Altria Raises Marlboro Prices in Advance of Federal Tax Hike

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Altria Raises Marlboro Prices in Advance of Federal Tax Hike

NEW YORK -- Altria Group Inc. plans to raise prices on Marlboro and several other Philip Morris cigarette brands by 71 cents a pack, a move analysts at Citigroup said would help the cigarette maker's profits and boost other tobacco suppliers as well.

The pricing change, described by Citigroup analysts as "extremely bullish" for the domestic tobacco industry, according to Dow Jones, pushed Altria shares up 5 percent early Thursday.

Convenience store retailers though, are not nearly as pleased with the continued increases in cigarette prices they’ve been forced to endure due to tax levies by local, state and federal governments. Most recently, President Barack Obama last month signed into law a bill increasing the federal excise tax (FET) on cigarettes and other tobacco products to raise an additional $35 million in funding for an expansion of the State Children Health Insurance Program (SHIP). The tax increase goes into effect April 1.

Retailers contacted by CSNews Online were understandably frustrated by the increase, which comes on the heels of a 90-cent a carton increase on Marlboro brand cigarettes in February, and three weeks before the 61-cent a pack FET goes into effect. Lorrilard, makers of Newport brand cigarettes, also increased prices last month.

An Altria spokesman said the list price increases on cigarettes are primarily intended to cover the costs of a federal excise tax increase that goes into effect April 1, according to Dow Jones.
“We’re hoping they (Philip Morris) are just taking the FET three weeks early and we won’t see more price increases down the line,” Matt Paduano, vice president of information at Nice N Easy Grocery Shoppes, told CSNews Online, adding retailers are watching closely to see if other tobacco companies also raise their prices in advance of the FET increase.

If other cigarette makers hold off on price increases until April 1, that would give them a three-week window to woo smokers to their brands, noted Paduano.

Although it is increasing prices on its cigarettes, Altria also plans to cut prices for Copenhagen and Skoal, the smokeless tobacco brands it acquired through its purchase of UST Inc. by 62 cents per tin, according to reports.

Dow Jones reported Altria had been widely expected to cut some smokeless tobacco prices as UST's premium brands faced tough competition from cheaper competing products before the acquisition.

Altria's move to lower smokeless prices could mean fresh competition for Reynolds American Inc., which sells smokeless tobacco products such as popular discount brand Grizzly through its Conwood unit, said Dow Jones. Altria is also discontinuing UST's Rooster smokeless tobacco brand.

The cigarette price increase is far more important than the smokeless price cut, Citigroup noted, as cigarettes contribute about 80 percent of Altria's profit.

For convenience stores in the U.S., cigarettes represent almost a third of all in-store sales and a little less than a fifth of in-store gross margin dollars, according to the Convenience Store News annual Industry Report.

The U.S. tobacco industry has been seeing a drop in volumes amid higher taxes and bans on smoking in public places. Analysts had widely expected those volume declines to accelerate this year after a 61-cent per-pack federal excise tax increase on cigarettes goes into effect in April. Higher prices for cigarettes would potentially help cigarette makers shore up their profits in the face of those volume declines. Retailers however, can expect to see continued declines in both sales volume and gross margin Citigroup expects Altria's competitors Reynolds and Lorillard Inc. to follow up with their own price increases on cigarettes. Both companies declined to comment to Dow Jones.