September 12, 2008

Declining Cigarette Use Only Bad for Reynolds

By Jack Markowitz

Only the addictive powers of Madame Nicotine can explain it. Otherwise, why would anybody still smoke?

Cigarettes are politically and culturally despised. Doctors condemn them. They cost too much, approaching $5 a pack. States keep banning them from friendly indoor places (but take the taxes). The taxpayer is not respected. People wave their hands and say, "Get out of here with that!"

Combined with lotteries, cigarettes also keep people poor.

You doubt that? Just watch the folks buying smokes and lottery tickets in a market checkout, spending say $10 a day, or $3,650 a year. Saved over 20 or 30 years, that would be a respectable old age kitty.

In general, upscale Americans long ago acknowledged the warning on the pack and quit. Cigarettes are bought today by the young, the lower-income and the too-well-hooked. It's a shrinking market, negative for jobs in tobacco country.

Reynolds American Inc. the other day said it is cutting 570 people, some 10 percent of its work force. Reynolds is the second largest cigarette maker. The largest is Altria Group Inc., formerly Philip Morris Inc., which shed a clouded image under a new corporate name but still moves mountains of Marlboros. Reynolds' job cuts will save the maker of Camels and Kools $55 million a year in payroll expenses long term.

A decade or so ago a shareholder drove down to Reynolds' headquarters in Winston-Salem, N.C., for the company's annual meeting. It was habit heaven.

The board chairman stood at the lectern, smoking from gavel to gavel. Complementary cigarettes were in trays around the lobby and inside the hall, stockholders unapologetically lit up! The air was not noticeably heavy -- air-conditioning is a wonderful thing -- but exhilarating in a way. The air of freedom!

The chairman at that time still hoped that cigarettes -- a "legal product," as he stressed -- wouldn't be as hammered by lawyers and legislators as they turned out to be.

In Pennsylvania, for one, only gambling interests count politically more than the anti-smoking lobby. A quarter of the vast floors in slots casinos is reserved for unimpeded puffery.

Bloomberg News said Reynolds' payroll savings may help it compete with Altria, which announced the purchase of UST Inc. A $10.3 billion purchase, if you please, for a maker of snuff. Or, smokeless tobacco, as the product is called in company literature nowadays. Snuff is a powdered form. It gives the taste when held between the upper lip and gums.

Doesn't sound terribly appetizing to a non-user, but at least the juices aren't launched into spittoons or onto the outfield grass as chewing tobacco was by executives and baseball players in a manlier age.

Reynolds plans to expand its line of snuff, too. Gotta do something. Cigarette sales have fallen 2 percent to 4 percent annually at least a decade now.