Cheap discount cigarette

Rising prices and wholesalers fed up with restrictive contracts pushed on them by big tobacco companies are turning the U.S. market into the land of opportunity for foreign-made cigarettes as seen by the proliferation of such discount brands at the International Tobacco Expo in Las Vegas last week. Ironically, some products, like Columbus, manufactured in Hong Kong and imported by Multinational Tobacco, Miami, are positioned overseas as an affordable full-flavored American smoke. Now that higher prices here are prompting consumers of value brands like Doral, GPC and Basic to consider alternatives, Columbus--discover of the Americas, get it?--is flaunting its American blend pedigree as a badge of quality priced between premium and generic cigarettes.

Roger, imported from Latvia by Carolina Tobacco, Richmond, Va., is a discount smoke with packaging that sports a premium look. Besides waving ties with Danish manufacturer House of Prince, Carolina declares the trade can "Buy Roger with assurance" because it belongs to the Master Settlement agreement, meaning it makes payments based on market share as prescribed by the $206 billion Medicaid settlement the industry hammered out with 46 state attorney generals. Many distributors refuse to buy from manufacturers that are not participating in the agreement, fearing state prosecutors would target wholesalers for liability if they did.

Other "premium American blends" looking for a U.S. home include Ideal, from Greece; Coronas from Spain; and Premium One, an Indonesian product imported by Kretek International, Moorpark, Calif.

Besides vivid POP and a Smokin' cover models' calendar from Kretek, none of the newcomers are sporting significant marketing war chests. Only now are they lining up distribution, thus making it quite unlikely for them to worry Marlboro anytime soon.

Still, that won't stop them from trying.

The Bulgarian-made First US, was among the early brands to hit these shores two years ago through Miami-based importer CanStar USA, which also intends to launch two premium brands in the coming months.

"Consumers are sick of what's going on with the big tobacco companies raising prices, and they're moving to alternatives," said Paul Embury, CanStar president. "The big tobacco companies are going to lose market share.

Indeed, average cigarette prices increased 28% during 1999 before a Philip Morris-led hike in January. Deep discount brands, such as Liggett Select, are taking sales away from savings brands like GPC, said Credit Suisse/First Boston analyst Bonnie Herzog, who predicts another modest price increase during the third or fourth quarter.

Trade sources anticipate a hike will result should a Miami jury deliver a verdict against the industry in a pending liability case. Punitive damages could hit a whopping $200 billion, perhaps inviting bankruptcy filings for some manufacturers and stirring uncertainty among retailers and wholesalers concerned whether a Chapter 11 company will stiff them on buydowns and discount payments.

Some distributors, tired of manufacturer program penalties for taking competing brands (Brandweek, March 13), are setting up second companies just to handle these deep discount products, per importers. However, some supply contracts with manufacturers will take away cash incentives even if affiliate operations ship third- and fourth-tier brands.

After rolling herbal cigarettes in 1998, Sante Fe Natural Tobacco's Natural American Spirit launches 100% organic cigarrettes in a tin. The premium product with 25 sticks, promises the trade a $3 mark-up.