PHILIP MORRIS SHIFTS FOCUS FROM CARTON SALES TO PACKS

JAMES TENSER

NEW YORK -- In response to continued evidence of price resistance in cigarettes, Philip Morris USA's trade programs for 1994 are calculated to steer supermarkets toward selling more individual packs rather than full cartons.

The shift in emphasis will become evident this month as the company looks to counter what Craig Johnson, vice president of trade marketing, called "an alarming trend in the supermarket channel with regard to cigarettes over the past year and a half."

Johnson said measures of supermarket cigarette sales showed a year-to-year drop-off of 13% as recently as May of last year, when the company began its widely publicized campaign to lower the retail prices of its major brands. That improved considerably by August (the most recent period available) to a 9% shortfall, which he attributed to the intense promotions and new lower price points. (Figures are three-month moving averages vs. corresponding periods one year earlier.)

By comparison, convenience stores -- supermarkets' major competition in cigarette sales -- recorded a year-to-year sales increase of 12% in May, which improved to 16% in August.

The main reason, Johnson said, is "increasing smoker interest in packs vs. cartons, which has been driven by the high price points for cartons."

Since convenience stores already were focused on pack sales, "they have met the need just by being there," he said.

For 1994 Philip Morris is trying to structure its supermarket category management programs to shift the focus from cartons, which are most often planned purchases, to packs, or impulse purchases.

"Under Retail Masters, our performance-based merchandising program, we compensate retailers for adhering to certain category-management principles. The more volume they do, the more we reward them," Johnson said.

Rewards in the form of trade money and other support also are allocated to retailers who support what the company sees as "category principles," he said. Key principles include: promoting the category, allocating sufficient space to sales, emphasizing packs and managing the discount segment.

Under the Retail Masters program, the major changes for supermarkets this year will be a greater emphasis on "announcing" the category in-store, as well as a greater emphasis on packs.

"Announcing" in-store means putting the right fixture in the right place, Johnson explained.

He said supermarkets often locate a carton fixture opposite a checkout lane, where it is confronted by customers at the end of the shopping trip. "Our advice is to locate that fixture somewhere in the store where customers can consider the category earlier in the shopping trip." He said Philip Morris's field force is working actively with retailers to try to identify the best locations.

A more basic objective, Johnson added, is more visibility, which he said could be achieved with new and better signs incorporating the Marlboro logo -- the signs serving as a "signal to smokers that cigarettes are sold here."