Bump up Cigarette Costs

Reynolds American and Lorillard join Philip Morris in wholesale price hikes
NEW YORK -- As expected, Reynolds American Inc. and Lorillard Tobacco Co. on Tuesday followed Philip Morris' lead in raising their cigarette prices but to varying degrees.

According to a research note from analyst Nik Modi of UBS Investment Research, New York, Reynolds American, Winston-Salem, N.C., announced an increase in its list prices across its cigarette portfolio of 6 to 8 cents, echoing the increases announced Friday by Philip Morris, Richmond, Va. The overall increase is about 3%. The price increase is effective Nov. 2.

Meanwhile, Lorillard, Greensboro, N.[image-nocss] C., announced a reduction in promotional incentives by about 25% per carton, which is equivalent to a price increase, according to Modi. However, the per-pack increase amounts to 1 cent per pack, which is a few pennies shy of both Reynolds' and Phillip Morris' increases.

"We believe this is due to: 1) Lorillard will likely move around buy-down levels to effectively reach the same increase on a price per pack basis as [Philip Morris] and [Reynolds], 2) the company is waiting for later in the year to take a larger increase (which we expect Altria to lead) and 3) Lorillard sometimes raises prices more than RAI and MO and also tends to already discount less," Modi wrote.

As previously reported in CSP Daily News, Philip Morris announced Friday it would raise its wholesale prices. The cost of packs of Marlboro, Basic and L&M cigarettes rose by 6 cents a pack and the rest of its brands by 8 cents.

The company did not give a reason for the increase.

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