PHILIP MORRIS OFFERS PACK OF ADVICE

RICHARD TURCSIK

NEW YORK -- Supermarkets can use category management as a tool to win back cigarette sales and market share, according to an official with Philip Morris here, the nation's leading cigarette manufacturer.

"We've had some interesting discussions with a number of customers in the supermarket channel who have lost a great deal of their volume to other stores and other classes of trade," said Craig Johnson, senior vice president of sales at Philip Morris USA. "We're now working with a number of these people to go and get that back. What is key about that is that they've gotten to the point where they realized the need to take a different approach to the category. So we have two parties coming together to work on one problem, as opposed to us coming in and dictating."

Johnson spoke at the company's headquarters during a press conference in which Philip Morris officials aired their views on cigarette industry matters. He defined category management as "making profitable business decisions based on what the customer wants."

Johnson said in the past many of the operating principles used by manufacturers actually encouraged retailers to take their eyes off of what sold in the category and concentrate on monies generated from the placement of in-store fixtures and point-of-sale materials.

"Quite frankly, we as an industry led retailers right down the garden path. We encouraged retailers to focus more on merchandising payments rather than selling the brands that the consumer wants."

Johnson cited Philip Morris' Retail Masters program, which began more than four years ago and is now in place in about 120,000 stores. The program involves showcasing the best-selling brands, including Philip Morris' best-selling Marlboro, and can be used to enhance a store's return on inventory investment.

As part of the Retail Masters program, stores need to "feature their biggest brands in the best positions to make it easy for the consumer to find the brands that they want. They also need to allocate space according to sales share. If stores are out of stock, consumers often go elsewhere. And if the inventory is devoted to slow sellers, retailers waste their money."

Johnson said stores should have highly visible signs that let consumers know cigarettes are sold there. "And they should emphasize packs. Retailers who don't just aren't in the game," he said.

"Retailers also should manage for profitability. Retailers need to make sure they maximize their penny profit per pack in all segments," Johnson added.

Johnson said retailers should emphasize high-margin premium brands because smokers of those products are more brand-loyal than discount and generic brand smokers, who will buy whatever is cheaper.

"Premium cigarette sales are growing and we can show retailers that premium cigarette transactions result in increased sales and higher profits and add-on purchases. So if a retailer decides to promote discount cigarettes, but ignores the power of premium brands, he is really flying in the face of what the consumer wants, and he is likely to pay a heavy price over the long term," he said.

Johnson said Philip Morris is improving its customer service department.

"We are completely revamping our business processes and our customer service organization. Ultimately, through technology and electronic data interchange, we believe we will take much of the human error and lag time out of the system. Technology will simplify the process and put more service in our customer service. The changes will be good for everybody down the line and will take costs out of the system.

"We are also looking into vendor management replenishment. In the future, we will collect information about wholesaler shipments to retailers and then use that information to ship product to wholesalers. So far it is in the embryonic stage, but I think it is an idea that will spread quickly, and allow us to be much more flexible," he said.