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.

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.

This summer Philip Morris, which supplies about half of America''s cigarettes with its Marlboro, Benson & Hedges, Merit, Virginia Slims, Parliament and Basic brands, introduced the Accord battery-powered cigarette, a pricey gadget that reduces sidestream smoke, ashes and most lingering odor. For $40, consumers get a carton of specially made cigarettes, a battery charger, an instructional video and a "puff-activated" electronic lighter that holds the cigarette and allows smokers to wait hours between puffs. Since Accord burns at a lower temperature than normal cigarettes, it could introduce fewer harmful chemicals to the body, but the packaging currently does not make health claims. The high-tech smoke is not blowing their socks off, spokespeople say, but they plan to keep working on it and expanding awareness through direct-mail of the product, which has been five years and over $200 million in the making.A reduced-smoke cigarette is also in the works for B&W, a company representative said, but additional details were not available at press time.

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