Trends: Smoke Signals

In January, the Supreme Court of Canada gave its support to a contested law in the province of Saskatchewan that bans all P-O-P advertising in stores serving minors.The law, which even prohibits generic price signs, was passed in 2002 but was struck down one year later by a provincial appeals court. However, the Supreme Court recently ruled that the law did not conflict with existing federal regulations that restrict other types of tobacco advertising but don't address the store environment.Two other provinces, Manitoba and Nunavut, have passed similar bans, which have come to be known as "shower curtain laws" because they force c-store owners and other tobacco purveyors to cover their cigarette fixtures with opaque plastic sheets. Ontario and Prince Edward Island are expected to follow suit, in large part due to strong support for the bans from a variety of health organizations. (Rothmans Benson & Hedges, the tobacco company that has been fighting the Saskatchewan law, may launch another challenge.)Here in the U.S., the federal government's landmark Master Settlement Agreement (MSA) of 1998 placed heavy restrictions on print and outdoor advertising, event sponsorships and other forms of marketing, but basically left the store alone. (Broadcast advertising has been prohibited since 1971.)A bill that worked its way through Congress in 2004, however, would have chipped away at in-store advertising by imposing severe regulations, such as the prohibition of most color and imagery from graphics and a requirement that signs devote at least 20% of space to health warnings.Those provisions were attached to a more comprehensive bill that would have given the Food & Drug Administration authority to regulate tobacco advertising. The bill was passed by the Senate in October 2004 but stalled before a vote by the House of Representatives.Tobacco historically has been ranked among the leading categories for P-O-P spending. But the MSA's marketing restrictions never led to a rise in P-O-P expenditures although some studies have found an increase in the number of tobacco-related P-O-P ads in stores.In fact, cigarette companies spent just $260.9 million on point-of-sale materials in 2002, according to the Federal Trade Commission's latest report on the category's sales and advertising outlays. The total was down 8.2% from 2001 and nearly 35% from 1993, when P-O-P expenditures peaked at $400.9 million, according to the FTC, which requires tobacco companies to report their ad spending each year. While yearly P-O-P spending increased steadily from 1987 until 1993, it has fluctuated in the years since (see chart) and is largely dependent on the major fixturing initiatives of category leader Philip Morris and other big tobacco companies.What has gained momentum since the MSA was reached is the distribution of promotional allowances. In 2002, tobacco companies spent $7.87 billion to fund price discounts and $1.33 billion on slotting and display fees and other promotional allowances for retailers, according to FTC data. Allocations for discounts and allowances have nearly tripled since the MSA. With the ranks of U.S. smokers declining, municipal sin taxes dramatically increasing prices, and the MSA's financial impact on leading cigarette brands making it easier for smaller companies to enter the category, the "marketing" of cigarettes has largely become a price game and that doesn't necessarily require a "Sale" sign.

Trends: Smoke Signals

P2PI MEMBERS

JOIN P2PI

Related Images

Business Topic

Market Segment

P2PI MEMBERS

JOIN P2PI

Related Images

Related Articles

Business Topic

Market Segment