Sales off? Raise Prices! says Lorillard.
Third quarter figures are in, and the stock market analysts at The Motley Fool report that Blu makers Lorillard have dealt with plummeting sales of cigarettes, and loss of e-cig market share to rival Altria and soon-to-be parner Reynolds, is to raise prices. Does that sound like typical Big Tobacco policy? You can say that again!
Wholesale shipments of combustible cigarettes were down 2.1% for Lorillard against a backdrop of a 2.3% industry average. The company's flagship brand, the menthol cigarette Newport, was down 1.4% but still dominates the menthol category with a 12.8% market share. The decline was more dramatic for the company's e-cig offering, Blu, which had almost half the market (49%) a year ago, and dropped below 30% this quarter.
Against this backdrop, the company eased the pain by pushing through price hikes, according to Rick Duprey of The Motley Fool.
The rollouts of Altria's MarkTen and Reynolds' Vuse took some of that share away, but one should not discount the growth of independent e-cig brands like Victory, Mystic, and Logic. Lorillard's woes will belong to Reynolds early next year, assuming their merger will go through without antitrust difficulties. And Blu's troubles will cross the Atlantic as part of the deal, as Britain's Imperial Tobacco begins "singing the Blu's" next year.
Lorillard bought independent e-cig company Blu in 2012, the first Big Tobacco acquisition in the vaping industry, and rapidly became the market leader. This led many to foresee complete domination of the vaping world by Big Tobacco, and led anti-vaping activists (who ignored the first 5 years of market development) to define vaping as a Big Tobacco ruse to hook youngsters on nicotine. For these reasons, the sale of Blu to Imperial as part of the Reynolds-Lorillard merger came as a big surprise to everyone. Then again, Reynolds has its own e-cig.
The even bigger story is the shift of the entire vaping supplies market toward open-tank vapor systems. It is beginning to look as though cigalike electronic cigarettes were merely the first phase of the vaping phenomenon. E-cig sales revenues declined 40% overall since last year, and Blu's revenues shrank by 75%.
Blu brought out its own vape-pen (a rudimentary version of an open-tank vaping system) called Blu Plus, claiming to provide longer battery life. "But . . . it comes at a lower price point, which means Lorillard (or Imperial, really) won't reap as much profit as it did when blu was the leading e-cig on the block," says Duprey.
Duprey opines that Lorrilard stock prices won't react much to the quarterly figures, since investors are more concerned with the merger and Blu's flight to Albion's shores.
He does predict that the quarterly report may well prefigure the likely performance of the newly structured Reynolds-Lorillard next year, after the merger and the transfer of the e-cig division have been effected.