Winston-Salem, N.C.-based Reynolds American Inc., which reported a 13% drop in its fourth-quarter profit Wednesday partly resulting from selling fewer cigarettes, has adjusted some of the discounts it offers retailers for the month of March. Lorillard raised all its wholesale prices 10 cents a pack or a $1 a carton last week, the company said.
PM USA raised wholesale prices for its signature Marlboro line and some lower-cost brands this month. Marlboro, Virginia Slims, Basics and other cigarettes rose nine cents a pack or 90 cents per carton, spokesperson Greg Mathe told AP. The second tier brands, including the Benson & Hedges, Chesterfield, Lark and Merit, saw a price increase of 18 cents a pack or a $1.80 a carton, Mathe said. The new prices kicked in February 9.
He said the hikes followed a "periodic evaluation" of Altria's strategies and are not a response to the looming federal tax increase. "We've been dealing with a declining cigarette market for a number of years now, and it's how we can best manage the business in that type of environment," Mathe said.
Goldman Sachs analyst Judy Hong called the increases "relatively modest" and said she expects a larger increase to come in the future due to the anticipated 61-cent federal excise tax increase in April, added a Reuters report.
Reynolds, whose brands include Camel, Pall Mall and Natural American Spirit, cut back on discounts "to remain competitive in the marketplace," company spokesperson Frank Lester told AP. Reynolds has not decided whether to raise prices or how long the discounts will be cut, Lester said.
Changing their pricing lets cigarette companies spread the blow of tax hikes to consumers and raise extra money in a dwindling market, Eric Lindblom, director for policy research at the Campaign for Tobacco-Free Kids, told the news agency. "That way, the wholesalers, the retailers and the consumers are likely to see smaller, incremental increases than one big increase. What the industry hopes is that will mean fewer people will be prompted to try and quit or cut back."
Manufacturers pay federal excise taxes on cigarettes, while wholesalers cover state taxes when they sell to gas stations, convenience stores and other retailers.
The federal tax on cigarettes will rise from 39 cents a pack to almost $1.01 on April 1. Lawmakers in 15 states also have proposed cigarette taxes to both fund health programs and to force residents to quit smoking or avoid starting. The federal excise tax increase will help fund the expansion of the State Children's Health Insurance Program (SCHIP).
Advocacy groups and lawmakers pushing new taxes on cigarettes say price increases drive down cigarette use, which is falling 3% to 4% a year.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.