Lorillard Discusses Menthol Business
As the non-menthol segment of the cigarette industry accounts for approximately 70 percent of total sales, our recent national launch of Newport Non-Menthol was an opportunistic move designed to leverage Newport’s strong brand equity among adult smokers into this large market segment. In the past, we have test marketed a non-menthol Newport style on two separate occasions, most recently in 1999-2000, and believe that the time is right to offer a premium non-menthol product that delivers the high quality tobacco taste that adult smokers have grown to expect from Newport. Newport Non-Menthol was designed to have broad competitive consumer appeal among those adults who choose to smoke and prefer non-menthol cigarettes. The product was launched nationally on November 1, 2010.
What can you tell us about the upcoming FDA decision on menthol? What will the decisions be based on?
It is difficult to predict what action, if any, FDA or its Tobacco Products Scientific Advisory Committee (TPSAC) may take; however, we agree with Commissioner Hamburg that “the FDA regulation of tobacco products is a science based, science driven process.”
Accordingly, TPSAC’s evaluation of menthol must be science based and science driven, employing a transparent and open process that includes the input of all stakeholders. Menthol is by far the most studied of all ingredients in cigarettes. Lorillard has thoroughly analyzed and considered the abundant scientific knowledge on menthol. The most reliable scientific tools overwhelmingly show that menthol cigarettes have the same health effects as non-menthol cigarettes. We believe that if TPSAC adheres to these principles, it will also conclude that menthol and non-menthol cigarettes do not differ in terms of public health impacts.
What could be the effect a potential menthol ban could have on Lorillard?
While we believe that an FDA decision to ban menthol is unlikely, such action would have the potential of fueling a vast underground contraband market resulting in increased sales of unregulated and untaxed cigarettes. To the degree this occurs, cigarette sales volume through legal channels could be reduced as previous menthol cigarette smokers seek cigarette products through other sources.
Lorillard recently launched www.understandingmenthol.com, why was that important to the company?
As previously discussed, we believe that the best available scientific evidence demonstrates that menthol cigarettes have the same health effects as non-menthol cigarettes–and that Americans have a right to make a personal choice to use any legal product. Our website, www.understandingmenthol.com, informs readers as to the FDA’s power to restrict or ban menthol cigarettes and explains the compelling scientific evidence showing that menthol cigarettes should be treated no differently than non-menthol cigarettes.
With your CEO’s background being in smokeless tobacco, is that a direction Lorillard might go in the future?
As we have previously discussed, and just as you would expect for a CEO joining a new company, the management team and our board of directors are currently engaged in a strategic review process. While there is clearly no need for course-correction on the business at Lorillard, we also believe that there may be further opportunities for growth in the company.
Smokeless tobacco is an area that we have identified previously as one of those areas of potential growth, but given Murray Kessler’s background in smokeless, the company is also keenly aware of the challenges of entering the smokeless market in a meaningful way. While it is premature to discuss specifics at this point, the review will take place over the next several months with the overriding objective to ensure that the high performance investors and others have come to expect from Lorillard in the past is sustained over the long term. We expect to be in position to share the results of that process this year, which in any case will build upon our already strong current strategy.
