RJR Nabisco, which has won the confidence of investors who are eagerly snapping up its stock and cheers from Wall Street for the company's chairman, Louis V. Gerstner Jr., has fundamental problems in its tobacco business.

Revenue from cigarette sales is the cash spigot that RJR Nabisco counts on heavily to help pay off its remaining debt and stem yearly earnings losses.

The entire industry has to cope with declining cigarette sales over all. But RJR Nabisco's problems center on an especially sharp drop in the sales of the full-price brands made by the company, like Winston and Salem, which account for half of its unit sales of cigarettes. Steady price increases have prompted ever more smokers to seek lower-cost brands in the last few years.

As a result, the R. J. Reynolds Tobacco Company, the cigarette subsidiary, has lost millions of full-price smokers to discount cigarette brands, both its own and those of rivals like Philip Morris and Brown & Williamson. In 1990 alone, Reynolds lost sales of more than 15 billion full-price cigarettes, the equivalent of more than two million people smoking a pack a day for a year.

While this trend affects other cigarette companies, Reynolds has been more vulnerable because many of its brands are bought by less affluent smokers in their 40's and 50's. They are more likely to defect to off-brands, like Buck and Lark, or cut back on smoking than younger people in their 20's and 30's.
