Tobacco Companies and Retailers Want to Legislate Philip Morris’ Program

By Al
McClain

A new coalition of six tobacco companies, led by Brown & Williamson and the Liggett Group, announced that they are seeking legislative relief at the state level from “anti-competitive” trade practices of Philip Morris.

The announcement came at the National Association of Convenience Stores’ (NACS) convention in Orlando. The coalition, called Retail Rights, is another chapter in a long-simmering dispute over the legality of Philip Morris’ trade marketing program called Retail Leaders.

The coalition includes nearly 13,000 retailers in addition to the tobacco companies. Members signed a statement accusing Philip Morris of attempting to dominate the cigarette business by forcing retailers to sell, display, and promote cigarettes according to rules determined by Philip Morris. Failure to comply results in a retailer’s loss off favorable pricing discounts.

Attorney Al Alfano, representing the group, gave these figures by way of background.

• Cigarettes represent 38 percent of c-store profits.


• Cigarette purchases are the leading reason for consumer shopping trips to convenience stores.


• Twenty-seven percent of c-store customers buy cigarettes – averaging four purchases per week.


• Sixty-two percent of cigarette customers buy other products on their visits.

Mr. Alfano noted that since cigarette manufacturers and retailers face many marketing restrictions, advertising, in-store merchandising and display agreements are especially important. Philip Morris has a 50 percent market share in the category, and the Marlboro brand alone is larger than all of the brands of the number two and three manufacturers combined. Because of this reality, c-stores must be able to stock Philip Morris products and get them at competitive prices, in order to compete.

Philip Morris is using its position as the dominant player in the category to its full advantage according to Retail Rights. The group claims that, since 1998, Philip Morris has used a “highly exclusionary program” called Retail Leaders to dictate what retailers can and can not do with Philip Morris products as well as with competitive cigarettes. Retail Leaders contracts make competing products “invisible” by relegating them to poor display locations and mandating inferior merchandising. While Philip Morris says the Retail Leaders program is voluntary, the Retail Rights group says it is a practical business necessity.

The group’s plan is to work in all 50 states to enact legislation to modify the program. It wants trade contracts to be based on display footage and not on a percentage of display space. This means that a retailer would not agree to give Philip Morris x percent of cigarette display space, but a certain number of linear or square feet. This would enable retailers to add additional space to the category in order to comply with the Retail Leaders program, and still have space for competitors.

Moderator’s Comment: Three questions…

1. Health issues aside, is Philip Morris competing fairly
   in the tobacco category?


2. Is it doing anything appreciably different than leading
   manufacturers in other large categories?


3. What’s the remedy to this issue?

Philip Morris has made a trade program offer that retailers
simply can not refuse, even if 13,000 or so of them would like to. When competitors
(especially tobacco companies) believe it is easier to attempt to pass legislation
in 50 individual states than to compete in the marketplace, you know there are
problems. [George
Anderson – Moderator]