Ahead of FET

Reynolds, Lorillard follow PM USA in raising cigarette prices before April 1 tax increase

NEW YORK -- Lorillard Inc. and Reynolds American Inc. have announced plans to raise prices for their cigarette brands, a move that comes on the heels of price increases from Altria Group Inc.'s Philip Morris USA, said a Dow Jones report. A spokesperson told the news agency that Reynolds is using a "two-step" process on pricing. In addition to the list price increase, the company plans to make some "adjustments" to discounts at retail, said the report. "The net impact is we would be aligned with our competition," the spokesperson said.

Winston-Salem, N.C.-based Reynolds "[image-nocss] is using a combination of list price increases and promotion reductions to accomplish the price change. Camel [Kool, Winston and Salem] will see a 44-cents-per-pack price increase and 27-cents-per-pack reduction of promotions. Pall Mall and Doral will see a 41-cents-per-pack price increase and 30-cents-per-pack promotion reduction. All other brands (about 12% of the volume) will see a net price increase of 78 cents per pack," said Credit Suisse tobacco analyst Thilo Wrede said in a research note. "The changes will go into effect on March 16 for the third increase in three months. No changes have been announced for the MST [moist smokeless tobacco] brands yet, as [PM USA's] MST price reductions are going into effect only at the end of March."

Greensboro, N.C.-based Lorillard "is increasing list prices on its brands by 71 cents a pack ahead of the FET [61-cents-per-pack federal excise tax] increase on April 1," said Wrede. "It is following the example of market leader [PM USA] and announced the price increase on Friday, the same day that [Reynolds] also announced an effective increase of the same magnitude."

He added, "The price change [gives Lorillard] a three-week window during which the new FET is already included in the manufacturer price without [Lorillard] having to pay the higher tax rate."

Richmond, Va.-based PM USA last week announced plans to raise prices on Marlboro and several other cigarette brands by 71 cents a pack, a move it said was primarily intended to cover the costs of the FET increase, a result of the passage of legislation expanding the State Children's Health Insurance Program (SCHIP).

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