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THE GROWTH OF MENTHOLS 1933- 1977 60~L9~0"9 • ~ T~i,d ~vgnu. Nt~ yo,k~ 14lw y+rh 1~]7

THE GROWTH OF MENTHOLS I. INTRODUCTION ........................................................... t If. RSVIEW DS TXE HISTORY .................................................. 3 A. The Overall Trend .................................................. 3 B, The Phases ......................................................... ~O I. Early History oF Kools 1933 - 1950 ............................. &O 2, Th~ Filters an~ Entry ~f Salem 19~D - 19&2 ..................... 14 3. Th~ Growth of Kools ........................................... 26 4. Th~ Low-Tars 1975 to Date ...................................... 36 Ill. FREE STANDING BRANDS, LINE £XTENSIDNS A~D COMPANIONS ................... 37 IV. HI-FI AND MENTHOL ..................................................... 54 V, MENTHOL, TAR AND TASTE LEVELS .......................................... 62 VI. APPENDIX ............................................................... 70

INTRODUCTION Mentholated cigarettes have grown from a relatively minor 2.6~ share of the cigarette market in I~hg to over 28~ c~rren~Iy, So important are ~e~hols tod~y that every new brand is introduced with a menthol companion that typicaiIy provides one-third of the brandls voIume. The growth of menthols colncldeB in time and is evldentIy lFnked wlth the major changes whiG~ have ~haken th~ clgaret~c market, The Factors behlnd the extraordinary grc~ith of menthols sl~ce I~50 s~em to be I~tertwlned wi~h the 6hangin9 taste Of cigarezte51 ~hanging tar and ~icotine leveIsp and sm0kers', efforts to adjust to these cha~ges. All of these are again undergoing rapid change with the upsurge of the latest low-tar trend in 1975. ATso of eruclal importance, especla11y to Kools, Is the exceptionallg high share that menthols have obtalned among blacks a~d the youth, Trends her~ also seem to ~ changing in the last two years. Kocls~ spectacular growth has ?fattened out during this period, The growth of }ow-tar cigarettes again changes th~ ta~t~ oF clgarettBs and~ thorefore, agal~ affects the fundamentals of tb~ market, The great growth of menthols In the 50:$ aros~ durlng a ~imKlar period, as consumers searched for an acccptabl~ taste in fi]ter ~i~ar~ttes. TodBy Consumers m~y a~ain be seeking ~ acceptable tast~ i~ ~ Icw-tar cigarette a~d F~ndlng ~t ~n a menthol. In the ~O~s, ~he cholce was very li~ited. Now, however, ,~f!Lhol i~ readily available in pFact~ca11y all b~ands at var~o~s strengths and ~ar l~vels. The low-tars seem to be se111ng about as much menthol as the hlgh-tars. The purpose of this report is to e~amlne the trends in menthols since 1950 In order to obtain a better grasp of the factors ~h~ch c~ntrol the course of menthols and Kool,

This r~par: covers ~sentially th~ d~v~lopment= through 1976. The more r¢cent trends will be dealt wlth in Phase II of this studv. Therefore, we will reserve our c0rm~n~s on the la~est trends and Lhe [m~li~tion~ For the future for that report. '9 2

BL~IEW OF THE HISTORY THE OVERALL TREND Before I~56~ Kools was, fcr all ~ntent5 and purposes, the only menthol cigarette. It ~as i~tr~H,]~d in I~33 and by I~35 had att~iqed a 2,2~ shar~ of all ¢Tqar~tte~. Thereafter, iLs sha,¢ declined to 1,4~ in 1940, ros~ to 2.3~ in I~41 d~clined again to 1.5~ i~ I~L7 and ended up in l~ back at 2.~ whe,~ iL had baen in ~35. In 1950~ ~i:h lhe heighL~r~ng ~wareness of the d~n~er5 oF smokTn9 kicked off by ~ J~nuary, I~ R~derls 3Tg~$t article, "Ho~ ~anqerous are Cigarette$?"~ a new p~a~e 5e~med ~o begin. K~ols~ st~II tn~ ~nly men~h~l~ rose to a ~.~% share, e~ceed~ng its prev~ou~ peak. STnc¢ ~hen~ menth~]~ have g~in~d im share every year ~thout exception to re~h ~ ]ev~] of abou~ 28~ in I~76 - a gain ~f 2~ sh~re point~ ~n 2~ yocrs. As shown ~y the chart or ~en~ho]'s ~hare of ~Tg~r~ttes~ th~r~ ~as a 51ow upw~l'd trend un[Jl ]~56 ~nc ~ 5harper ri~ ~nc~ ~hen. In torts cf share of filters, ~he patL~r~ is ~o~ dramaEJ¢, In 6 y~ar~ from th~ ~ntroduc~on of menthol filter~ in 1956 t~ I~9, mnrt~ols ros~ ~o 25~ of all fH~er~. ~n the 14 years f~llowlng through i~76~ it lose only ar~th~r 6 poln~s ~o abou~ 31~, Th~s~ apparently smoot~ overall curves m~k startl~ng chan~es in th~ ~r~nd trend~ p~rtic~larly th~ trends of the ~o le~ding men~hcI brand~ - Kuu] ~Id S~1~m. As ~hown clearly by the char~s~ there are distinct phase~ in the history of n~enthols since 1950, pqas~s wi~h different brand tr~nd~. Un:TI I~62~ Koo!s market share shows remarkable constancy while S~l~m's leaps u~ward. Thereafter, Salem's trend becomes rla~ wh]le ~uol~' ~iscs steadily until 1974~ ~×c~ding ~alem. In I~7~ ~ n~w ~rend sets Tn~ with Kco s flattening.

Accordingly we have d~vided the histor~ oR menthols ~nto the following phases: I. The Rarly History of Kools - I~33-1955 il. The Rise of Salem - 1956-I~62 II~. Th~ Kc~] 6rowth Phase - I~3-I~74 IV. The ~r~th o~ tow ~ar~ - 1975 to date Each of these phases will be discussed in detai].

60o 500 400 300 2OO I00 __ Total Cigarett~ .... T~ta] Menthols Exhibit GROWTH OF MENTHOLS UNIT SALES (B~lIions) YEAR 50 5l 52 53 3L 55 56 57 58 ~ 60 61 G2 63 64 65 66 67 E8 69 70 71 72 73 74 75 76 77

35.0 TOTAL MENTHOL SHARE OF ALL CIGARETTES ¢J =it L~J Q. 30.f 25.o: 2~.C 15.0 I0.0 l t f I I P I L. I T 1 r 1 Y Y ~ 1 1 I ) ~ I T t I , YEAR 50 5l 5~ 53 54 55 '56 57 ~8 59 &O 61 62 63 64 G5 66 67 68 69 70 71 72 73 74 7~ 7~ 77 .gT&9 O 6

u~ 3~.0 30.0 25.0 20,C lO.O 5.C TOTAL FILTERED MENTHOL SHgRE OF TOTAL FILTERS ¢,, i i , * L t # I I I I t % I ~ I I t I # I t I I # I I YEAR 50 51 92 53 54 55:56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 7l 72 73 74 75 76 77 7

GROWTH OF MAJOR HENTHO[. BRANDS - I SHARE OF TOTAL CIGARETTES Total Koo] .... T~tal Salem • ~ ..... Total Line Extensions • ~. Total Companions 12,0 PHASE I PHASE !1 PHASE III PHASE IV I.- z ¢.J 54 55 / t # / ! / / 56 57 60 7Z 73 74 75 76 77