When the Smoke Clears

Brad Burmaster recalls the day two RJ Reynolds sales reps visited the construction site of his new store, Light House, in suburban Chicago. The hardwood floor was in; the shelves were being delivered. Displays appeared as elaborate mini-stores for Camel, Winston, Doral – all RJR brands.

Their eyes fairly popped out as the reps asked, “How did a little Mom & Pop tobacco store get the company to do all this?”

Burmaster laughed. “I may look like a Mom & Pop, but I’ve got a $4 billion company behind me,” he told the reps, and introduced himself as vp-new business and retail development for Clark Marketing & Refining.

Soon enough, the Mom & Pops – and bars next door – will have the $70 billion tobacco industry behind them as marketing restrictions drivetobacco promotions into adult-only venues.

Light House is the brainchild of Glen Ellyn, IL-based Clark, whose 800 gas station/convenience stores make it an important outlet for tobacco, with $250 million in annual cigarette sales – for now. Light House is also the prototype venue for the future of tobacco promotion. No matter how much the federal government ends up restricting tobacco marketing, RJR, Philip Morris, and the rest will channel an estimated $3 billion worth of promotions into smoker-friendly locations where adults over 18 can stroll and smoke among an unrestricted display of brands. That makes bars and tobacco shops like Light House the future home of promotion. It also may give on-premise leaders RJR and Brown & Williamson an advantage over Philip Morris, whose promo strategy still relies heavily on mail-in sweepstakes and continuity catalogs – both endangered tactics.

Minnesota just brokered the toughest set of restrictions so far, and the Gear stops going out and billboards come down this summer (see sidebar). Congress continues to wrangle over how much to restrict tobacco marketing on a federal level. But the McCain Bill now under debate in the Senate and the four state settlements only address tobacco companies’ activities – not retailers or agencies. Legislation that restricts only tobacco companies leaves room for retailers to advertise and promote without restriction, so marketing agencies and retailers are poised to take the lead in promotion.

At least one agency, Chicago-based Draft Worldwide, plans to buy its way into smoker-friendly environs to craft more brand-conscious, lifestyle-driven promotion strategies for a segregated smoker society. Draft wants to acquire marketing companies capable of providing promotional entree to the adult market via bars and other venues.

“Bars will play a big role in tobacco promos because it’s the last environment that’s controlled enough for a promotion atmosphere,” says Draft Worldwide ceo Howard Draft. “Bars will be big promotion rooms.”

If the toughest restrictions are adopted, consumers won’t see cigarette promos until they’ve flashed some ID and entered a bar or other 21-and-over-only establishment. There, cigarettes will be marketed liberally without risk of reaching kids. This way, the bar or retail brand becomes the portal to cowboys and Camels.

Legislators are going easier on adult-only venues. A 1997 Minnesota statute that bans cigarette vending machines still allows them in locations “that are never accessible to children, such as bars where you get carded at the door,” says Doug Blanke, consumer policy director for the Minnesota Attorney General. “Just being a bar isn’t enough; it has to be a place where kids can’t get in the door.” That, in essence, is the line in the sand.

Even Infact, a Boston-based consumer watchdog group that has roundly criticized tobacco marketing practices in the U.S. and abroad, concedes that on-premise promotion may be appropriate. “If they could demonstrate that a promotion audience was really all adults, that would be within our goals of preventing a million teens a year from getting hooked on tobacco,” says Infact executive director Kathryn Mulvey. “But [promotional items] find their way into teens hands: One quarter of non-smoking teens have promotional materials.”

For legislators, the biggest promotion issue is to ban three things: marketing and merchandising that could reach kids; continuity programs that encourage increased consumption; and non-tobacco premiums with tobacco brand names.

For brand marketers, the biggest promotion issue becomes how to build image with little more than tombstone ads. It is the biggest marketing dilemma of the century, and the solution will be on-premise promotion, coupled with highly targeted direct marketing.

Turning on to Light House “We think the McCain Bill will force an adult-only environment, so the cigarette/tobacco store business is here to stay,” Burmaster says. But the business needs an upgrade from seedy joints in strip malls before in-store promotions can progress beyond price cuts and take over the task of image-building.

Light House is the first upscale cigarette store; it opened in Carol Stream, IL, in early June. Clark will fine-tune the prototype, and then open as many as five stores in a smaller market “so we can advertise enough to build the brand,” Burmaster says. Clark’s goal is to open 200 stores by 2001 and put Light House lounges in airports nationally.

The store has brand-dedicated sections along both walls, leading to a smoking lounge with coffee/juice bar and cigar lounge in the back. Portable promotional racks down the center of the store bear the Light House logo and discreet special-offer signs. Prices are comparable to Cigarettes Cheaper and Mom & Pop stores; the atmosphere is not.

RJR provided elegant display racks for Camel, Winston, and Doral brands, while B&W splurged on displays for Kool and Lucky Strike, including an elaborate guitar wall display for Lucky Strike.

Philip Morris declined to do special racks for a single store, so RJR and B&W have a rare shot at besting Marlboro. At Light House, the No. 1 brand is shelved in the back, near the smoking lounge, rather than its usual spot inside the front door in other tobacco stores. Philip Morris runs a category management program called Retail Masters that lets retailers choose their own level of participation in merchandising; retailers get a monthly payment based on their level of activity, not on volume sales. Although some retailers find Philip Morris reluctant to step up retail promotions, the company “runs lots of retail promotions every month” via Retail Masters, asserts Philip Morris spokeswoman Tara Carraro.

At Light House, RJR and B&W are locked in for promos through summer, and are “very interested in extending their bar programs here,” Burmaster says. Light House will hold Smoker Nights one Friday each month, with a barrel full of free cigarettes, live music and the like. RJR and B&W will provide product, and may bring their own promo ideas to Light House. B&W, which won accolades for its 1997 Lucky Strike guitar promo in bars, lent its Kool Indy racecar simulator for the store’s grand opening.

But Clark won’t let pack brands overshadow Light House’s own brand. “We want to keep our logo dominant,” Burmaster explains. “The more tobacco brands are restricted, the more they’ll rely on the Light House brand” to draw consumers. And “when Marlboro Gear goes away, they can rely on us for continuity programs” with Light House-branded gear.

To distinguish Light House from downscale cigarette/tobacco stores, “we’re looking for a point of difference in atmosphere,” Burmaster says. ” People are encouraged to smoke in our store and can buy coffee or juice in the smoking lounge.” Although women in focus groups told Clark that alcohol would ruin the atmosphere, “we’re stealing our promotion ideas from bars,” Burmaster grins.

Bar promos have become a staple for cigarette brands, which are now duking it out for exclusivity in big cities’ trendy nightspots.

RJR has been especially aggressive, sponsoring Camel Nights as part of its Camel Club program. That field marketing program sends sampling crews to visit hip nightspots and offer free Camels to patrons smoking other brands. Bartenders who smoke get free Camels when crews visit; drinks are served with Camel napkins, coasters, and matchbooks. RJR pays club owners a marketing allowance up to a reported $17,800 per venue for exclusivity. Lighted displays behind the bar replace vending machines, eliminating other brands. Clubs are also included in regular “Camel Page” ads in each city’s alternative newspaper, listing Camel-sponsored events.

Philip Morris has sponsored Bar Nights nationally for about eight years, hosting bands, games, and entertainment tailored to the city and the bar. Carraro won’t say how many cities Philip Morris targets, but says the program is national.

Philip Morris will tie its current Party at the Marlboro Ranch sweepstakes into Bar Nights, with instant winners picked from consumers who enter in the bar that night. Most of the sweeps’ 1,000 winners will be notified by mail that they’ve won $1,500 and a five-day trip for two to one of three Marlboro Ranches in Arizona and Montana. Winners must be smokers over 21; their traveling companions must be 21, but don’t have to smoke. Consumers enter via mail with entry forms at retail, in print ads, and at Bar Night events. Marlboro’s ad agency, Leo Burnett USA, Chicago, handles the reported $40 million summer campaign.

Philip Morris will continue to rely heavily on data-driven promos, like its quarterly magazine Unlimited Action Adventure Good Times, custom-published by Hachette Publications, and its Marlboro Gear catalogue, extended to Aug. 31 from its original June 30 expiration date.

Philip Morris holds a 52 percent share of the $70 billion tobacco market; Marlboro alone has a 37 percent share. Some retailers say Philip Morris sales reps cite the company’s market dominance as a reason to go light on retail promotions, worried that the Federal Trade Commission would frown on heavy retail promotions as an antitrust violation. Philip Morris headquarters says otherwise. “We’re completely unaware of any issue with the FTC,” Carraro says. “Our policy is to run retail promotions against business objectives [without] diminishing the brand equity we’ve built up over 40 years.”

Meanwhile, second-tier B&W is taking advantage of Philip Morris’s reluctance and driving hard into bar promos. B&W relaunched Lucky Strikes last fall with a new formula and a campaign targeting 21- to 25-year-old men. B&W courted trendsetters with a sweepstakes giving away custom-made Gibson guitars. Consumers entered through an elaborate in-bar display of a guitar in a lighted glass case. B&W put nearly 65,000 displays in urban bars; one now graces the Light House entrance. “This display may be the most expensive ballot box in promotion history,” quips one source close to B&W. “But bars have become the forefront of the tobacco battle, and if it takes that kind of investment to own them, it’s worth it.”

Lucky Strike and sister brand Kool continue to sponsor bar events and sampling programs via Flair Communications, Chicago.

Targeted mail will continue to play a key role for tobacco companies, who spent an estimated $300 million on direct marketing last year. With all the data that marketers have collected from smokers during the last few years, “tobacco companies know if consumers want to hear from them and what they want to hear,” says Laurel Rossi, chief marketing officer for Cyrk-Simon Worldwide. The Gloucester, MA, agency handles continuity programs for Philip Morris. “People sign up for continuity programs in droves – it’s clearly something they want. [Tobacco] is one of the few categories where consumers get back a large, valuable ‘thank you’ for their business.”

Direct mail also will become key to retailers as stores host more promotions. Clark tapped manufacturers’ databases to tell local smokers about Light House’s opening: RJR mailed Clark’s postcard to 8,500 people in a five-mile radius of the store. B&W and smokeless marketer U.S. Tobacco also mailed Clark’s card to local households in their own lists.

Light House will build its own database, projecting 7,500 names, addresses, and brand preferences within a year. The store will issue free membership cards so customers don’t have to show ID at each visit; cardholders get info on promos via mail. Tobacco companies can buy into Light House’s co-op mailings and reach all Light House customers, not just their own brands’ users. Light House won’t give its list to tobacco companies.

Events: Endangered Tobacco companies also are backing off event sponsorship. Observers assume it will be banned eventually, and meanwhile, it’s tough to sell co-sponsors for a tobacco-sponsored event, according to Lesa Ukman, president of sponsorship consultancy IEG, Chicago. The $236 million that tobacco companies spent on sponsorships in 1997 was only 4 percent of total North American sponsorship spending. That’s down from 12 percent of total spending in 1990, IEG reports. “No one goes after tobacco sponsors,” Ukman says.

Motorsports make up the bulk of existing sponsorships, $202 million. Another $11 million funds other sport sponsorships; the remaining $23 million covers music, arts, and entertainment sponsorships, according to IEG.

Still, grassroots events serve as “a precursor to getting people to raise their hands if they want to be part of what tobacco offers as a lifestyle,” says Cyrk-Simon’s Rossi. “Direct marketing to those people is the next logical step.”

In the end, no matter what the U.S. Senate decides, tobacco promotion will be about fitting brands into smokers’ new daily habits, and offering a smoker-friendly environment in an increasingly smoker-hostile world. Standing in the strip mall parking lot outside Light House, Burmaster points to a woman on break from the deli next-door, sitting on the curb for a smoke.

“That,” he says quietly, “is our customer right there. We just want to make clear it’s okay and give people a comfortable place to smoke.”

The tobacco companies may feel at home, too.

Minnesota is the fourth state to reach a settlement with tobacco companies, and its marketing restrictions are the toughest so far. Four tobacco companies will pay Minnesota a total of $6.165 billion over 25 years, including $100 million for research and $102 million for smoking cessation programs. The rest goes to the state general fund, with the legislature appropriating $650 million for “tobacco control purposes,” such as counter-advertising and education.

Mississippi’s settlement includes no marketing restrictions; Florida and Texas banned billboard ads.

On a federal level, the Senate continues to debate the McCain Bill, but observers won’t guess when – or whether – the bill might pass, or how dramatically it may restrict promotion.

Until federal legislation is passed, state attorneys general will continue to push for their own restrictions. That will result in a patchwork of rules that will make national campaigns difficult – and local-market promotions more inviting.

Here are highlights from Minnesota’s settlement with Philip Morris; R J Reynolds; Brown & Williamson, including American Tobacco Co.; and Lorillard. The bans don’t apply to smokeless tobacco products.

Banned * Product placement in movies: Companies can’t arrange for characters to smoke branded cigarettes, or hold, show, or use as a prop either cigarettes or items bearing a tobacco brand or logo. The ban covers any film made in the U.S. that’s shown in Minnesota. Similar voluntary restrictions have been in place for eight years, but haven’t made a significant dent in the number of cigarettes used in motion pictures.

“It’s considerably significant that we could get any provision applied nationwide” during ongoing Senate debates, says Doug Blanke, consumer policy director for the Minnesota Attorney General. “It shows that lawsuits by states can affect changes in national practices in this industry.”

* Marketing to kids: “Any action directly or indirectly to target children in Minnesota in the advertising, promotion or marketing of cigarettes,” the settlement reads.

* Billboards and transit advertising: No outside signs, including banners at arenas and stadiums.

* Branded premiums: “Manufacturers can’t sell, give away, or distribute to consumers branded items – anything with a brand name, logo, colors, or whatever a reasonable person would connect with the brand,” Blanke explains. That includes ad specialty items such as ashtrays, matchbooks, and coasters. “Anything with a utilitarian purpose is banned, no matter the minimal value,” according to Blanke. No premiums, no catalogues, no age limit.

Still Allowed – Sort Of * Point-of-purchase signage in stores, and signs on the outside of stores “as long as it doesn’t qualify as a billboard,” Blanke says.

* Self-service: The April 1998 settlement doesn’t extend a 1997 state statute that restricted self-serve of single packs except in locations never accessible to children. Tobacco companies can’t oppose any future restriction of self-serve distribution.

* Bar promotions: But brand-related premiums are banned. And cigarette sampling has been illegal in Minnesota for 10 years.

* Event sponsorship: But signs, ads, and brand-related premiums are all banned. “You can still cover Richard Petty from head to toe,” Blanke points out. “A lot of sponsorship isn’t dependent on billboards.”