PM USA Boosts Prices

Off-invoice discount reduced 50 cents per carton

NEW YORK -- In a not entirely unexpected move, Philip Morris USA will enact a price increase beginning today in the form of a reduction in its off-invoice discount to $5 from $5.50 per carton on its four core brands (Marlboro, Parliament, Virginia Slims and Basic). In other words, wrote tobacco analyst Bonnie Herzog, PM USA has increased the price of its cigarettes by 50 cents per carton or 5 cents per pack.

The price change was announced Friday, exactly two weeks after Herzog said she believed there was a pretty good chance that Philip Morris still [image-nocss] needs a modest price increase of around 5 cents per pack by the end of the year or in early 2006 during a CSPNetwork CyberConference.

Click here to view an OnDemand recording of this CyberConference (retailers and wholesalers free; others $49).

The price hike is slightly less than last year's increase, said Herzog in a research note sent Thursday, [but] this is something we were anticipating since the price gap [between premium and deep-discount cigarettes] continues to be manageable and there is pricing power.

An announcement of the discount change sent to select direct customers did not offer any explanation for the modification.

Herzog said she expects the rest of the cigarette industry to follow suit with price increases of their own.