TSffT COMPIETITIVE COMMENTS
NOVEMBER 1991
OWMIC
PHILIP MORRIS - Overall, PM's donstic Strategic
focus continues to be increased image-based
Support for full revenue brands, particularly
Marlboro, aggressive participation in VFM and a
growing emphasis on the defense of Marlboro share
and volume. For September, Marlboro Medium
(launched in June) achieved a retail share of
1.6%. However, total Marlboro share for the 12
months
ending in September is down .11 share points to
25.8% versus share for 12 months ending September
1990. PH Is also making significant investment to
grow its International business.
PH began reorganizing Domestic Marketing and
Sales. Sales will include a no. trade marketing
organization, a number of now retail marketing
programs, and some brand management personnel are
switching to sales. Additionally, PH will be
eliminating some reporting layers in its field
sales
force to improve productivity and effectiveness.
Head count is not being reduced. 'Mike Szyanczyk.
senior VP sales. will continue to head the sales
division.
In PH's marketing department. all the brand groups
have been consolidated under three major groups
- 1) the Marlboro brand group, 2) a discount brand
group, or 3) a premium brand group. PM sees
this as an organization which integrates sales and
marketing and is viewed as a way to improve PH's
marketing effectiveness by getting closer to
customers and consumers. rather than a move to cut
head
count.
Campaigns for Virginia Slims and W continue to be
modified to improve and update the brands,
images. PM is also reinstituting a new version of
the "Merit Taste Challenge."
Rumors continue that PM is about to sake a major
purchase (eq. European food), but company
spokesman
continue to deny that any immediate action is
planned.
RJR NABISCO - Overall, RJR's corporate focus has
been to improve its capital structure and reduce
debt. In domestic. RJR's key strategic direction
is to increase image-oriented marketing for
Winston and Camel with a new campaign for Salem
expected in the near future. They have continued
aggressive discounting in VFM. In October, RJR
initiated a domestic price increase of $2.75 per M
for Full Revenue and Low Price Brandvd, and $4.00
per M for Extra Low Price in an attempt to improve
margins and reduce the list price gap between the
lowest price offering and Full Revenue.
Internationally. RJR has increased its 1991 level
of activity significantly compared to 1990.
RJR announced plans to issue $4.9 billion of
common and preferred stock to cut debt costs and
raise
money for expanding its overseas tobacco business.
RJR proposed retiring about $3 billion (market
value) in 11.5% preferred stock. In November. RJR
increased its planned underwritten offering of a
new preferred equity redemption cumulative stock
(Percs) from. $1.88 billion to $2.03 billion due
to
investor demand. This recapitalization will save
RJR about $250 million in interest. $200 million
in dividends and got RJR off the "highly leveraged
list" allowing the. to negotiate more favorable
agreements with banks. However, recent reports by
Sanford Bernstein analyst, Marc Cohen, have
reduced RJR's earnings expectations for 1991
through 1995 and indicate this additional
refinancing
package was not as beneficial as had been
expected.
Declining domestic sales of full-priced cigarettes
and growing VFM competition have resulted in a
slow, but continuous, paring down of the full-time
work force which has been cut from 9.650 workers
last year to 9,348 as of July 1. Another 200
full-time jobs are likely to be cut by year end.
primarily through attrition.
RJR unexpectedly pulled its successful Camel
campaign from Young & Rubicam. RJR placed Camel
responsibility and about $30 million in spending
with a new agency, Mezzina/Brown Inc., formed in
August 1991 by two senior executives from Y&R who
had worked on Camel. "Continuity" was given as
the reason for the switch. however. RZR will also
reduce costs by the move.
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RJR is reportedly considering cutbacks that wmld
have wide effects on its motorsports sponsorships.
including support of NASCAR Winston Cup Series
stock car racing.
RJR is reorganizing its dwestic food business into
seven decentralized operating units to allow
refocusing of marketing an different categories of
food. The reorganization will result in about a
10% reduction in management and administrative
positions over two years.
URLLLUR - A packaging supplier reported that
Lorillard was making inquires about caution notice
requirements for sale of products in Saudi, Gulf
States, Israel and Turkey suggesting that
Lorillard
is planning to produce products for sale in those
markets. There was no mention of specific
products.
AMERI - American announced the promotion of Donald
Johnston to President and CDO. He was
previously Executive VP Marketing and Sales. Prior
to that he was at B&W for 12 years and had been
VP Sales.
American Brands announced the purchase of seven
liquor brands from Seagram for $372.5 million
which
will make then number three in the liquor
business.
L15GETT - Robert Robinson. Liggett VP Marketing, a
former ad agency executive who worked on RJR's
business, left seven months after the settlement
of a lawsuit brought by RJR in an attempt to stop
the appointment. Gerald Reid is now senior VP
marketing, previously he was VP marketing and
development at General Foods. Prior to that he was
employed at Brown & Williamson and hold various
positions in Marketing, including Group Product
Director. Subsequently, Reid announced 1992 plans
to substantially increase image-based marketing
for Liggett's full revenue brands which haven't
been
advertized for 20 years.
INTERNATIONAL
PHILIP MORRIS (PM11)
2 ~M - PMI's licensing arrangement with JTI on
Marlboro, which includes JTI providing
manufacturing, distribution and sales force
support with PHI providing all marketing support,
was
reportedly extended to April 1996. Marlboro
distribution will continue to grow through JTI
vending
machines and OTC. PHI continues to support its six
major imported brands in addition to Marlboro.
While most of the Marlboro support is incremental,
because of the relatively fixed number of
billboard locations, it is likely to diminish the
presence of Lark. Some Lark billboards have
recently been taken over by Marlboro.
PHI is reportedly unhappy with 1991 results in
Japan. particularly in relation to BLW's progress.
This will probably heighten the battle for vwWing
distribution and for the young adult sale smoker
group. PKI is currently very active in removing
Lucky Strike Lights POS.
PM11s sales force had been reduced to 1,000
following bankruptcy of their sales promotion
company.
Echo. However. it appears that Bussan Promotion
and Ni Tobacco are absorbing many of these
personnel mW hiring additional employees to build
the total sales force back to 1,500.
Despite the dramatic sales decline of L&M since
Its price increase. PMI continues to support it
with
the young adult oriented "Smooth Beat" campaign in
advertising and promotion.
Europ - PHI has lowered deliveries' an Marlboro
Lights in Germany, Switzerland, Holland and
Finland. possibly in advance of a Marlboro Medium
launch.
PMI's new Italian General Manager reportedly does
not have the same political ties as Aleando Bazzi
(no. President and CEO of PM International),
wiiich could potentially weaken PM's leadership
slightly
in Italy.
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PHI is rumored to allocate investment marketing
spend to Southeast Asia from its profits in
Germany.
Latin America - Pmrls duty free sales of Marlboro
at the Paraguay-Argontina border have grown
dramatically due to the significantly higher price
of the licensed product in Argentina. Wi th the
common market alliance of the southern cone
countries taking shape. PM1 will gain competitive
access
for Marlboro to Chile through its Licenses
operation in Argentina.
RJR NABISCO
Ilain - Marketing support continues to be focused
on Sales, most recently behind the launch of
Salem Trim Lights Box 100's further heightening
competition for distribution and smokers in
menthol. RJR's sales force has grown from 400 in
1990 to 500-550 as of mid-1991. RJR is reportedly
building the sales force to 650. RJR is also
reportedly planning to be more aggressive in Japan
in
1992, having gained profit relief in order to
invest more heavily.
A no. Director of Marketing was assigned to.Japan
effective October 1991.
RJR continues heavy use of free cartons to gain
vending distribution. Camel and Vantage are
receiving magazine and POS support only, including
gift-with-purchass two-pack deals at retail.
Euroo - RJR's General Manager for Germany, JUrgen
Freund. reportedly resigned over "differences
of opinion with the parent company over what
demands can be made of the German Subsidiary and
how
these targets are to be achieved." Peter Barton
(42), who was running RJR's Northeast Asian
business with headquarters in Hong Kong, will
replace Freund. Barton worked for Marsteller and
Bristol 14yers before joining RJR in 1980. Prior
to RJR in Hong Kong, he was General Manager RJR
Great Britian.
au
JjLRLn - JTI continues an aggressive new products
program, with focus on lower tar box products.
Several launches represent the results of
innovative technology (i.e., bevel box,
rounded-corner box
and holography on packs). Box launches have
generally been priced Y20-Y30 higher than similar
soft
cup styles of the same family. Since August, the
following brands have been introduced:
Cherokee Box (Y250. 7 mg tar, Tokyo area)
Peace Lights Box (Y240. 11 mg tar, National)
Mila Schon (Y300, 9 mg tar, nonmenthol /menthol
100s. rounded-corner box, Tokyo/Osaka/Nagoya
areas)
JTI's October price increase an Peace and Mope
brands (Y220 per 20 sticks to Y240) suggests a
willingness to risk volume in favor of higher
quality imagery and higher profits. The trade
press
speculates that this price increase is designed to
measure the effect of a more widespread tax/price
increase.
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