To be sure, the merchandising contracts are not pushing minor brands out of stores completely. Retailers have found that some deep-discount brands offer attractive margins compared with the big boys. But for the smaller players, getting their products into the store can be an uphill climb."The big manufacturers make the contract requirements difficult for retailers to understand so they don''t know what is allowed," said Keith Grover, marketing manager for Sante Fe Natural Tobacco, maker of Natural American Spirit cigarettes. "We try to understand those programs and explain to retailers that, for instance, temporary price tags on the rack are permissible. But there''s a lot of ignorance about merchandising programs and retailers are unable to make an objective decision about profitability. Many times they don''t believe us."In a more recent development, the big tobacco companies have been pushing their merchandising away from tobacco-only outlets and toward c-stores, where price is secondary to availability for customers already used to paying a premium for other purchases, per a recent Convenience Store News survey.

Star will not position its brands as safe cigarettes because there is no such thing, said Perito, but consumers should have access to labeling so they can make informed judgments, just as they do when they glean calorie and fat content data from food labels. Should such a move occur, the change would be no different from positioning light and ultra-light brands, which make no health claims but are perceived by consumers to carry the benefits of low tar and nicotine, said Bill Pecoriello, analyst with Bernstein & Co., N.Y. The McCain bill ghost haunts the vacant halls of Capitol Hill as members of the 105th Congress returned to their home states this fall, but Big TobacCo fought on in courtrooms of Minnesota, Idaho and Florida, among others-battling huge settlement payments and public relations nightmares. The McCain legislation, which allocated substantial tobacco pricing and marketing power to the Food and Drug Administration, was killed this summer, but its spirit is sure to ris again when the regulatory is. sue is readdressed.

The Big Two typically negotiate for 55% shelf placement. While the actual percentage varies per contract, Philip Morris requires participants in its Retail Leaders incentive program to give its products top-rack positioning. Similarly, RJR asks for No. 1 or No. 2 shelf position for its Retail Partners and, for certain levels of participation, no less than than 12 linear feet of display space for its core Winston, Camel and Doral brands. Window decals, signs over permanent displays and a dedicated area for flagging promotions are extras in both programs, earning retailers more bonus cash and benefits like coupon mailings to drive traffic to specific stores.One Tennessee operator of tobacco outlets and c-stores, who dropped the Philip Morris contract two years ago because of "unreasonable" demands for compliance and signage, was gently coaxed back into the program by a recalcitrant PM. This year, he''s allocating 35% to PM, 40% to RJR and 10% to B&W. But adding Philip Morris, he said, will force him to shrink his offerings of Lorillard and drop his contract with discounter Commonwealth.

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