Major rivals likely to follow PM USA steps shortly
Philip Morris USA, the leading cigarette maker in the USA, owned by Altria Group, is set to complete a six cent price increase per pack of all of its cigarette brands, the second time the tobacco giant has raised its price list this year, reported Dow Jones.
The manufacturer of the iconic Marlboro brand announced it would carry out the price hike on shipments starting from Dec 3rd. PM USA’s move was followed by competitors, RJ Reynolds and Lorillard, which have also enacted two price increases in 2012.
RJ Reynolds revealed it would increase the list price by six cents a pack for all cigarette brands, while price of Camel Snus will grow by five cents per tin. In the meantime, Lorillard is set to increase per-pack price of its cigarette brands by six cents, excluding Old Gold.
The price increases by Lorillard and RJ Reynolds come into effect today.
Philip Morris USA is usually in the vanguard when it comes to pricing decisions. The company hiked prices for all cigarettes brands by six cents this June, matched by identical hike by RJ Reynolds.
All three major tobacco companies have accelerated marketing and promotion efforts lately, doing their best to retain or boost market share as weak economy drives smokers to cheaper brands or black market, according to Dow Jones.
Despite the tobacco giants carried out two list-price hikes in 2011, this has not always hurting simple consumers. Philip Morris USA has boosted Marlboro share after last year’s price increase via pricing promotions and new product offers.
Christopher Growe, an analyst at Stifel Nicolaus admitted he was pleased with PM USA pricing decision taking into account the intensified promotions as of late. Although Reynolds American and Lorillard eventually increased their list prices, as many experts predicted, Growe noted he believes those companies will not stop spending on discounts and promotions to retain competitiveness.
UBS senior analyst Nik Modi said pricing decisions are fundamental driver to the industry’s revenues and overall performance, reported Dow Jones. According to Modi, ultimately the leading tobacco companies should be capable to capture market share from low-cost and high-discount rivals who are dealing with the higher costs associated with the latest U.S. Food & Drug Administration measure.
Bonnie Herzog, Managing Director and Senior Tobacco Analyst at Wells Fargo Securities wrote in a research note that she anticipated price hike driven by the results of the tobacco trade survey Wells Fargo recently completed. “The timing is a little earlier than expected, however not very surprising since we had been aware about wholesaler stocking up.”
She added that PM USA is providing MLP Option Stores a chance to keep their current Marlboro retail prices until Dec. 15, 2012.