Strategies for Cigarette Business Viability
Distributors attending the AWMA REAL DEAL EXPO Thursday morning were urged to carefully assess their approach to cigarette sales in order to maintain viability in a difficult and challenging marketplace.
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photo by Mike Gatty
AWMA Consultant Kit Dietz says distributors value is under-rated, profits are far too low, and urges them to maximize warehouse-delivered snack sales. Dietz also warned distributors to carefully consider their cigarette strategies in a tough marketplace.
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Industry consultant Kit Dietz presented a detailed study of historical trends, business practices and market share, and advised distributors to do everything possible to work closely with major cigarette manufacturers who control more than 90% of the marketplace.
"Based on historical changes, the major manufacturers’ obligation to share holders, the importance of branding, growing share in a declining category and price gap management consider this: If your go to market strategies aren’t aligned to support their success, then you are competing against them."
Dietz said his analysis shows that reward for market share now affects approximately 81.6% of industry volume (combined PMUSA & RJRT share) terms rates and program dollars, and the "Big 3" manufacturers represent 90.9% of measurable legal volume.
"An over emphasis on the deep discount is not only a dangerous position to support," he cautioned, "but is not in line with the consumer’s preference for premium brands, which drive category volume today."
Dietz warned that "There is potential risk of greater program difference over time between distributors that support the major manufacturer strategies and those who do not."
While the cigarette business is still huge, it is declining, Dietz said, pointing out that the realities of the marketplace mean that major manufacturers must grow share and increase prices over time, while managing the price gap.
Premium and major manufacturer brands drive the business with 90.9% volume and
reward for performance is an important strategy that helps manufacturers reach consumers with their brands and brand messages. Programs, he said, require:
- High performance levels at retail to get maximum promotional funding
- Price leadership is necessary to grow volume and share.
- Meeting the established share targets in the PMUSA & RJRT wholesale programs are essential to be competitive. (terms & programs).
Dietz advised distributors to honestly assess their business and its sustainability and to be proactive by focusing on Premium. He urged companies to evaluate their brand selection by analyzing both customer and class of trade and current customer performance.
"Take action," he said. "If you aren’t performing, change what you are doing. Collaborate with manufacturer and retail partners for success. Redefine your brand mix, customer and class of trade focus."
Dietz suggested that some distributors should consider expanding their market area if needed, and even consider making acquisitions in order to generate the volume and sales needed to get the most benefit from manufacturer programs.
"Do whatever it takes and do it now," he said. "The transition period takes time, and there is no time to waste."
For more information on attending the REAL DEAL EXPO, contact customer service at either 800-564-4220 or 703-449-6418 or awmaregistration@jspargo.com
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