Liggett Hikes 'Deep-Discount' Cigarette Prices

Major manufacturers likely to follow suit

Steve Holtz, Editor in Chief, CSP Daily News

MEBANE, N.C. -- Cigarette-maker Liggett Vector Brands has enacted an 8-cent-per-pack list price increase on its deep-discount brands--Liggett Select, Eve and Grand Prix, according to industry analysts.

An inquiry by CSP Daily News to Liggett for comment was not answered by press time. However, CEO Ron Bernstein said previously on an earnings call that margin is a key part of the company's strategy.

"Our objective is to achieve sustainable, profitable growth in our business over the long term," he said earlier this year. "So as we have built [the Pyramid brand], we have also improved profit margin on our other core brands--Liggett Select, Grand Prix and Eve. The margin increases we achieved in other brands, as well as with Pyramid, helped generate profit growth."

Analysts are watching the increase as it relates to the price gap between deep-discount brands and other cigarette brands.

"We estimate that the relative price gap between premium and deep discount brands has narrowed slightly to around 32% to 33%, down from about 36%," wrote Bonnie Herzog, tobacco analyst with Wells Fargo Securities LLC. "We believe this is positive for the big-three manufacturers since there has been some evidence recently of downtrading pressure likely due to the challenging economic environment and a slightly wider price gap."

Interestingly, the last time Liggett increased its prices, the majors soon followed after it.

Herzog said she also expects other cigarette makers may take price increases as well as a result. "We wouldn’t be surprised if one of the major tobacco companies announces a modest list price increase (about 5 cents per pack) in the next several weeks, or by the end of the year," she wrote. "By taking a modest price increase, the major manufacturers would be able to get some pricing yet still maintain a relative price gap below ... 36%."

Steve Holtz, CSP/Winsight By Steve Holtz, Editor in Chief, CSP Daily News
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