In a move that was not completely unexpected, Philip Morris USA has increased its cigarette list price 6 cents across all its brands. The hike, which is equals approximately 2 to 3 percent, goes into effect Monday, June 18.
Two weeks ago, Wells Fargo Securities predicted the move based on results of its Tobacco Talk industry trade surveys, as CSNews Online previously reported. Even with the price hike, the firm expects cigarette volume to pull in a strong performance in the second quarter because wholesalers had been building inventory in the last few weeks in anticipation of the increase. In addition, inventory levels were very low at the start of the second quarter are likely to build up during the quarter, explained Bonnie Herzog, managing director, beverage, tobacco and consumer research at Wells Fargo Securities LLC.
PM USA also raised the price of Marlboro Snus by 5 cents a can.
“Overall this price increase is positive and indicates the industry still does have some pricing power,” Herzog wrote. “Given that consumption will likely continue to decline in the mid-single digit range, pricing is necessary to drive top-line growth.”
R.J. Reynolds and Lorillard Inc. are expected to follow with price increases of their own in the next few days, she said. The hikes should be in line with PM USA’s recent move.
In addition to a price change, new products could also be on PM USA’s radar screen, Herzog added.
“We believe [The Altria Group] will get more aggressive — offering creative, innovative products in 2012 to maintain its reign at the top of the U.S. tobacco market,” she wrote.