Tobacco Company Begins Direct Sales

L O U I S V I L L E, Ky., Oct. 13, 2000 -- Brown & Williamson Tobacco hopes to dofor cigarettes what L.L. Bean has done for khakis.

In what is believed to be the first time a major tobaccomanufacturer has moved into direct sales of cigarettes, B&W isbeginning to sell its less-popular brands through catalogs as aconvenience to smokers.

The intent is to maintain customer loyalty to its second-tierbrands, many of which get squeezed out by tough competition and arenot regularly stocked by retailers. Critics of B&W’s plans accusethe company of devising a creative way to undermine regulationsaimed at protecting children from the marketing of tobaccoproducts.

Like it or not, adult smokers in nine states will soon be ableto order B&W brands, such as Misty and Capri, by phone, fax ormail, and eventually over the Internet. The company said Thursdaythat it formed a subsidiary, BWT Direct LLC, devoted to catalogsales.

Thousands of catalogs will be mailed by the end of next week.

“Most retailers limit the cigarette brands and brand stylesthey stock, displaying only those with a significant marketshare,” said John Heironimus, president of BWT Direct and vicepresident of its parent company. “The result has been that manyloyal, longtime customers of some of B&W’s traditional productshave difficulty locating those products.”

But tobacco critics are suspicious of the venture, saying itseems aimed at building new customers. Anti-smoking advocates areparticularly concerned about protecting children from direct sales.

“What they are doing with catalog sales is opening up apotential whole new way to market their product,” said AhronLeichtman, executive director of Citizens for a Tobacco-FreeSociety.

“And while the industry says it is putting in place a strategyto prevent those sales to minors, in the past they have proven tobe ineffective in prohibiting those illegal sales,” Leichtmanadded.

Karen Brotzge, BWT Direct’s executive vice president, said thecompany will only send catalogs to smokers whose ages have beenverified and that it will only sell to people 21 or older. She saidthe company has hired a database firm to verify that customers areadults.

In cases where BWT cannot independently verify a potentialcustomer’s age, the company will send out an age-verificationpacket, she said. The packet must be returned with a copy of adriver’s license or other government-issued identification card.

“Without age verification, no purchase can be made,” Brotzgesaid.

B&W brands to be sold in catalogs include Carlton, Misty, Capri,Barclay, Tareyton, Raleigh, Belair, Tall and Silva Thins. Combined,those brands account for 3.5 percent of the total U.S. cigarettemarket, said B&W spokesman Mark Smith.

B&W is setting a minimum two-carton purchase through directsales, and the prices will not be less than what people pay atretail stores.

“We are not undercutting the market,” Smith, the spokesman,said. “We are just making sure there is a way for consumers to getthese products.”

The company’s best-selling brands — Kool, Lucky Strike and GPC —will not be sold in catalogs.

David Adelman, a tobacco industry analyst with Morgan StanleyDean Witter, credited Brown & Williamson with developing a uniqueway of attempting to prevent customers from switching to moreaccessible brands.

“It’s not an effort to make these powerful brands,” said Adelman. “These are brands thatare losing distribution. There are people who would like tocontinue smoking them, but they can’t find them. I think it’s areasonable alternative.”

Adelman did not express concern about minors gaining access tocigarettes through direct sales. He said the B&W brands being solddirectly are not popular among youths. What’s more, minors do notgenerally buy by the carton and they do not want to wait fordelivery in the mail, Adelman said.

Direct sales will begin in nine states — California, Kentucky,Florida, Georgia, Michigan, North Carolina, Texas, Oregon andMassachusetts — but will expand later on, the company said.

B&W said all excise taxes will be included in the price ofcigarettes sold directly.

“Almost all of the Web sites out there [selling cigarettes] donot collect taxes and do not ensure age verification as we do,”said Smith, defending the company’s venture, calling it thefirst of its kind in the industry.

Indeed, it is the marketing creativity that B&W has shown thatworries people like Leichtman. He said direct sales of cigarettesrepresent one more reason for the next Congress to take upregulation of the tobacco industry.

“Catalog and Internet sales are going to have to be dealtwith,” he said, “or else a huge loophole will be created in themarketing of tobacco products to youths.”