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WINSTON-SALEM, N.C. -- R.J. Reynolds Tobacco Holdings Inc. Wednesday announced a significant restructuring of operations in which the number-two tobacco company will overhaul marketing efforts to focus almost exclusively on its two major premium brands, in hopes of stimulating slumping sales. The move also includes comprehensive changes to the tobacco company's promotional and marketing efforts at the retail level.
Additionally, as part of its overall market strategy, RJR is reducing its workforce by 40 percent, a move that will eliminate about 2,600 jobs.
Reynolds Tobacco's brand-portfolio strategy will focus on delivering "improved profitability through greater emphasis on its premium brands with the highest growth potential," the company said in a statement. Previously, the Winston-Salem, N.C.-based company's strategy was to stabilize and grow the market share of its four core brands: Camel, Winston, Salem and Doral.
Going forward, marketing investment will be primarily focused on Camel and Salem to achieve market-share and profit growth. RJRT will make more limited investments in its two other key brands, Winston and Doral, to optimize profitability on those brands.
The company's top priority is to maintain the growth momentum on its Camel brand, which has been growing since 1987. Camel is performing well in key growth segments of the U.S. cigarette market. "Camel's growth is driven by its strong positioning, innovative marketing and highly differentiated product line," the company said.
The second investment priority is positioning the Salem brand for growth. "Reynolds Tobacco believes there is significant potential for Salem in the menthol category, which accounts for 26 percent of the U.S. cigarette market," the company said.
"As the company's two growth brands, Camel and Salem offer a powerful and complementary share and profit growth opportunity for the future. This combination gives RJRT a single brand focus in both the non-menthol and menthol categories," said Lynn Beasley, president and chief operating officer of Reynolds Tobacco.
On Winston and Doral, a new limited investment strategy will emphasize profitability. "Both brands have strong equity, consumer awareness, and regional strengths. We will seek to leverage these strengths with targeted equity investments and competitive pricing levels," , Beasley said.
In order to maximize saving and profitability, Reynolds also said it would revamp its promotion tactics in convenience stores and other retail outlets. Marketing and sales programs have been overhauled "to gain efficiencies while maintaining effectiveness in the marketplace," the company said. "Seeking a competitive edge with innovative and creative programs will continue to be part of the marketing strategy, but tactics are being modified to significantly reduce costs.
Changes in the company's sales programs focus resources on the new brand priorities, and align costs to compete more effectively within the cigarette category.
"Key elements of the marketing programs for Camel and Salem will be communication of brand positioning, event marketing, and product and packaging differentiation," Beasley said. "Equity support for Winston and Doral will be focused on achieving marketplace presence and maintaining relevance among adult smokers."
Reynolds plans to gain efficiencies and reallocate promotional spending by reducing "free product promotions, tailoring retail discounting geographically and by brand, and expanding direct-mail support." In addition, Reynolds will conduct ongoing testing of alternative discounting levels by brand to determine optimal price points.
Beasley said the new sales programs would continue to ensure effective price and promotion execution, product availability, and brand presence. "This year, we have already made modifications to our sales programs to reduce costs and gain efficiencies," she said. "We changed our returned goods policy, revised our retail and wholesale programs, and ceased supplying retail fixtures to the trade. We will be making additional changes in retail programs, which will be communicated to the trade in the near future."