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Reynolds American: Strengths and Opportunities on the Horizon

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Diverse brand portfolio

Reynolds American’s (RAI) biggest strength is its diverse brand portfolio. Reynolds American’s brands display a high level of brand identity and brand awareness with many well-known brands such as Camel, Pall Mall, Grizzly, Natural American Spirit, and Vuse. The company has built some of the best-known cigarette brands and has an overall retail (XRT) share of 26.5% in the US cigarette market.

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Strong research and development

Reynolds American has strong R&D (research and development) facilities, which help in developing innovative products. R. J. Reynolds Tobacco performs R&D for British American Tobacco (BTI) affiliates, pursuant to a joint technology sharing agreement entered into as a part of the Brown & Williamson business combination.

Smokeless tobacco opportunity

With more consumers shifting to innovative tobacco products from traditional cigarettes, tobacco companies are developing new smokeless tobacco products like vaporized nicotine e-cigarettes and moist snuff. Reynolds American’s subsidiaries expanded distribution of VUSE digital vapor cigarette and Camel Snus to capitalize on smokeless tobacco opportunities.

According to a Statista survey conducted with US convenience stores, in 2014 moist smokeless tobacco had the highest average shipment among the smokeless tobacco products.

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In an attempt to stay ahead of demand Philip Morris International (PM) has been exclusively licensed to commercialize Altria Group’s (MO) MarkTen e-vapor internationally. Other companies like Vector Group (VGR) and British American Tobacco develop and market e-cigarettes, such as ZOOM (VGR) and Vype (BTI).

International expansion

Apart from distributing in the United States, Reynolds American aims to expand its portfolio internationally along with its subsidiaries. SFR Tobacco International and various foreign subsidiaries affiliated with it distribute the Natural American Spirit brand outside the United States.

Reynolds American, Philip Morris International, and Altria Group have exposure to the iShares S&P 500 Growth ETF (IVW) with 0.2%, 0.7% and 1.1%, respectively, of the total weight of the portfolio.

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