NEW YORK -- Good news today for Altria and retailers selling its industry-leading Marlboro brands: a UBS report titled “Null Hypothesis Accepted; Upgrade MO” predicted Altria’s pricing will improve in 2013 and raised estimates across the board for the Richmond, Va.-based company.
This comes as a turnaround from a Nov. 15 UBS report, “Null Hypothesis: Altria will scale back promotions into 2013,” in which senior analyst Nik Modi surmised that “Altria would moderate its promotional spending due to large share gains in 2012.”
However, after further research, Modi now sees evidence that suggests the company will place more emphasis on price realization, being less aggressive when it comes to market share. That evidence includes:
- An understanding that Altria is “slightly reducing certain payments to retailers as part of its 2013 retail trade program”--something Modi described as “a net positive for price realization.”
- A lower targeted share gain for the Marlboro Share Incentive Program for 2013. Modi cited a 50 bps of share vs. 100 bps target in 2012.
- Less promotional spending on Marlboro Black and Marlboro NXT, which has already been lowered by $0.50 per pack in certain states. “We expect this will be rolled out to more states in 2013,” said Modi.
- A more balanced discount planned for new products: “The company will be launching Marlboro Southern Blend in 2013 with a more normalized introductory discount (similar to Marlboro 83’s) rather than a deep discount (in excess of $1/pack) like Marlboro Black.”
One last positive sign Modi noted for both Altria and tobacco retailers is the improving unemployment rate in the construction, manufacturing and foodservice sectors--or “core tobacco consumers.” According to UBS’ numbers, unemployment for these sectors fell from 17.2% in January of 2010 to 9.5% today. It’s a drastic improvement, especially when compared to the overall unemployment rate, which went from 9.7% to 7.9% during the same time period.
“With presumably more ‘smokers’ at work than there has been in prior years, it will be easier for tobacco companies to realize better pricing (through less promotional spending in 2013), particularly on premium brands such as Marlboro, Camel and Newport,” Modi wrote in conclusion.
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