NEW YORK -- Despite regular tax increases and continued declines in volume, major tobacco manufacturers have seen revenues soar recently, according to a Wall Street Journal report.
Citing consolidation and cost-cutting measures as additional factors, the Journal reported that tobacco companies’ revenue from cigarette sales in the United States last year was up 32% to $93.4 billion, more than Americans spent on beer and soda combined, according to London-based Euromonitor International.
In a recent newsletter, tobacco analyst Bonnie Herzog confirmed the influence of tobacco companies’ price increases saying recent cigarette and smokeless list-price increases “affirm manufacturers’ pricing power, despite California's $2-per-pack tax hike and continued cigarette-industry volume deceleration.”
Citing her Tobacco Talk survey of retailers and wholesalers representing roughly 25,000 U.S. convenience stores, Herzog, managing director of tobacco, beverage and convenience-store research for Wells Fargo Securities LLC, New York, said the “overall tobacco environment remains largely stable,” given list-price increases in March on cigarettes and smokeless tobacco and a relatively quiet competitive landscape.
Herzog said challenges on the horizon include rising gas prices and other “wallet pressures," such as delayed tax refunds and rising auto-loan delinquencies. She also noted “signs” of widening price gaps and “downtrading” or customers moving down a pricing tier to save money, “which will likely impact midtier brands the most.”
Citing the tobacco survey, she said respondents were “bullish” on the Newport brand, with Winston-Salem, N.C.-based Reynolds American Inc. set to leverage Newport "to drive faster growth across its portfolio and meaningful margin expansion.”
Nearly 80% of retailers surveyed said they were optimistic about New York-based Philip Morris International's iQOS “heat-not-burn” product. Herzog said retailers see it “as the next growth catalyst for the industry and plan to carry it in their stores once commercialized.”
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