Where there's smoke, there's Philip Morris USA (PM USA). A subsidiary of tobacco giant Altria Group, PM USA is the #1 US cigarette maker. The company also dominates half of the nation's retail cigarette market. Its Marlboro brand alone accounts for about 45% of cigarette retail sales in the country. Other brands include Virginia Slims and Parliament; its discount cigarettes are sold under the Basic and L&M names. PM USA also makes smokeless tobacco products, including Marlboro Snus. Altogether, cigarettes generate nearly 85% of its parent's revenues. Like industry rivals, PM USA faces declining cigarette sales volumes paired with rising state and federal excise taxes and FDA regulation.
Virginia-based Philip Morris USA owns and operates two tobacco manufacturing and processing facilities in the Richmond, Virginia area that produce cigarettes. The company also owns a research and technology center in Richmond. Its products are not sold outside of the US.
Sales and Marketing
Federal regulations severely restrict the marketing of Philip Morris products. Banned from television and print advertising, the company engages in one-to-one consumer communications—which include direct mail, email, consumer websites and consumer marketing activities—with age-verified adults 21 years of age or older. At the retail level, it presents its brands to legal-aged tobacco consumers at the point of purchase.
The company owns and operates an 18,000-acre ranch outside Clyde Park, Montana, which is used for promotional activities, meetings, and special events.
The company's largest customer is wholesaler McLane Company, which accounts for about 27% of Altria Group's sales. PM USA's Marlboro brand has been the best-selling cigarette brand in the US for more than 35 years.
While PM USA is the largest cigarette company in the US -- with total cigarette shipment volume of approximately 129.3 billion units in 2013 (down from 134.9 billion units in 2012) -- it's the biggest fish in a shrinking pool. While cigarette volumes continue their steady decline, smokeless tobacco products are gaining in popularity. Indeed, total smokeless products shipment volume was 787.5 million units in 2013, up from 763.3 million units in 2012. While parent Altria doesn't break out PM USA's sales, smokeable products accounted for 86% of Altria's $17.7 billion in sales in 2013.
Philip Morris USA is facing increased competition from lower priced brands sold by other US cigarette manufacturers, as well as foreign tobacco companies. Indeed, shipments of its premium, market-leading brand, Marlboro, has slipped from 121.9 billion sticks in 2010 to 111.4 billion in 2013. However, its retail share has held relatively steady at about 43% in recent years. Despite the competition from lower-priced rival brands, PM USA hiked the list price on all of its cigarette brands by 12 cents per pack in December 2012.
PM USA maneuvers within a regulatory environment determined to discourage people from smoking. The passage of the Family Smoking and Tobacco Control Act by the US Congress in mid-2009 gives the FDA unprecedented power to regulate tobacco offerings, including the authority to regulate marketing, ban candy flavorings, and reduce nicotine in products. As part of new FDA health warnings introduced in 2011, PM USA saw the most significant change to US cigarette labeling in more than two decades. The move directed that the graphic pictures and text must cover the top 50% of packs (the top 20% of advertisements) effective September 2012.
Altria has long tinkered with its tobacco business. The parent made its big move into the smokeless market in 2009 when it acquired UST. In 2008 it spun off Philip Morris International in an effort to separate its fast-growing international tobacco business from its lagging PM USA unit.