the category [is] somehow fully developed and we’re late to the game is not the right way to look at it,” said Barrington.
“The consumer continues to move around unsurprisingly in a new category [in terms of] what they want out of these products. And so we are hard at divining those consumer insights and having products available for them.
“So while we’re excited about MarkTen, I don’t think it’s [the] last thing that anyone should expect either from us or others,” he added, saying that “in any category which emerges we intend to be the market leader”.
Altria’s Nu Mark subsidiary began rolling out its e-cigarette MarkTen nationally last month after test-marketing in Arizona and Indiana, and it is now available from more than 60,000 retailers in the western half of the U.S.. Those stores account for more than 70% of cigarette volume in that region, said Barrington, and the rollout will now continue to the eastern part of the country.
“Nu Mark is also making good progress integrating Green Smoke [which it acquired earlier this year] into its business, starting with a well-established supply chain,” added Barrington.
His bullish comments on e-cigs came against a background of second-quarter and first-half financial results generally regarded as positive for the company, much of whose business is built around its Marlboro brand. Although shipment volume of tobacco cigarettes was down, in step with the rest of the industry, higher pricing helped propel Altria’s income for smokable products up by 3.6%, to $1.8bn, in the second quarter and 4.9%, to $3.3bn, in the first half of the year. E-cigs are producing no revenue of significance as yet.
Overall, net revenue for the quarter was down 0.8% year-on-year to $6.3bn, while for the first six months of 2014 it was down 0.5% to $11.8bn.
What This Means: Barrington would not be drawn on the implications for Altria of the biggest upheaval in the tobacco sector for some years – the planned merger of Reynolds American and Lorillard to form a bigger second player, and the arrival of Imperial Tobacco as the third. But it is clear that he does not regard the pre-eminence of Lorillard’s Blu (due to pass into the hands of Imperial if that merger goes ahead) as a permanent given.
And, perhaps more importantly, Barrington made it equally clear that he does not regard MarkTen as Altria’s only hope. He may well be thinking that other technologies it has access to through its partnership with Philip Morris International (PMI), for example the Platform 1 HeatStick, have more long-term potential.
– Barnaby Page ECigIntelligence staff