May 24th, 2011

Reynolds to Begin New Tobacco Ad Campaign

The Wall Street Journal

Tobacco giant Reynolds American Inc. is seizing on new antismoking laws in New York City this week to launch an advertising campaign for Camel Snus, its small but growing smokeless brand.

Full-page ads beginning Monday in The Wall Street Journal, USA Today, the New York Daily News and other newspapers will urge smokers to drop their cigarettes for Camel Snus, a type of spitless oral tobacco that comes in pouches.

The ads will coincide with a significant expansion of antismoking laws in New York City that will take effect Monday. The city ordinance, signed by Mayor Michael R. Bloomberg in February, prohibits smoking in 1,700 city parks, along 14 miles of public beaches and in other public areas such as pedestrian malls.

“Smokers, switch to smoke-free Camel Snus and reclaim the world’s greatest city,” says one of the ads, which will run in various forms all week in a handful of newspapers.

The ads highlight a wider effort by Reynolds to counteract continuing declines in U.S. cigarette consumption by encouraging smokers to try its smokeless-tobacco products. Reynolds makes no health claims about Camel Snus—something that would be exceedingly difficult to do under federal tobacco law. But scientific research shows that snus, a type of tobacco that was popularized in Sweden, is significantly less harmful than cigarettes.

The 2009 law that empowered the Food and Drug Administration to regulate the tobacco industry sets a high bar for companies to market products as posing less harm than cigarettes. Under the rules, companies must furnish scientific evidence to the FDA that a product not only would reduce harm for individual tobacco users, but also provide a net benefit to the U.S. population’s health.

U.S. cigarette consumption has been declining at about 3% to 4% annually in terms of volume, while the smaller smokeless category has been increasing about 6% to 7% a year, according to a report this month by Wells Fargo Securities analyst Bonnie Herzog.

The heightened emphasis on smokeless tobacco by Reynolds, the second-largest U.S. tobacco maker by sales, and larger rival Altria Group Inc. has fueled a debate in the public-health community.

Some public-health advocates, pointing to the difficulty of quitting smoking, argue that products like snus could play a role in reducing tobacco-related harm. Others say the products may entice more people to take up tobacco, and could keep smokers who otherwise might drop tobacco altogether from doing so.

Reynolds says that Camel Snus, which has been sold nationally for about two years, is the top-selling brand in the small but growing snus category in the U.S. Altria’s Philip Morris USA unit sells Marlboro Snus.

Reynolds Chief Executive Daniel Delen said in an interview that snus “is a viable product category already” in the U.S. “Growth is kind of linear and steady.”

He said prospects for long-term growth look good, noting that many users are in their twenties.

Still, he said, the Winston-Salem, N.C., company still has “a lot of education to do” to explain the product to smokers and tempt them to try it.

Wells Fargo Securities’ Ms. Herzog said that smokeless tobacco carries sharply higher operating margins. Reynolds’s American Snuff unit, its main smokeless division that sells Grizzly moist snuff, generated a 52% operating margin—a measure of profitablity—last year. Reynolds’s main cigarette unit, which markets Camel and Pall Mall smokes and accounts for 80% of the company’s profit, posted 29% margins.

Read more: http://online.wsj.com/article/SB10001424052702304066504576339263433066524.html

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