Altria Leads Latest Round of Cigarette Price Hikes
RICHMOND, Va. — Altria Group Inc. is taking a cigarette list price increase on its Philip Morris USA (PM USA) brands, hiking the prices between 2 and 3 percent.
Pricing moves by tobacco companies are expected this time of year; however, PM USA's 8-cent increase is roughly a week earlier and a penny more than expected, according to Bonnie Herzog, managing director of tobacco, beverage and convenience store research at Wells Fargo Securities LLC.
The increase comes just days after California voters approved Proposition 56, a ballot measure that raises the state's cigarette excise tax by $2 per pack. Known as California Healthcare, Research and Prevention Tobacco Tax Act of 2016, the proposition will also place an equivalent tax increase on other tobacco products and electronic cigarettes containing nicotine.
The price increase will be effective with shipments on or after Nov. 13, while the California tax increase goes into effect on April 1, Herzog noted.
According to Herzog, California represents about 8 percent of the total U.S. industry volume, making it the second largest state by volume.
"Given California's size, we estimate the weighted average state excise tax on smokes will increase by 17 cents per pack to $1.77 — an 11-percent increase — and will drive average retail prices up by approximately 8 percent to $6.81 per pack," she said.
Wells Fargo Securities expects the "pricing action to mitigate negative volume pressure from the California excise tax increase," Herzog added.
Detailing the price hike, Herzog explained that PM USA actually increased its list price on Marlboro by 6 cents per pack while simultaneously decreasing its off invoice, promo allowance by 2 cents per pack on certain styles of Marlboro to nothing.
It also increased its list prices on all of its other brands by 8 cents per pack and decreased its off invoice, promo allowance by 8 cents per pack on L&M to nothing.
"Altria effectively increased pricing by 8 cents per pack on its portfolio," she added.
Richmond-based Altria Group Inc. is the parent company for Philip Morris USA, John Middleton, U.S. Smokeless Tobacco Co., Nu Mark and Ste. Michele Wine Estates. The brand portfolios of Altria's tobacco operating companies include Marlboro, Black & Mild, Copenhagen, Skoal, MarkTen and Green Smoke.