sample="quota" bates="2043919556" isource="pm" decade="1980" class="ui" date="19870620" SECTION OPERATIONS REPORT USA PHILIP MORRIS SECTION MANAGER Barry M. Hopkins HEADQUARTERS Detroit, MI MONTH: June 20, 1987 MARKETING CONDITIONS New PM Brand Introduction Cambridge Full Flavor The initial sell-in on behalf of Cambridge Full Flavor is currently in process. The acceptance to date is well received and we anticipate no obstacles in obtaining respectable distribution levels. The field also reports that the sell-in and prebooking activities are going exceptionally well in management and retail accounts. Chains have been very receptive to the 2 for 1 promotion, which will be starting in July. We have implemented a preselling attempt on behalf of 2 for 1 at retail, which is meeting with great success. Economic Conditions An article in the Detroit Free Press quoted a spokesman from R. J. Reynolds, who revealed that they are in the process of eliminating 2800 jobs in their sales department over the next year. He stated that this would be accomplished via retirement and natural attrition and that no layoffs would occur. The R. J. Reynolds spokesman attributed this cut-back to a shrinking cigarette market and heavy domestic competition. It is unclear, however, if this cutback will have an adverse affect on their field sales force, sales support or a combination of both. Locally, it is our understanding that only one R. J. Reynold's Division Manager has accepted this retirement package. Further more, we have found through a reliable source that R. J. Reynolds is offering two weeks salary for each year of service. Kroger is embarking upon an $80 million store expansion program which is projected to create up to 3000 new jobs in Michigan by the end of 1991 due. Over the projected five year program, Kroger will build 22 new combo-stores, which are the larger, state of the art, retail merchandising outlets. We will keep you apprised if additional information becomes available. The new antismoking law that was put into effect January 1, 1987, in the state of Michigan, is becoming increasingly wide spread throughout the business community. The state law is having residual effects on industry, offices, plants, factories and the like. More and more businesses are adopting nonsmoking policies in the work place, i.e. The Steel Case Company has proposed removing vending machines from their plants; Superior Oil is banning smoking on company property. If this type of activity continues to grow at an alarming rate, it will obviously have adverse effects on overall consumption. MARKETING CONDITIONS (cont'd) Industry Wholesale Distributors anticipated the recent price increase and we have found that most warehouses have an abundance of inventory on hand. Many of the distributors have voiced their concerns about the price increase in lieu of probably doubling of the federal excise tax. All distributors are in receipt of their allocation printouts and we have found that they are taking full advantage of the additional buy-ins. The Section sales year to date has realized a substantial improvement netting a 5.1% gain. This is largely attributed to the continued growth of the Marlboro, Merit and Virginia Slims franchises as well as the anticipation of the recent price increase. We are confident that our momentum in sales will continue on the positive side with the continued performance of the aforementioned brand families and the anticipation of the new product introduction throughout the balance of the year. II. MAJOR COMPETITIVE DEVELOPMENTS American Tobacco Major emphasis at retail is on behalf of the Malibu packing. Product is shipped from the manufacturer couponed at $3.00 off per carton. Sales Reps are aggressively attempting to place new grey, plastic value centers to house both Malibu and Lucky Strike Filters. Payment for these fixtures is based on store volume and number of shelves obtained. Top payment is $35.00 per month or $8.75 per shelf, per month (up to four shelves). Fixtures are six shelves high, four cartons wide and shelves are five high. An optional pack topper is also available and is used to display Malibu packs stickered at $.30 off per pack. There has been limited reports of B1G1F displays of Malibu. Due to monthly payments, American has been successful in placing these value centers, however, brand movement has been very slow. As these value centers are lightweight and easily put together, American Reps are carrying several on their cars and are able to make placement immediately upon acceptance. Malibu has been displayed in 30-unit bins offering B3G3F in K-Mart stores only. Emphasis on maintaining distribution and inventory levels on generic products. Reps appear to be more aggressive at buying space on value racks. They will pay $2.00 a row and want two shelves. An L&M Rep has told us that they will settle for less. Their requirement is that they be directly below the manufacturer or supplier of the rack. They are attempting to force American to purchase the bottom shelf or shelves at $3.00 per row. It appears likely that both companies will buy space in either location if it is good for their business. Reps are still attaching $1.00 coupon to Quality Seal generics along with talkers advertising the savings. New Quality Seal generics "gift shop" brochures are being promoted in all outlets carrying the brand. Reps are also placing cards advertising the new look of packs and cartons of Quality Seal generics. Instead of a black and white pack, they will look more like a branded generic with a red and blue colored pack. Not too many of the new packs have been seen to date. Lorillard Sales reps continue to promote Kent packings in 80-unit displays offering four AA batteries with a 2-pack purchase. Placement allowance is $4.00. Most brands continue to be couponed at a $2.00 off on an indiscriminate basis, depending on movement in each account. In all accounts, coupon emphasis is on Newport packings. Lorillard Reps report that their consignment fund currently $3,700. It has been reported that Sales Reps are paying permanent counter display payments in cash, but this has not been confirmed. The new True Silver packings are continuing to arrive in the field with little fanfare. To move out old style packing, Reps are attaching $1.00 coupons. Lorillard is terminating low-volume Plan A accounts, i.e. Schmuckal Oil, Woodland Oil and Blodgett Oil. MAJOR COMPETITIVE DEVELOPMENTS (cont'd) R. J. Reynolds Continued promotional activity on behalf of Salem Light 100's in the custom case. Placing 40-unit 2 for 1 displays with a $3.00 retail placement allowance. Retailers report fair to good movement. Sales Reps continue to attach $2.00 coupons to carton stock of Winston and Salem packings. In high-volume outlets, they are offering $27.00 for a 120-carton floor display of same. There is a new slogan for the Salem family, "The Refreshest", which is seen on billboards. Also, please see attached Direct Account Fact Sheet for the new Winston Lights Box product. Reps are beginning to make presentations on behalf of their new height-adjustable overhead package merchandiser. It has been reported that they are offering $15.00 per month for placement of these fixtures. Apparently, this payment is for small basket type pack displays that are attached to the legs of the overhead. Thus far, we have been unable to obtain any written contract on this. R. J. Reynolds has increased the coupons that they send out to people on a mailing list from $2.00 coupons to $2.50 coupons. A company called Rapid Response in Dallas is sending out product preference surveys. In addition to the survey, which also asks questions on smokers in the family, they also have a flyer in the envelope telling the consumer that they will receive $12.00 in cigarette savings by sending in the survey questionnaire form. Since R. J. Reynolds always advertises $12.00 saving packets, we assume this might be their offer. We will report more on any further information as it becomes available. III. TRADE CLASSES Wholesale Distributors On June 2, 1987, we attended the annual Michigan Candy and Tobacco Distributors and Vendors Association reception held at their headquarters in Lansing, MI. The reception followed their annual meeting of the board members. Representatives from most of the state's distributors were present. IT is our understanding that amoung many topics, the issue of the proposed federal excise tax increase was discussed along with the Association's plans to unite in their efforts to oppose this. The mood at the reception was somewhat apprehensive due to increased competition and price cutting by distributors and pending litigation between several Association members. At last year's reception, PM was the only tobacco company present. This year, representatives from all five of our competitors were in attendance. S. Abraham and Sons will be opening a new warehouse in Dexter, Michigan, within the next month. This facility will be used to supply product to stores they service in the Eastern portion of Michigan and Ohio. This warehouse was located in Dexter due to non-union labor. Fred Olert, Vice President of Sales, informed us that after the first 60 days in operation, he does not anticipate any slow down in volume at the Grand Rapids operation. SECTION ACTIVITIES (cont'd) We continue to work on our POS warehouse consolidation program. In the Detroit market, Divisions 41-05 and 41-06 will consolidate to one location. We can also incorporate the three local Retail Merchandisers into this warehouse. We are still negotiating in the Grand Rapids area with several warehouses to complete our consolidation program. Our project date of completion is July 1, 1987. All arrangements have been made for another successful Detroit Grand Prix. We have had excellent response from customers willing to attend this function and all sampling personnel will be in place during the weekend. Our thanks to Kathy Hookana's department for working closely with us and keeping us apprised of all developments. We will report on its success next month. During this reporting period, a congressional meeting was held with Senator Vanderjack of Muskegon. The Senator is very much opposed to federal excise tax increases and is supporting our efforts 100%. We continue to receive favorable responses from the trade for our efforts in this area and it was discussed at great length during the MTCDVA meeting that Philip Morris' aggressive campaign could have a definite impact on taxation. Arrangements have been made for our June Management Meeting concerning our new Plan A program. All field personnel are anxiously awaiting this information. We have established objectives for Plan A in our operation that will result in improved merchandising through increased rows, improved rack positioning and increased inventory. VII. SALES SERVICE We currently have two new Merchandising Assistants in the office. It is recommended that an additional training class be conducted to render training in support of the PC and MIDAS System. I would recommend that a class be held in Richmond or in our Section to accommodate these two new individuals to get them off on the right foot in their new assignments. We currently SALES SERVICE (cont'd) We have greatly enhanced our communications network throughout the operation with the introduction of beepers. We have found that this program has been most successful in providing excellent contact to improve merchandising and handle problems as they arise. We are currently considering the addition of three beepers that would be assigned to key personnel strategically located outside of the Detroit market for improved communications in these areas. IX. MEDIA DEVELOPMENTS The Grand Prix, obviously, draws a very large amount of attention and excitement prior to the actual race. There are a lot of radio and television advertisements announcing the event and pre-race activities, i.e. free tickets, local bar promotions from sponsors, etc. I feel it would be to our advantage if we look into increasing the awareness of Marlboro's participation in this event from a two dimensional aspect. First, billboards in high traffic areas with the Marlboro car appearing on the advertisement. Second, local promotional activities where we would have the opportunity to sample, give away incentives and free tickets to this event. In my estimation, I feel this would lend greatly to Marlboro's participation in this event. X. ASSOCIATIONS/CONVENTIONS All information pertaining to the Michigan Coin Machine Operators Association convention has been forwarded to New York. Mr. Joe Cook, President, would like us to sponsor a Saturday Night Cocktail party during this convention with a country music theme. He feels that Marlboro would be an excellent tie-in with his planned activities. During the convention last year, we sponsored a Hawaiian luau, which was a great success and we feel a country music theme would enhance our exposure at this meeting. Final details and cost factors will be presented once they are obtained. We have participated in four golf outings during the past month, which has been conducive towards building much needed rapport with several accounts. Additionally, we are able to ascertain information relative to high level management. We will also be participating in the Fontana Brothers and King Group trade shows next month. All arrangements will be completed and New York has been advised with all pertinent information. XI. MISCELLANEOUS COMMENTS Our thanks to Don Jennings and Jim Medina for their prompt follow-up towards our suggestion of last month regarding POS backorders. We feel with the expansion of an additional 30 days, we can better monitor this activity.