US Cigarette giants are hiking price amid sinking femand
The major tobacco companies across the United States have to increase prices once again as they are trying to adjust earnings to constantly falling demand for cigarettes.
Lorillard Tobacco, the number three cigarette maker in the country started the trend by increasing the price of its flagship brand, Newport Menthol by 5 cents per pack, while the price of its latest Non-menthol Newport grew by 11 cents and the cost of other brands was increased by 8 cents per pack, according to industry analysts.
RJ Reynolds Tobacco, division of Reynolds American and number two cigarette company, declared last week that it is increasing the wholesale price of Camel, Pall Mall, Doral, Salem, Winston, Kool, Capri and other cigarette brands by 9 cents per pack. The increase was implemented last Thursday.
“We do not discuss the possible impact on retail price, since we don’t establish the retail price,” said RJ Reynolds spokesman David Howard, who also denied to comment on the company’s pricing strategy.
The leading US tobacconist, Philip Morris USA raised price of all of its cigarette brands by 9 cents per pack last Friday.
Even since economic downturn is making most smokers reduce their expenses on tobacco, analysts expect the price hikes to stick as other latest increases have.
For instance, the new hike is Reynolds’ sixth price boost in four years. The last price increase was implemented in December, when the company boosted the price on the majority of its brands by 8 cents per pack.
The pricing moves as well demonstrate the companies’ strategy for dealing with continuous decline in demand and growing excise taxes.
“Overall, the latest increases in price on cigarettes are positive, since the cigarettes industry still has pricing power,” according to Bonnie Herzog, Wells Fargo Securities managing director for tobacco and consumer research. “Since demand will likely keep falling, pricing is essential to maintain growth.”
According to analyst, RJ Reynolds has a mindful strategy when it comes to increasing prices.
The company’s Pall Mall brand surpassed Camel as the number three best-selling cigarette brand in the USA, mostly because it is less expensive than Marlboro, Camel and Newport.
Even despite Camel is still the flagship brand of RJ Reynolds, its sales have fallen in last quarters since adult smokers are opting for less expensive cigarette brands. Pall Mall posted an 8.5 share of cigarette market in the first quarter, going up from 6.5 percent reported at the same time in 2010. Camel had an 7.8 percent share, up from 7.1 percent last year.
Cigarettes still represent the leading buy at convenience stores, with $50.5 billion in sales last year. Premium cigarette brands represent 75 percent of sales in stores, down 2.6 percents from previous year.
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