NEW YORK — Citing tobacco retailing sources, one analyst is predicting Altria Group will lead a price increase of at least 9 cents per pack by the end of March, with other major tobacco manufacturers executing similar price increases.
Bonnie Herzog, managing director of consumer equity research for Wells Fargo Securities, New York, said the Richmond, Va.-based Altria’s 9-cent increase is “in line with the last several price increases.”
In a survey of retailers and wholesalers representing 75,000 U.S. c-stores, virtually all respondents believed the cigarette price increase would occur, Herzog said, with two-thirds saying it would happen in the last two weeks of March at a slightly higher prediction than Herzog’s of 10 cents per pack, or a 2% to 3% increase.
Several days after her prediction, two sources told CSP Daily News that, in late February, Altria had raised its prices 11 cents per pack on some of its products.
She said the market could handle the price increase and the move would help boost the company’s earnings per share.
Her retailer contacts also expected coupons for Juul-branded e-cigarettes to start appearing in Marlboro cigarette packs where they are legal, Herzog said, with the gamble of eroding combustible share tied to the trial and use of Juul products.
Herzog first spoke publicly about the possible March price increases during an education session Feb. 11 at the Tobacco Plus Expo (TPE) in Las Vegas, saying she was watching for manufacturers of deep-discount cigarette brands to follow Altria’s price increases this time. She said the deep-discount brands opted not to follow Altria’s lead in its most recent price increases, causing a bigger differential between Altria’s brands and those lower-tier options.
“It’s all about price-gap management,” she said, referring to efforts to influence the differential between pricing tiers. The more significant the difference, the more likely consumers will trade down, with the higher-priced brand losing share, she said.
When asked if San Francisco-based Juul Labs will also raise its prices, Herzog clarified that Altria’s recent $12.8 billion investment for a 35% minority stake in the e-cigarette maker did not put Altria in charge of Juul’s pricing strategies. But she suggested it would be “a good idea” for Juul to take advantage of the opportunity to raise its prices.
At the TPE forum, Herzog also raised the issue of industry consolidations. With Juul needing to expand overseas, she said that effort would require an international partner such as New York-based Philip Morris International (PMI). She said a merger between PMI and Altria is a likely union, but that “if Juul doesn’t partner with PMI, they’ll partner with someone else.”
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.