Altria to Market the E-Cigarette, Malboro Looses its Sheen

It will compete with lesser known and smaller companies in this niche market. The company based in Richmond, Virginia has issued a statement indicating that the e-cigarette will be introduced into an undisclosed market. Further details of the company’s plans will be revealed in June. Altria Group Inc. (MO) which sells more tobacco than any other US company is planning to launch an electronic cigarette this year.

The company’s foray into this niche segment has come on the heels of over 5 percent fall in its revenues and an equal fall in sales of Malboro, its top product by sales. Mr Martin Barrington, Chief Executive Officer of Altria States that Altria will have to compete with existing players in the market like NJOY and Lorillard Inc. (LO). The latter claims that its blue Cigs brand corners more than 40% of the US market.

According to Christopher Growe, an analyst at Stifel Financial Corp., Altria is well equipped with sufficient resources and it can leverage its existing strong sales force and marketing network to be a dominant player in the market. He therefore considers Atria to be a good investment.

Altria’s shares have shown a rising trend. The shares have outperformed the Standard & poor’s 500 Index while gaining 13 percent compared to the increase in the index by 11 percent.

Kenneth Shea, An analyst with Bloomberg Industries predicts that Altria may look to grow inorganically by acquiring a company producing electronic cigarettes. It may be recalled that the company had earlier acquired the maker of snuff, UST Inc., in the year 2009 to mark its entry into the smokeless tobacco niche market.

A glance at the balance sheet shows cash and cash equivalent of $3.78 billion as of March 31. This is an increase of $0.88 over the position as of December 31. The company, however, declined to comment on whether it would take the acquisition route or if it planned to use its current brands to launch electronic cigarettes.

The marketing strategy of Altria for electronic cigarettes will need to take into consideration the rules that may be implemented by the US Food and Drugs Administration to regulate e-cigarettes.

Murray Kessler, CEO of Lorillard stated that as per company estimates, 600 million electronic cigarettes have been consumed in place of cigarettes during the first quarter. On an annualised basis this works out to 2.4 billion cigarettes or 1 percent to the total US market for cigarettes.

Altria is not the only cigarette manufacturer to feel the heat, with Reynolds and Greensboro and Lorillard also facing similar troubles.