Husky Prices Going Up

USSTC hikes costs on value brand

GREENWICH, Conn. -- After offering its Husky smokeless tobacco product at a much-ballyhooed introductory price of 87 cents a can, United States Smokeless Tobacco Co. (USSTC) is planning to increase the price on the brand early this week, according to a UBS Investment Research note. The price will likely go to $1.05 from 87 cents at wholesale.

Husky will be matching the current price of Conwood's budget Grizzly brand. UBS said it expects other sub-price value brands, such as Long Horn and Kayak, to move towards the $1.05 level as well. Both brands are [image-nocss] at the 87-cent level now.

According to New York-based UBS, USSTC, Greenwich, Conn., did not get the share growth they were expecting with Husky's lower price point, leading the investment firm to wonder if USSTC and the other competitors have underestimated the consumer loyalty for the Grizzly brand.

"We believe Grizzly's brand equity was built through attractive packaging/graphics, solid execution and a low price point (at the right time)," wrote Nik Modi, associate director, tobacco/beverage analyst for UBS. "As we move throughout the year, we expect USSTC to increase prices on its Red Seal brand by about 10 cents a can."

Modi also suggests the company will increase the price of its premium portfolio (Copenhagen and Skoal) by 8 cents to $2.99/can at wholesale.

"We believe raising prices makes sense since USSTC can always deal back some of the increase through buy downs in areas where trends are being negatively impacted by discount competition," Modi wrote. "We believe there is still more opportunity for the sub-price value segment to move prices higher. If Long Horn and Kayak do indeed go higher (to the $1.05 level), we suspect that Grizzly would likely take another hike, which would probably induce further price increases by the other sub-price value players.