All naturalPositioned as an all-natural, premium brand priced at 25 cents to 85 cents higher than standard packs, Natural American Spirit contains a blend of tobacco with no stems or artificial flavorings. For the menthol items, a chamber containing natural menthol is infused into the center of the filter to release a vapor into the smoke as it is inhaled--no menthol is added to the tobacco. Medium and light filter cigarettes have increasingly dense filters and porous papers to dilute the smoke with more air."The real benefit of carrying them is the trade margin," Tully said, with an average profit per pack of $1.02.Regionally popular in New Mexico, California, Oregon, Michigan, New York and Chicago, Tully reported the brand''s compound annual growth rate over the past eight years as 17 percent. This month the company will introduce a tobacco-free herbal cigarette and, by next January, will offer all varieties in hard packs. When the Master Settlement Agreement imposed marketing restrictions, Philip Morris and R.J. Reynolds back with tough tactics to squeeze their competitiors off shelves.

Star to Use, but Not Tout, Carcinogen-Lowering ProcessStar Scientific next month will be among the first tobacco companies to offer cigarettes with reduced carcinogens at retail when it begins phasing into its four discount brands--Gunsmoke, Vegas, Main Street and Sport--tobacco processed through a patented two-step curing process that reduces nitrosamines, the most abundant and powerful carcinogen in tobacco and tobacco smoke. Within three years, every cigarette from the Petersburg, Va., manufacturer will contain the specially cured tobacco, and major player Brown & Williamson has contracted to use Star-cured tobacco in some of its cigarettes.Trade sources said Star''s move anticipates what is regarded by some as the inevitable move in Washington to put regulation of the industry under the Food and Drug Administration. The expectation is that, just as labels tell consumers how many grams of polyunsaturated fat are in a bowl of cereal, smokers someday will see cigarette packaging disclosing the quantity of toxins in their favorite brands. However, Star will not flag these changes in packaging or ads until more science is available to convince the FDA and Federal Trade Commission about the benefits.

Driving his and other retailers'' decisions are incentives given for top brands like Marlboro, with its dominant 38% market share in the first quarter, per company figures. Those who don''t receive some of the lucrative buydowns and promotions risk seeing consumers flock to participating stores where the brand is cheaper.A similar phenomenon is occurring with RJR''s Everyday Low Pricing program. EDLP stipulates that retailers stock a Reynolds deep discount brand, like Best Value or Monarch, and ensure that no other cigarette in the store will undercut its price. Doing so earns participants an extra dollar buydown on Doral, the branded savings smoke whose market share fell 0.5% to 6.2% last year thanks to cheaper, deep-discount brands, also dubbed "fourth-tier" cigarettes because they rank below private-label, branded savings and full-priced premium smokes.Fourth-tier cigarette producers, particularly foreign manufacturers not subject to huge MSA outlays, are discounted as low as $16 a carton, versus $21 a carton for branded savings cigarettes. While premium brands were able to boost market share slightly to 74.2% last year, branded savings cigarettes--including B&W''s GPC, RJR''s Doral and Philip Morris'' Basic--slid as consumers traded down to the cheaper alternatives.

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