Innovation and operating progress brand equity are essential aspects of Reynolds American Inc.’s (RAI) whole tobacco strategy.
The Winston-Salem, N.C.-based cigarette maker, pointed out its overall tobacco strategy in the context of the evolving customer and the present regulatory environment at its yearly Investor Day held in New York Nov. 12.
In accordance with Bonnie Herzog, managing director of beverage, tobacco and customer research at Wells Fargo Securities, President and CEO Daniel Delen described RAI as having the best exposure to tobacco’s “emerging markets” – OTP types such as smokeless tobacco, e-cigarettes and nicotine replacement – all having margins that are greater than regular cigarettes. As drops go on to strike the cigarette category, the firm is convinced it can “right the ship” as customers move to these emerging cigarette categories, Herzog described.
“We believe that Reynolds American will have the ability to ‘operationalize’ innovation to create long-term sustainable growth in whole tobacco,” she said.
But, Reynolds American said that it will continue to invest 80% of its brand support budget and 90% of other sources such as study and development on combustibles.
Two flagship cigarette brands pointed out at RAI’s Investor Day – Camel and Pall Mall – still are an essential part of the firm’s strategy, as outlined by Herzog. Particularly, 63% of RAI’s cigarette volume in the third quarter of 2012 was brought by growth brands compared to 24% in 2004. Additionally, Grizzly carries on to be the leader in the smokeless category with its powerful consumer value proposition.
“RAI’s major brand focus should enable it to balance and improve volume and drive trial, market share, consumer loyalty and profitability applying revolutionary product line extensions and compelling, relevant marketing,” Herzog claimed.
Furthermore, RAI’s Natural American Spirit brand continues to produce strong growth. “Depending on our worth, we consider the business could be worth about $3.7 billion on a standalone base,” she said.
Herzog revealed that RAI has been effective with repositioning brands, creating excitement, driving trial for new products and categories, and including systems into its products in order to boost the value proposition for customers. “We are convinced in RAI’s ability to “operationalize”.
Reynolds American, Inc. is the second-largest cigarette maker in the United States. Its holdings include R. J. Reynolds Tobacco Company, American Snuff Company (formerly Conwood Company), Santa Fe Natural Tobacco Company and Niconovum AB. It is 42 percent owned by British American Tobacco of the United Kingdom.