Fewer Americans smoke cigarettes these days, but Lorillard Inc. is betting it can buck the trend.
Last year, as part of a decades-long decline, the percentage of U.S. adults who smoke dropped below 20%. Altria Group Inc. and Reynolds American Inc., the two largest U.S. tobacco companies by sales, have begun diversifying into smokeless tobacco products, which are less harmful than cigarettes, according to studies. Meanwhile, the federal government continues to tighten cigarette regulation, and it’s considering a crackdown on menthol brands, which account for 90% of Lorillard’s sales.
Lorillard cigarette brands: Newport, Maverick, Kent, Old Gold, True
But Lorillard, maker of the Newport brand, is sticking to a strategy of selling only cigarettes, and so far it’s paying off: Cigarette shipments at the No. 3 U.S. tobacco company are up for the second year in a row, and revenue rose 9.1% to $4.85 billion in the 2011 nine months. Volume, meanwhile, rose 7.4% in the period, while it sank roughly 5% at both Altria and Reynolds. Lorillard’s overall share of the U.S. cigarette market is up to 14% from 11% in 2008.
The performance has shown up in Lorillard’s stock price, which is up 37% this year.
Lorillard’s strategy is being spearheaded by Murray Kessler, who became Lorillard’s chief executive in September 2010 after heading UST Inc., a smokeless tobacco company acquired by Altria in 2009. Mr. Kessler doesn’t smoke cigarettes, preferring snuff, a habit he picked up at his previous job. But one of his first decisions at Lorillard was to kill a proposed smokeless tobacco product.
Menthol is no more harmful than other cigarettes, he said, adding that he expects the FDA’s menthol review process to be “very long.”
Lorillard recently stepped up Newport menthol sales efforts west of the Mississippi River after focusing for decades on the Eastern Seaboard, where its market share is roughly twice as big.. It has also been promoting a milder version of menthol cigarettes called Newport “Gold.”
Lorillard is the market leader in menthol, but that category accounts for only about 30% of U.S. cigarette sales. Late last year, the company launched a nonmenthol version of Newport in red packaging instead of green, and it quickly gained a 1% market share, driving much of Lorillard’s growth this year.
It has also been winning over smokers with its fast-growing Maverick discount brand, and it plans to roll out another nonmenthol line that will be milder than its Newport “Reds.”
But the company’s two larger rivals have already plumbed those markets, making growth tougher. Altria, owner of Marlboro, the leading cigarette, has a 49% market share in cigarettes. Reynolds, which boasts the Camel and Pall Mall brands, has a 27% share.
Newport cigarettes are also popular among African-American adult smokers, about 80% of whom prefer menthols. Unlike Altria and Reynolds, Lorillard still advertises cigarettes in magazines, including those targeting African-Americans.
