Aug 7, 2023·edited Aug 7, 2023Liked by Devin LaSarre
Hi Devin, appreciate your detailed analysis. May I get your view on these issues please?
1. While MO's data (Source: Circana Info Scan Cigarette 2023) showed that BAT's premium share declined by 0.5 pp from 32.2% in Q2 2022 to 31.7% in Q2 2023, BAT claimed that its share of the premium segment "grew to its highest point in three years". How do you reconcile the difference?
2. While MO has Marlboro Black to mitigate down trading pressure during recession / hyper inflation, BAT's Newport doesn't employ similar strategy to keep their less affluent customers engaged, but rather launched branded discount products such as Lucky Strike in response to the macro environment. When macro improves, do you think there will be a structural shift of market share to MO from BAT in the premium segment? (i.e. converting Marlboro Black customers to mainline Marlboro seems to be more frictionless than converting customers who down-traded to Lucky Strike or other deep discount brands to Newport)
3. Employee review rating and CEO approval rating on Glassdoor showed quite a huge discrepancy between Altria and Reynolds American. Does it concern you that, a corporation with unsettling employees may inevitably lead to weaker execution as compared to competitors? Sometimes I feel quite uncomfortable that BAT keeps parachuting senior executives with almost no U.S. FMCG retail experience to head Reynolds American (Ricardo Oberlander --> Guy Meldrum --> David Waterfield). When the market landscape is stable, it is ok. But when there's paradigm shift, such weakness could be exacerbated. In particular, it seems Altria and Billy know exactly what to do with downtrading as Billy remembered every detail from '08 - '09 and 01' - '02 and he knows which levers to pull in order to emerge stronger after the current hyper inflation period. In comparison, the senior executives of BAT look a bit clueless?
I have to concede my personal limitation in being able to reconcile the discrepancy. It's probably key to put more emphasis on trailing 1q for share, as figures are often reconciliated and adjusted following channel estimates. At the same time, it's probably fair to begin questioning market share entirely. Altria has stated its renewed focus on value share of volume share, and I think it's completely sensible. With this in mind, Marlboro Black Gold makes a lot of sense to keep consumers within family, albeit at lower end of prem spectrum. Allows PM USA to effectively communicate and target those consumers. While BATs discounted brands have been showing strength in volume share, discount is so unappealing for value share and profitability. Along with this, they had been more aggressive /w pricing in the few years leading up to recent, likely explaining why their volumes are under even greater pressure following vs. Altria.
BAT's shift in U.S. leadership is most welcomed. Altria's dominance in the U.S. space is tough to compete against. BAT also facing big risk /w pending PMTA on Vuse Alto. Can contest an MDO, but between dealing with that, failing U.S. Velo, and uphill battle as a laggard in combustibles, work is truly cut out for them to retain U.S. value.
Thank you so much for reading and taking the time to comment.
Really fascinating discussion of the dividend policy. I am fan of dividends over buybacks and I think Altria will be a good case study in the distinction.
Should USA companies start showing their products market shares against the total combined nicotine market to give us a true reflection of the changing markets. I’m estimating USA cigarettes decline rates going forward will be higher with people switching to vape and nicotine pouches.
Hi Devin, appreciate your detailed analysis. May I get your view on these issues please?
1. While MO's data (Source: Circana Info Scan Cigarette 2023) showed that BAT's premium share declined by 0.5 pp from 32.2% in Q2 2022 to 31.7% in Q2 2023, BAT claimed that its share of the premium segment "grew to its highest point in three years". How do you reconcile the difference?
2. While MO has Marlboro Black to mitigate down trading pressure during recession / hyper inflation, BAT's Newport doesn't employ similar strategy to keep their less affluent customers engaged, but rather launched branded discount products such as Lucky Strike in response to the macro environment. When macro improves, do you think there will be a structural shift of market share to MO from BAT in the premium segment? (i.e. converting Marlboro Black customers to mainline Marlboro seems to be more frictionless than converting customers who down-traded to Lucky Strike or other deep discount brands to Newport)
3. Employee review rating and CEO approval rating on Glassdoor showed quite a huge discrepancy between Altria and Reynolds American. Does it concern you that, a corporation with unsettling employees may inevitably lead to weaker execution as compared to competitors? Sometimes I feel quite uncomfortable that BAT keeps parachuting senior executives with almost no U.S. FMCG retail experience to head Reynolds American (Ricardo Oberlander --> Guy Meldrum --> David Waterfield). When the market landscape is stable, it is ok. But when there's paradigm shift, such weakness could be exacerbated. In particular, it seems Altria and Billy know exactly what to do with downtrading as Billy remembered every detail from '08 - '09 and 01' - '02 and he knows which levers to pull in order to emerge stronger after the current hyper inflation period. In comparison, the senior executives of BAT look a bit clueless?
Anthony,
Absolutely fantastic questions!
I have to concede my personal limitation in being able to reconcile the discrepancy. It's probably key to put more emphasis on trailing 1q for share, as figures are often reconciliated and adjusted following channel estimates. At the same time, it's probably fair to begin questioning market share entirely. Altria has stated its renewed focus on value share of volume share, and I think it's completely sensible. With this in mind, Marlboro Black Gold makes a lot of sense to keep consumers within family, albeit at lower end of prem spectrum. Allows PM USA to effectively communicate and target those consumers. While BATs discounted brands have been showing strength in volume share, discount is so unappealing for value share and profitability. Along with this, they had been more aggressive /w pricing in the few years leading up to recent, likely explaining why their volumes are under even greater pressure following vs. Altria.
BAT's shift in U.S. leadership is most welcomed. Altria's dominance in the U.S. space is tough to compete against. BAT also facing big risk /w pending PMTA on Vuse Alto. Can contest an MDO, but between dealing with that, failing U.S. Velo, and uphill battle as a laggard in combustibles, work is truly cut out for them to retain U.S. value.
Thank you so much for reading and taking the time to comment.
Really fascinating discussion of the dividend policy. I am fan of dividends over buybacks and I think Altria will be a good case study in the distinction.
Like most things, it all comes down to execution. Management catches a lot of flack - but this thing gushes cash almost regardless.
Nice post, Devin. Thanks, as always!
Excellent as always. Thanks for sharing.
Should USA companies start showing their products market shares against the total combined nicotine market to give us a true reflection of the changing markets. I’m estimating USA cigarettes decline rates going forward will be higher with people switching to vape and nicotine pouches.