Altria Increases Cigarette List Prices

RICHMOND, Va. — Altria Group Inc. is raising the list prices on its cigarette brands for the third time this year.

According to Bonnie Herzog, managing director at Goldman Sachs, the tobacco company increased its cigarette list price on Marlboro, Chesterfield, Basic, L&M and L&M Simple Tobacco by 15 cents. In addition, it raised the list price on Benson & Hedges, Benson & Hedges Menthol Green, Merit, Nat's, Parliament and Virginia Slims by 20 cents.

The price increases are effective on Oct. 16 and follows Altria's 15-cent-per-pack hike in July and British American Tobacco's (BAT) price increase in late August. BAT's changes ranged from 13 cents to 25 cents across all its brands.

Altria's previous Manufacturer Supported Off-Invoice promotion for all Marlboro and Basic SKUs in select states remains unchanged, Herzog added.

"Broadly this price increase doesn't come as a surprise and we believe Altria 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," she said.

"Although Altria's net price realization has been robust, up high-single digits over the last few years, we expect it to moderate a bit this year given pressures on the low-income consumer, increased risk from downtrading pressures and a wide relative price gap between Marlboro and the lowest effective cigarette on the market to approximately 38 percent in the second quarter of 2022," Herzog added, pointing out this is vs. the roughly 30 percent historical average.

She noted Goldman Sachs will be "watching to see whether deep discount cigarette manufacturers also move on price. If they don't, the relative price gap could widen further."

According to Herzog, there is increased risk of potential downtrading — especially given elevate gas prices — but brands like Marlboro with "a very loyal customer base and strong/effective promotions should be able to keep those consumers within the franchise."

Richmond-based Altria's wholly owned subsidiaries include manufacturers of both combustible and smoke-free products, including Philip Morris USA Inc., John Middleton Co., U.S. Smokeless Tobacco Co. LLC and Helix Innovations LLC.