Traditional cigarette smokers are facing yet another increase in prices, this time between 15 and 20 cents per pack involving Philip Morris USA brands, according to a leading tobacco industry analyst.
The list price increases — the first in 2024 after four hikes in 2023 — are set to go into effect Sunday, according to Goldman Sachs analyst Bonnie Herzog’s Thursday report to investors.
The list price is what wholesalers pay manufacturers for their traditional cigarette products. The increase typically is passed on to customers at retail.
A 15-cent per-pack covers Marlboro non-menthol styles, along with Basic, L&M and L&M Simple Tobacco.
Going up 20 cents per pack are Marlboro Mainline Menthol & Marlboro 72s Menthol, Benson & Hedges, Merit, Nat’s, Parliament and Virginia Slims.
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Philip Morris USA’s list price increases follow a similar move taken by R.J. Reynolds Tobacco Co. on Jan. 1. Reynolds raised its prices three times during 2023.
For Reynolds’ top-selling brand Newport, the list price rose 15 cents per pack for menthol and nonmenthol styles. The 15-cent per-pack increase also covers select brands of No. 3 Camel, No. 4 Pall Mall Box and all styles of No. 5 Natural American Spirit.
Other list price increases includes 25 cents on 12 SKUs of Camel, while some Lucky Strike and Pall Mall styles did not have an increase. There’s also a 10-cent per pouch on Natural American Spirit’s Ryo rolling tobacco.
Altogether, Reynolds has raised its list price by between $1.62 and $1.87 over the two years for many of its top brands, as well as between a combined $2.17 and $2.42 since January 2020.
Herzog said Philip Morris USA’s latest price hike “is a bit of a surprise ... suggesting to us that volume pressures continue. Having said that, we believe it has become more sophisticated and targeted with its pricing strategies, as well as promotional spending to offset these more frequent list price increases, especially for price-sensitive consumers.”
Herzog said she expects additional rounds of list price increases during 2024 “despite the pressures on the low-income consumer, increased risk from downtrading pressures and a widening relative price gap between Marlboro and the lowest effective cigarette on the market.
“We will be watching to see whether deep discount cigarette manufacturers also move on price,” she said. “If they don’t, the relative price gap could widen further. We believe brands, like Marlboro with a very loyal customer base and strong/effective promotions, should be able to keep those consumers within the franchise, (such as) by leveraging Marlboro Special Select.”
As such, Herzog said the list price increase continue to be “viewed favorably and are a critical driver of tobacco manufacturers’ revenue and earnings growth, particularly as manufacturers realize almost three times the leverage on earnings from a point of pricing than a point of volume.
“Both BAT and Altria Group Inc. seem to be fairly comfortable with the elasticity as they continue to raise prices.”
The four price increases by Altria last year amounted to 63 cents a pack, said David Sweanor, an adjunct law professor at the University of Ottawa and the author of several e-cigarette and health studies.
“Which is, in a single year, over twice the estimated cost (about 30 cents per pack) of manufacturing a pack of cigarettes,” Sweanor said. “That selling the country’s leading cause of preventable death can become ever more profitable, even as it is already massively more profitable than any other consumer product, and not attract scrutiny is simply baffling.”
Sweanor said the ability to consistently increase prices “also explains the reluctance of Big Tobacco to go beyond stating a commitment to product transformation and actively assisting a market transition.”