Smoke Screams
No court date has been set for R.J. Reynolds’ antitrust suit against Philip Morris, but the case is gaining momentum. Brown & Williamson and Lorillard Tobacco Co. filed similar complaints, and the court granted PM’s request to consolidate all suits. Also, Southland Corp. and at least one other retailer signed a declaration supporting RJR’s claim that Philip Morris’s Retail Leaders trade promotion program unfairly restrains competition.
The case is crucial for tobacco marketers, who rely on in-store display now that ads and promotions are tightly restricted. It also holds implications for packaged goods marketers’ category management programs: How much partnership with retailers is too much?
The suits, all filed in March in federal court in Winston-Salem, NC, allege that Philip Morris demands so much display space from retailers and restricts price promotion so severely that it shuts out competitors. The Retail Leaders program, launched in October, reportedly requires retailers to give all visible shelf space to PM brands. Retailers are prohibited from discounting non-PM brands for three weeks each quarter while PM does competitive buy-downs. Retailers who don’t join Retail Leaders get far fewer promotion discounts.
Parts of Retail Leaders “put us between a rock and a hard place,” says Tom Bonfiglio, category manager for cigarettes and tobacco at Southland Corp.’s 7-Eleven. “Some parts would inhibit us from maximizing opportunities with all manufacturers. It restricts us from managing the category the way we’d like to.”
7-Eleven is considering a new level of Retail Leaders that PM proposed in early May. It asks for a lower percentage of “highly visible” feature space, Bonfiglio says, but still requests the same amount of shelf space. PM also told retailers it would withdraw restrictions on competitors’ price promotions.
The pressure is still strong. “You’re either in or out,” Bonfiglio says. “Philip Morris’s buy-downs and value-added offers for non-participating retailers pale compared to [Retail Leaders] participants.” Without the same buy-downs other retailers get, “we’re in a tough spot,” he says.
“Philip Morris’s restraints make brands virtually invisible. They’re attempting to monopolize the retail cigarette market through exclusive contracts,” says RJR spokesman Seth Moskowitz, who wouldn’t give details of RJR’s own trade promotion program, saying only: “Our program is based on allowing fair competition in the marketplace. We encourage competition rather than exclude it by allowing competitors access to visible display space.”
PM spokeswoman Tara Carraro declined to discuss Retail Leaders or details of RJR’s suit, which she calls “completely without merit. Philip Morris USA competes vigorously and in full compliance with all applicable laws. Our retail incentive program is no exception.”
PM is by far the category leader, with nearly half the market; RJR’s share is 25 percent. But RJR has leapfrogged PM in display design: A Camel display for adult-only cigarette stores won top honors at the Point-of-Purchase Advertising Institute’s OMA Awards. Similarly elaborate displays for Winston and Doral could be installed in more stores this year.
The suit is not specifically about category management, but is “a shot across the bow to all manufacturers that they’d better have their facts straight, and not make up research” when pitching retailers on display changes, says Jack Ryder, president of Cannondale Associates, a Wilton, CT, category management consultancy. “A lot of manufacturers are pretty loose with [blurring] fact and opinion. No one’s ever been sued for sharing accurate research.”
