Lorillard Leads Increase

Raises prices on Newport brands; other tobacco companies expected to follow suit

NEW YORK -- Lorillard Inc. has instituted a cigarette price increase, according to a research note issued by Bonnie Herzog. "Lorillard led a cigarette price increase of five cents per pack on Newport Menthol, 11 cents per pack on Newport Non-Menthol and eight cents per pack on its other brands, but no increase on Maverick," the New York City-based Wells Fargo Securities LLC managing director of beverage, tobacco and consumer research said.

She added, "Overall, this price increase is positive, and the industry still does have pricing power. Given that consumption will likely [image-nocss] continue to decline in the mid-single digit range, pricing is necessary to drive top-line growth."

In the note, Herzog said that she expects that both Altria Group Inc.'s Philip Morris USA and Reynolds American Inc.'s Reynolds Tobacco Co. to "take pricing up in the next few days, no later than Wednesday, July 6 (PM USA typically announces on Wednesdays). Assuming PM USA and RJR follow with similar price increases, we predict the gap between premium and deep discount brands will widen slightly (to around 33% to 34%) from its current narrow level (30% to 32%) after the price increase on low-end and mid-priced brands taken by Commonwealth Brands and Liggett a few weeks ago."

Lorillard raised the prices on most of its cigarette brands in late November 2010. The six-cents-per-pack (60-cents-per-carton) increase was on Newport menthol, Kent and True cigarettes. Not included in the increases were the company's Maverick brand and Old Gold brands, as well as Newport nonmenthol. (Click here for previous CSP Daily News coverage.)The other tobacco companies followed Lorillard's lead at that time (click here for previous coverage). To learn about Lorillard's market strategy, which CEO Murray Kessler described as "pure cigarette play in a very narrow area," as well as his discussion of going beyond its current core business,click here read a recent report in CSP Daily News companion newsletter Tobacco E-News. Also,click here for more coverage of the company's pricing.

Lorillard, through its Lorillard Tobacco Co. subsidiary, is the third largest manufacturer of cigarettes in the United States. Founded in 1760, it is the oldest continuously operating tobacco company in the United States. Newport, Lorillard's flagship menthol-flavored premium cigarette brand, is the top-selling menthol and second largest selling cigarette in the United States. In addition to Newport, the Lorillard product line has four additional brand families marketed under the Kent, True, Maverick and Old Gold brand names. These five brands include 43 different product offerings which vary in price, taste, flavor, length and packaging. Lorillard maintains its headquarters and manufactures all of its products in Greensboro, N.C.