Before I continue, the inner surgeon general in me must make an admission: The popularity of smoking is on a downturn because, duh, it's bad for you. From that perspective, of course, declining sales is a good thing. Nobody denies that. But the debate over the ethics of investing in cigarette companies isn't the topic of discussion today. Health risks aside, let's look at Altria purely from an investing standpoint, shall we?
Cigarettes’ waning popularity in the U.S. was part of the reason Altria shed healthier assets like Kraft
Big, big mistake.
Altria's new products -- such as Marlboro Ultra Smooth cigarettes, spit-free chew, and a battery-powered unit that heats the tobacco rather than burning it -- have gone nowhere. This shouldn't come as much of a surprise. Consumer companies like Altria that derive success from brand-name recognition shouldn't be expected to excel outside their core competence.
Stick with what you know
Historically, when mammoth companies have ventured outside what they do best, the results haven’t been encouraging. Back in the '80s, Coca-Cola
What can the New Coke story teach Altria during this time of trouble? That it shouldn't underestimate the power of brand loyalty on specific products. People go gaga over $4 coffee at Starbucks
People don't buy Marlboros just for whatever pleasure they might derive out of smoking them -- they buy them because they've looked and felt the exact same way for as long as they can remember. When Altria starts throwing its name willy-nilly on products that will go nowhere quickly, it's threatening the one product that has made the company the best investment to own over the last 50 years.
Altria, your rehab is simple: Come to terms with the idea that the success of your company has absolutely nothing to do with innovation, and everything to do with the strength of your brand name. Pushing new products in an attempt to win back a few customers is borderline desperate. Industry sales are declining, yes, but your best hope for a recovery is to intrude on competitors’ turf, rather than creating a new playing field.
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