Tobacco Manufacturers Raise Prices

First increase of 2020 boosts list prices by at least 8 cents a pack, report says
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CHICAGO — Three major tobacco manufacturers announced increases in list prices of at least 8 cents per pack, effective Feb. 22, according to the Winston-Salem Journal.

Speaking to CSP on the request of anonymity, two retailers familiar with the price boosts say the strategies of the three companies involved—Richmond, Va.-based Philip Morris USA; Winston-Salem, N.C.-based R.J. Reynolds Tobacco Co.; and Greensboro, N.C.-based ITG Brands—did not follow formulaic approaches. In the past, one major led the pack while the others essentially matched the moves. This time, at least two companies took independent approaches based on specific subcategory tiers of premium, discount and deep discount. In one case, one major did not match another’s increase; in another case, a company did not use its typical “protectionist” tactic, the retailers said.

The first price increase of 2020 comes after a year in which the major tobacco makers broke with established price-raising routines. Last year, the tobacco companies raised their prices three times vs. the normal two. In addition, the February 2020 price increase came earlier than the increases in years past, the retailers said.

The list price is what wholesalers pay manufacturers for their products. Any increase typically passes through to customers, the Journal reported. In 2019, the manufacturers raised their prices by 9 to 11 cents per pack in April, 6 cents in June and 8 cents in October, the news agency reported.

As in the past, Philip Morris USA raised its list price first in 2020, followed by Reynolds and ITG.

Speaking Feb. 19 at CSP’s Convenience Retailing University conference in New Orleans, Nik Modi, analyst with RBC Capital Markets, New York, predicted that the majors would raise prices twice in 2020, based on his calculations and the companies’ publicized revenue goals. Others attending Modi’s educational session disagreed, with some retailers in the room saying that the new increase happening sooner than normal and the fact that the majors had three price increases in 2019 are indications that they may initiate three if not four price increases this year. While only one retailer, who also asked to remain anonymous, spoke outright about three or four price boosts in 2020, at least four others in the room verbally agreed.

Next year’s Convenience Retailing University will be held Feb. 23-24, 2021, in Orlando, Fla. Click here for more information.

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