Reynolds American Inc. says its focus on innovation and the development of new product will allow the company to remain competitive in the face of declining smoking rates.
Reynolds American president and general manager Dan Delen said during a morning presentation investors on Monday that the company is focusing on long-term smoking on new products, such as chewing and his new electronic cigarette Vuse, which offer higher profits and more potential for growth.
“Everything we’re working on from an innovation standpoint has a higher margin than cigarettes,” Delen said. “I think we’re very well positioned in an evolving market.”
Officials with the Winston-Salem-based tobacco company (NYSE: RAI) said volumes grew this year by smoking categories such as moist snuff and snus, particularly among younger demographics, while cigarette volumes continue to decline.
But the division said that cigarettes are still the focus of the main business and the tobacco companies. He proposed internal mantra “80/90/90”, which reflects that 80% of the company’s resources are still in the area of combustible tobacco, 90% of its organizational resources are focused on this area, and 90% of its research and development budget is focused on fuel.
“This is a group that is still going to deliver a lot of growth in the future”, the division, noting that the U.S. tobacco market continues to offer a $ 14 billion “profit pool”, about 85 percent of which comes from cigarettes.
But the strategy of Reynolds American on the “transformation of tobacco” is obvious, so as division spent considerable time talking about the other categories except cigarettes in assisting companies to innovate.
Camel Snus product of the company, which no wet spit tobacco that comes in small pouches, carries more than 80% of the market and saw chewing annual increase of 8% to 10%. For comparison, the volume of cigarettes decreased by about 3 percent a year for the industry.
In growing electronic cigarette category, which offers users a nicotine vapor gives inhalation, the division said RAI subsidiary RJ Reynolds Company is preparing to make a pair of “sensation” after the launch of its limited Vuse product this year.
Delen said Vuse is more “digital cigarette” rather than because of its use of electronic computer chips that are said to help Delen offer experience closer to reality smoking. Delen said Vuse also installed on parts produced in the country, while most of the electronic cigarettes manufactured abroad. “We are not trying to make a small splash in the category” Division said. “We’re looking to make a big splash in the category.”
RAI also increasing its sector nicotine replacement therapy nicotine gum called Zonnic, in the first place will be sold in the gas station and store environments, and closely mirror the price of cigarettes.
Delen said that other tobacco companies are looking to emerging markets geographically build new consumers of cigarettes, while Reynolds American focuses on markets around new products.
“I really think we have the best emerging market exposure of any tobacco company in the world,” said division. “They are very relevant new categories and new products …. This ship will come back into balance.”