Different fate for Reynolds and ITG Brands following acquisitions

tobacco companies acquisitions

Two top US tobacco companies, namely Reynolds American Inc. and ITG Brands LLC have both in the recent months managed to acquire some traditional cigarette brands, but their fates ever since seem to be moving in opposite directions.

Reynolds acquired the top-selling menthol brand Newport, though its deal to buy rival company Lorillard which was completed in June. Many saw this move as risky due to the fact that federal regulations and restrictions on menthol products are set to become even stricter.

Deeming that it was not likely to catch up with the top-selling traditional cigarette brand Marlboro , Lorillard had kept a conservative marketing approach to Newport when it owned the brand. However, when Reynolds acquired Newport, it proceeded with introducing extensions to its line and an increased and invigorated advertising and promotional effort that is expected to significantly increase its market share in 2016.

On the other hand, the market share of the ITG Brands has fallen since its parent company the Imperial Tobacco Group Plc has bought Kool, Maverick, Salem and Winston and electronic cigarette blu eCigs from Reynolds.

Through acquiring the four traditional cigarette brands mentioned above, ITG went from a 4% market share to a 10%, which however has subsequently fallen to 7,4%, with the Winston brand accounting for 2% of the market share.

Surveys among retailers indicate a belief that the share of ITG will continue to shrink, while Reynolds is likely to gain the lost percentage, especially since it will launch its every-day-low-price program for all its brands, including the newly acquired Newport. The program is a voluntary retailer contract, which entails pricing discounts to retailers of up to $4 a carton, or 40 cents a pack, off Reynolds’ best-selling brands. In order to be entitled to get the discount, retailers must agree that Reynolds’ Pall Mall will the lowest-priced cigarette sold in their stores.

As part of its deal with Imperial Tobacco, Reynolds had agreed to a six-month delay on adding Newport to the program.

Before the acquisition of Newport by Reynolds, the main leverage brand for participation to the program was Camel, which is the third most popular brand in the US with 8.3%, while Pall Mall follows suit with 7,8%.

Industry analysts attribute the problems faced by ITG to its lack of focus, because its brand breath is very wide, and also to the fact that when compared to Reynolds and Altria it has lost leverage. They recognize that increased promotional efforts for the Winston brand have taken place but say that the investment has not yet yielded the expected results and this is why they point towards the need for a chance in strategy for ITG.

On the contrary the outlook for Reynolds is very positive and it is expected to gain market share for Newport from the menthol styles of both ITG and Marlboro, while also gaining good support of the non-menthol Newport Smooth Select Gold style.