RETAILERS BREATHE EASY IN PHILIP MORRIS RECALL

RICHARD TURCSIK

NEW YORK -- The recall of Philip Morris cigarettes was handled smoothly and efficiently, with nominal returns by customers and even fewer customer complaints, according to retailers contacted by SN.

When the smoke clears, securities analysts who track Philip Morris expect the recall to have little, if any, lingering effects on the consumer products giant's cigarette sales.

Philip Morris here voluntarily recalled 36 styles of 12 brands of domestic cigarettes -- including market leader Marlboro -- on the eve of the Memorial Day weekend after it discovered a plasticizer used in the manufacturing of cigarette filters was contaminated.

The contaminant triggered a reaction that formed a substance called methyl isothiocyanate (MITC) in the filter. Cigarettes made with the defective filters may give off a noticeable odor and have a metallic taste. Continued use could also result in temporary discomfort, including eye, nose and throat irritation, dizziness, coughing and wheezing.

"This has really been kind of a non-event for us," said Al Young, category manager, Big Y Foods, Springfield, Mass.

"We've had very few returned cigarettes. We think our customers are either not buying the cigarettes until the new supplies come in, or they are still smoking the old ones," he said.

"We've had no customer complaints. We've had very few returns, and in almost every case where they returned them, the customers wanted to exchange them," said Jack Brown, chairman, president and chief executive officer, Stater Bros., Colton, Calif.

"We were back in business with Philip Morris in a matter of about six hours in all of our stores. The recall went very smoothly, and I think Philip Morris did a great job in coordinating the pickup of the product," he added.

The crisis was also relatively short lived at The Stop & Shop Cos., Quincy, Mass., according to spokeswoman Mary Jo Anderson.

"We heard about the recall 5 p.m. Friday and immediately broadcasted it to our stores. The very next day Philip Morris was in our stores and warehouses, and by Memorial Day all of our deliveries were right back on schedule," she said.

"At the store level we're getting some people coming back seeking refunds and we're giving them, but there has not been any major rush," said Donald Vaillancourt, corporate vice president, corporate communications and consumer affairs, The Grand Union Co., Wayne, N.J.

"In our customer service department we had only a couple of calls about the issue," he said, adding that Philip Morris products were pulled off Grand Union's shelves as soon as the recall was issued.

Bernard Rogan, public relations manager, Shaw's Supermarkets, East Bridgewater, Mass., said, "The media covered this recall pretty thoroughly on both the Friday and Saturday evening news. There were only some returns, and by and large it has not had a major impact on us."

Rogan said Shaw's became aware of the recall through its news wire and pulled Philip Morris products from the shelves of its 88 stores by early evening, hours before it was officially notified of the recall.

Food Lion, Salisbury, N.C., pulled all Philip Morris products off of its shelves late Friday evening, May 26, and distribution of new products was completed by May 31, according to Chris Ahearn, corporate communications manager.

"When we got the word we just sent an E-mail out to all of our stores and got everything pulled that night. Over the last few days Philip Morris reps have gone through all of our distribution centers for product to see if any of them were in the affected lots," she explained.

Ahearn said that as of June 1, only eight customers had called Food Lion about the recall.

Jan McKellar, advertising manager/public relations, for Spartan Stores, Grand Rapids, Mich., said the wholesaler notified its 475 retailers in Michigan, Indiana and Ohio with an urgent fax as soon as it became aware of the recall.

"We alerted them of the recall and advised them to pull the products immediately from their shelves. We let them know that a Philip Morris representative would be visiting the stores this weekend, and there was a WATTS line number for Philip Morris that we advised our retailers to call if they had any questions," she said, adding that Spartan's United Wholesale and L&L Jiroch subsidiaries, which distribute tobacco products, also informed their customers.

Mickey Clerc, director, advertising, Winn-Dixie Stores, Jacksonville, Fla., said Winn-Dixie worked closely with Philip Morris on the store level.

"Philip Morris had people in over the holiday weekend going through our stores and checking all of the inventory," he said.

Brendan McCormick, a Philip Morris spokesman, said Philip Morris had approximately 5,000 sales reps visiting stores over the holiday weekend, including representatives from its Kraft and Miller Brewing Co. sales forces and headquarters personnel.

Retailers who had their stocks inspected and replenished with new product received a blue Quality Label poster to place at the point-of-sale. The company also placed a full-page newspaper ad in 669 publications that listed an 800 number for consumers to call. It fielded more than 700,000 calls.

Securities analysts who track Philip Morris told SN they do not expect the recall to be detrimental to the company's sales and cigarette market share.

"This is as embarrassing as hell for Philip Morris, but at the same time it is not going to effect the business in a major way. Cigarette consumers are very loyal to their brand, so I don't think it is going to have a major impact," said Roy Burry, an analyst with Oppenheimer & Co. here.