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July 24th, 2016:

Japan Tobacco faces stiff challenge in trying to light up sales for discount brand

Jul 24th, 2016
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http://www.journalnow.com/business/business_news/local/japan-tobacco-faces-stiff-challenge-in-trying-to-light-up/article_b7e50712-471d-5066-bf6e-84ab3f5e47c6.html

The U.S. subsidiary of Japan Tobacco International is aiming to add more toes to its footprint through testing the parent company’s global discount cigarette brand in the Triad and Carolinas.

LD by L. Ducat comes in red, blue, green and silver packs in up to 10 styles. Its $2.81 price per pack is between 60 to 80 cents lower than the top discount brands of R.J. Reynolds Tobacco Co. (Pall Mall) and Philip Morris USA (L&M).

LD packs have been available on a limited basis since March, including at Hanes Mart Discount Tobacco at 370 E. Hanes Mill Road in Winston-Salem.

JTI describes LD as “a brand with reliable quality at an everyday price. It’s the No. 1 international value cigarette brand in the world.”

“It offers a competitive price and a high-quality product, giving a better choice to adult smokers.”

The marketing and selling of LD, which originated in Russia, represents a full-circle U.S. branding initiative by JTI.

The subsidiary was formed in 1999 as part of Japan Tobacco Group’s $8 billion purchase of the non-U.S. rights to Reynolds’ cigarette brands, including Camel and Winston.

JTI’s other U.S. brands are discounts Wave and Wings. Altogether, JTI has a 0.34 percent U.S. market share.

By comparison, Pall Mall has the No. 4 overall brand at 7.8 percent market share.

There also are a number of second- and third-tier manufacturers, whether branded or private label, that have focused on the discount market as many smokers sought — and stuck with — a lower-cost option during the economic downturn that began in fall 2008.

When asked why it is marketing and selling LD in just the Carolinas, JTI said that “with a deep tobacco history, the Carolinas are the ideal place to introduce LD by L. Ducat.”

“After evaluating LD by L. Ducat’s success in North and South Carolina, JTI USA will look into launching the brand nationwide,” possibly as early as 2017, the company said.

Competitor to Pall Mall

Sales of LD have been limited primarily because many convenience stores and tobacco shops participate in the Reynolds every-day-low-price program.

The program is a voluntary retailer contract that provides pricing discounts to retailers of up to $4 a carton, or 40 cents a pack, off Reynolds’ best-selling brands.

In order to get the discount, retailers must agree that Pall Mall will be the lowest-priced cigarette in their stores. The current participation rate is 60 percent.

Bonnie Herzog, a Wells Fargo Securities analyst, projects Reynolds could reach 75 percent participation now that it had tied access to Newport, the top-selling menthol brand, to the program.

Jacob McConnico, a spokesman for R.J. Reynolds Tobacco Co., said the manufacturer is aware of the LD entrance into the Carolinas.

“We are confident in Pall Mall’s competitive position that offers adult smokers the value proposition of long-lasting taste and premium quality tobacco at an attractive price,” McConnico said.

Pat Shehan, owner and operator of the Tarheel Tobacco retail chain, said he does not carry LD because of his participation in the Reynolds program.

“Their representatives called on me a couple of weeks ago and said they were having moderate success,” Shehan said.

“I think it will do well in non-EDLP stores, in part because they have hired former Commonwealth Brands sales representatives, so they have the retail and wholesale contacts to make it easier to gain distribution.”

Market share goals?

JTI did not provide a response when asked about its U.S. market share goals.

It entered the U.S. electronic cigarette sector in 2015 when it bought Logic Technology Development LLC. At last count, Logic was fourth in market share at 14.4 percent.

By comparison, R.J. Reynolds Vapor Co.’s Vuse is the top-selling e-cig at 35.7 percent.

Japan Tobacco’s interest in the U.S. market may be bigger than just introducing LD.

There have been analyst and media reports since November that Imperial Brands Plc may be up for sale, with British American Tobacco Ltd. the potential top suitor in a deal possibly worth $67 billion.

Imperial spent $7.1 billion in 2015 to buy four U.S. traditional cigarette brands (Kool, Maverick, Salem and Winston) and blu eCigs from Reynolds American Inc. and Lorillard Inc.

In the deal, Imperial’s ITG Brands LLC subsidiary acquired the bulk of Lorillard’s operations, including a Greensboro workforce of about 1,700 and about 2,900 overall.

ITG announced April 22 plans to eliminate 375 production jobs in Greensboro — about one-third of the production workforce — in preparation for the June 24 end of a reciprocal manufacturing agreement with Reynolds.

“We’ve long believed there would be further consolidation in the global tobacco industry with the four leading players reduced to three,” Herzog said. “A deal is very probable, and the most likely scenario is that BAT acquires Imperial.”

In a BAT acquisition scenario, Herzog said Imperial would let go of ITG Brands in a tax-free spin to shareholders and also divest brands in certain global markets to address antitrust concerns. Herzog said a potential spin transaction could command a valuation of up to $12 billion.

Internationally, Imperial is a distant fifth at 4.9 percent. China National Tobacco, which is privately held, owns 44.2 percent of the global market share, according to research firm Euromonitor. Among publicly traded companies, Imperial trails Philip Morris International (14.6 percent), BAT (10.7 percent) and Japan Tobacco (8.9 percent).

BAT likely would need to sell off ITG Brands to gain U.S. regulatory approval since it owns 42 percent of Reynolds.

Imperial’s U.S. market share jumped from 4 percent to 10 percent through the Reynolds-Lorillard deal, enabling ITG Brands to replace Lorillard as the smallest member of the Big 3 U.S. manufacturers.

However, since the close of the deal, ITG Brands’ market share has slipped to 7.7 percent, according to Herzog’s research. Imperial and ITG Brands said they are increasing Winston marketing to bolster U.S. sales.

Another, less likely, possibility is ITG Brands being bought by Liggett Vector, if it has the financial means to acquire a larger rival. Liggett has a 3 percent U.S. market share.

How Big Oil taught Big Tobacco to bend science

Jul 24th, 2016
by Editor.
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https://news.vice.com/article/hold-how-big-oil-taught-big-tobacco-to-bend-science

Over the past year, revelations about what the giants of the US petroleum industry knew decades ago about climate change have had a familiar ring to them.

Several observers picked up an echo of the same pattern that forced the American tobacco industry into a multi-billion-dollar court settlement in the 1990s: trying to cast doubt on the risks of the product, and denying publicly the hazards their own scientists told companies about privately.

Turns out there may be a reason for that.

Legal researchers have found stacks of documents they say demonstrate that as people started to worry about the toll cigarettes were taking on smokers, the cigarette makers turned to the same playbook the oil companies had written to head off worries about what the carbon emissions from burning fossil fuels were doing to Earth’s atmosphere.

That was a surprise to Carroll Muffett, the head of the Center for International Environmental Law. It wasn’t news that the two industries had collaborated, but most people had assumed that the strategy had spread the other way—that Big Tobacco had pioneered the plan, and Big Oil had run with it later.

“It shocked us. Not once, but over and over again,” said Muffett, whose researchers have spent four years digging through corporate and university archives to assemble what they’re calling the “Smoke and Fumes” papers. “But, in retrospect, it shouldn’t have.”

Other researchers have pointed to connections between the oil and tobacco industries in the last decade. Gretchen Goldman, lead analyst at the Center for Science and Democracy at the Union of Concerned Scientists, said the new documents reinforce those other links, but with a twist.

“This sort of flips it on its head—that it was the oil industry playbook that tobacco took, and they arguably were less good at it than oil,” she said.

Muffett’s organization has spent four years digging into the oil industry’s early research into carbon emissions and climate change. This week saw the release of the third round of documents in the “Smoke and Fumes” project, which outlines what American petroleum companies knew about the dangers of carbon emissions long before climate change became the hot-button issue it is today.

Muffett said the two industries often acted as corporate frenemies, with embattled tobacco executives sometimes expressing jealousy of their petro-colleagues. At other times, they tried to shift responsibility for their products’ problems to one another.

“Over and over again we see this mutual finger-pointing that, because it increases uncertainty, redounds to the benefit of both industries,” Muffett said.

Tobacco companies like Philip Morris turned in the 1950s to oil giants like Shell and the corporate ancestors of today’s Exxon Mobil for help analyzing what was in cigarette smoke and tar, the documents show. Shell and Exxon also designed cigarette filters using petroleum-derived fibers, the documents show. The oil industry was also trying to fend off concerns about air pollution and the use of lead as a gasoline additive, a battle it finally lost in the 1970s.

Muffett said that technology-sharing relationship soon led to the industries sharing a PR strategy as well.

“The tobacco industry is the very poster child for a corporate cover-up, the very poster child for a corporate and industrywide conspiracy,” he added. “The relevance of these documents is they demonstrate the tobacco industry in turn was looking to and learning from oil.”

Maybe, maybe not, said tobacco historian Louis Kyriakoudes, now director of the Albert Gore Research Center at Middle Tennessee State University. For instance, the tobacco industry knew before the 1950s that there were problems with its products, he said.

“This is an exciting line of research, and it’s an exciting arrow pointing us in a direction,” said Kyriakoudes, who testified in several of the lawsuits against the tobacco industry. But he said the question of who first wrote the playbook is less important than how the plays were run.

“These are common techniques that are being used by two powerful industries, and are continuing to be used by these industries even to this day”
“By the 1950s, it’s clear the both have a common origin in terms of strategy, setting a pattern of using science against the truth as opposed to using science to promote the truth,” Kyriakoudes said. “These are common techniques that are being used by two powerful industries, and are continuing to be used by these industries even to this day.”

The American Petroleum Institute, the oil industry’s leading trade association, did not respond to a request for comment. Nor did tobacco giant Philip Morris, whose executives feature prominently in the documents.

But ExxonMobil spokesman Alan Jeffers told VICE News via e-mail, “We reject long-discredited conspiracy theories that attempt to portray legitimate scientific observations and differences on policy approaches as climate denial. We rejected them when they were made a decade ago, and we reject them today.”

Prosecutors in at least 17 US states and territories are investigating whether ExxonMobil misled investors about climate change and its potential impact on the company’s bottom line. The company now says the risk is “clear and warrants action,” but has resisted shareholder efforts to asses just how risky it is.

The first “Smoke and Fumes” installment documented how leading researchers had verified the effects of carbon dioxide and other byproducts of burning oil, gas and coal on the atmosphere by the 1950s; the second, released in May, showed how the industry had explored technologies to reduce emissions in the 1960s—but ultimately decided to raise doubts about the science of climate change instead.

Goldman said the documents suggest that while Exxon “might have been one of the bigger actors” in that strategy, “it wasn’t the only actor in it.” And as with the tobacco industry, any future court cases could force oil companies to open up their own records.

“To me, what this does is sheds a much brighter light on that deep and long connection between the two industries, and shows it’s a little more organized and intentional than at least what I’d seen before,” she said.