TOBACCO: Altria Drops New Filter Cigarettes, In Strategy Setback

The nation's largest cigarette maker, Altria Group
Inc.'s Philip Morris USA, has failed in yet another attempt to sell
Americans on a potentially safer cigarette, pulling the plug on
Marlboro Ultra Smooth, a version of Marlboro that used a
high-technology filter.

The product failure highlights the U.S. cigarette
giant's challenges in finding a source of growth to offset a worsening
decline in U.S. cigarette sales. In the past, Altria could offset
revenue decreases in the U.S. business with growth overseas, but Altria
recently spun off its Philip Morris International operations.

Now Altria derives virtually all its revenue from
Philip Morris USA, whose sales volume fell 4.6% last year, worse than
the 4% decline in the overall U.S. cigarette market. (The company says
"underlying" sales volume for 2007, adjusted for calendar differences
and other factors, declined by 3.6%.) Philip Morris USA executives say
they expect cigarette sales overall to decline at an annual rate of
between 2.5% and 3% in coming years. (See related article.)

To generate growth, Philip Morris has put effort into
engineering reduced-risk products -- so far without much success.
Marlboro Ultra Smooth was the product of a top-secret Philip Morris
project internally code-named SCOR, or Smoke Constituent Reduction, and
included an activated carbon filter that delivers nicotine but with
potentially less exposure to the carcinogens of conventional cigarettes.

Other failures include the Accord, which uses a
battery-powered holder to primarily heat, rather than burn, tobacco.
Deemed too strange for U.S. smokers to embrace, it was discontinued in
2006 after nearly a decade of consumer research.

In January, Philip Morris withdrew a so-called
smokeless product, Taboka Tobaccopaks. The "spit-free" product is
tobacco in small pouches known as snus (rhymes with "goose") placed
between cheek and gum. The company continues to test Marlboro Snus.

It has also been working on moist snuff, a category
that has been growing overall. A market test of Marlboro Moist
Smokeless Tobacco, begun in Atlanta in October, was recently expanded
to surrounding counties. But Philip Morris has had to slash the price
of the product sometimes known as "Marlboro in a can," sometimes to as
little as $1 a tin, down from the hoped-for $3.

Marlboro Ultra Smooth, which had been sold in Atlanta,
Tampa, Fla., and Salt Lake City for more than three years, drew little
attention from consumers. Philip Morris USA, which had hoped to market
the cigarette as a reduced-risk smoke, stopped making new shipments to
its wholesalers April 1. Remaining stock is still on sale. Its other
cigarettes with the new activated-carbon filters -- the Marlboro Ultra
Lights in Phoenix and North Dakota, and Basic Ultra Lights in
Washington state -- also were just discontinued, the company said.

"We basically conducted tests in these markets and
generally learned that there was low consumer acceptance...presumably
because they didn't think the taste and flavor was acceptable," said an
Altria spokesman, Brendan McCormick.

Several other cigarette makers have struggled to
develop "reduced-risk" smoking products without success. Most used
obscure brand names -- Eclipse, Quest, Advance -- that haven't caught
on with consumers.

These efforts have been under scrutiny by state
governments. Vermont, with assistance from attorneys general in
California and other states, sued Reynolds American
Inc.'s R.J. Reynolds over its marketing of Eclipse, claiming the
company doesn't have evidence to back up its health claims. Ads for
Eclipse, which mainly heats rather than burns tobacco, say it "may
present less risk of cancer" than traditional cigarettes. A Reynolds
spokesman said its claims for Eclipse are "supported by credible and
reliable information."

Write to Vanessa O'Connell at vanessa.o'

AMP Section Name:Tobacco
  • 182 Health

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