Businessmodel of Altria Group

Customer Segments

Altria manufactures and sells a broad portfolio of products, serving a diverse range of clients. The Company’s customers can be divided by product line into two categories:

• Tobacco Products, principally comprising wholesalers and specialist distributors, and large retail organisations, chain stores, and the armed services; and
• Wine Products, principally comprising restaurants and other foodservice businesses, wholesale clubs, supermarket chains, specialist wine shops, and mass merchandisers. Distributors comprise the Altria’s core customers. The Company’s largest single customer is distributor McLane Company, which accounted for approximately 26% of the Company’s consolidated net revenues in 2015. In addition, distributor Core-Mark Holding Company accounted for approximately 10% of the Company’s consolidated net revenues for the year.

Altria principally serves customers in the US and Canada. It does not appear to have any significant international customers.

Value Propositions

Altria provides value to its customers in the following ways:

• Its reputation and industry standing, with the Company established as a leading provider of tobacco and wine products in the US, with a reputation for manufacturing high-quality products;
• Its broad range of products, with the Company offering a wide range of smokeable and smokeless tobacco products, as well as varietal and blended table wines, and sparkling wines;
• Its premium brands, with the Company controlling a number of premium brands, including Copenhagen, Red Seal, Chateau Ste. Michelle, 14 Hands, and Skoal;
• Its intellectual properties, with the Company controlling a large portfolio of trademarks and patents that are utilised in the Company’s products and processes, enabling it to provide unique and innovative products to its customers; and
• Its network of manufacturing and distribution facilities, with the Company operating a number of manufacturing, processing, and distribution facilities that allow it to serve its customers quickly and efficiently. ### Channels

Altria operates a website at www.altria.com, through which it provides information on its various products, operating units, and brands. The Company also operates separate websites for several its individual brands, including websites for Ste. Michelle at www.ste-michelle.com and Red Seal at www.goredseal.com.  These websites mostly offer online customer portals or an online. Notably the Ste. Michelle website operates an online store through which it sells various branded merchandise.

Altria makes its direct sales to retailers and distributors through an in-house sales organisation, with separate operating and sales subsidiaries for the Company’s various tobacco and wine products. Altria and its subsidiaries operate a broad network of sales offices across the US, including in Richmond, Virginia; Nashville, Tennessee; Stamford, Connecticut; and Franklin Park, Illinois.

Altria’s various business units operate their own network of manufacturing, processing and distribution facilities across the US, including in Kentucky, Virginia, and Pennsylvania. This enables the Company to serve its customers quickly and efficiently.

Customer Relationships

Altria offers certain of its products to customers on a self-service basis through its various brand-specific websites. This notably includes the Company’s Ste. Michelle online store, through which customers can purchase wines and related merchandise, and organise deliveries, without interacting directly with members of the Company’s sales personnel. This is supplemented by customer portals that let customers access certain tools independently.

Altria principally sells its products through its in-house sales force, the members of which deal directly with customers with a view to establishing terms specific to each individual sale and distribution agreement. The Company’s largest distribution clients typically agree multi-year sales contracts and consult directly with their own dedicated account management teams.

Customers are able to access personalised support from the Company. By contacting its dedicated support personnel either over the phone or by email. The Company operates individual support teams for each of its major operating units. The Company also provides certain online resources, including FAQs, press releases, and media alerts.

Altria additionally operates several social media accounts – including with Facebook, Twitter, Google+, and LinkedIn – through which it is able to interact directly with customers and provide updates on its company developments.

Key Activities

Altria is a holding company. The Company operates through three reportable business segments: Smokeable Products, which manufactures and sells cigarettes and cigars; Smokeless Products, which manufactures and sells moist smokeless tobacco products; and Wine, which manufactures and sells wine and sparkling wine products.

Altria owns a number of key subsidiaries and brands, notably Philip Morris USA Inc, John Middleton Co, UST LLC, US Smokeless Tobacco Company LLC, and Ste. Michelle Wine Estates Ltd. Altria operates its own extensive network of manufacturing, processing, and distribution facilities across the US. This includes eight tobacco manufacturing facilities, and 11 wine-making facilities, spread primarily across Illinois, Kentucky, Virginia, and Tennessee.

Key Partners

Altria works in collaboration with a broad network of partner companies and organisations that support the Company’s manufacturing and distribution operations. These partners can be organised broadly into the following categories:

• Supplier and Procurement Partners, including suppliers of raw materials, tools, and equipment that are used in the Company’s manufacturing and processing systems, as well as suppliers of services and technologies that are utilised across the enterprise more broadly;
• Manufacturing Partners, including various manufacturing companies, with which the Company enters contract manufacturing agreements in order to support its own in-house processes;
• Channel and Distribution Partners, including various distributors and sales agents, through which the Company extends its own sales and marketing reach;
• Strategic and Alliance Partners, including leading companies across a range of industries with which the Company collaborates on various marketing, branding, and other projects;
• Social and Community Partners, including non-profits and charitable organisations with which the Company collaborates on various social and community projects. Altria has launched a number of partnerships in recent years. This includes as partnership with Dominion Virginia Power to develop a solar energy project for a tobacco field, a community partnership with Points of Light, and a development partnership with PMI on reduced-risk tobacco products.

Key Resources

Altria’s key resources are its brands and intellectual properties, its raw materials and supply chain, its manufacturing and processing facilities, its online platforms, its IT and communications infrastructure, its sales and distribution infrastructure, its partnerships, and its personnel.

Altria owns a number of intellectual properties, including trademarks and patents, that are key to its operations. Searches of records published by the US Patent and Trademark Office identified a number of patent applications filed in Altria’s name, including applications entitled ‘Product portion enrobing process and apparatus, and resulting products’, ‘Menthol detection on tobacco’ and ‘Mouthpiece for electronic vaping device’.

Altria additionally owns and or leases a network of properties across the US that are key to its activities. This includes eight tobacco manufacturing facilities, and 11 wine-making facilities, as well distribution facilities and offices.

Cost Structure

Altria incurs costs in relation to the development of its products and properties, the procurement of services and materials, the operation of its manufacturing and processing facilities, the operation of its sales and distribution channels, the maintenance of its IT and communications infrastructure, the implementation of marketing and advertising campaigns, the management of its partnerships, and the retention of its personnel.

In 2015 Altria recorded total cost of sales in the amount of $7.74 billion. The Company also recorded total research and development costs for the year of $186 million, and advertising and marketing costs in the amount of $25 million.

Revenue Streams

Altria generates revenue through the manufacture and sale of various smokeable and smokeless tobacco products, as well as wines. This includes the sale of cigarettes, cigars, varietal and blended table wines, and sparkling wines, under a number of brand names.

In 2015 Altria generated revenue for the year in the amount of $25.43 billion, up slightly on the $24.52 billion recorded by the Company in 2014. The vast majority of this revenue, around $22.79 billion, was recorded by the Company’s Smokeable Products segment, principally comprising the operations of Philip Morris USA Inc. The Company’s Smokeless Products segment generated annual revenue of $1.88 billion, while the Wine category recorded revenue of $692 million.