Cigarette Price Increase Expected in December

NEW YORK -- Cigarette list prices are expected to increase by 6 cents to 7 cents per pack (or 2 percent to 3 percent) during the first week of December, according to Wells Fargo Securities LLC's latest Tobacco Talk survey.

Ninety-six percent of convenience store retailers polled predicted that Philip Morris USA would be the first manufacturer to raise prices. However, Lorillard Inc. stated that it will take a 6-cents-per-pack pricing action, on average, reducing its buydown per pack at retail and effectively introducing a price increase, although it will introduce a buydown in some states.

"[Lorillard] appears to be re-distributing funds to a wider geography and, in some small states, [Lorillard] is actually introducing a buydown for the first time in January," said Bonnie Herzog, managing director of tobacco, beverage and consumer research at Wells Fargo Securities.

Philip Morris USA and R.J. Reynolds Tobacco Co. are now expected to follow with a list price increase of approximately 6 cents, she added. "Lorillard's pricing action was taken at retail, in contrast to the usual list price increase actions which are typically taken at wholesale."

Wells Fargo Securities also reported that nearly 70 percent of its retail trade contacts believe cigarette manufacturers have the same or more pricing power today compared to one year ago. Meanwhile, many survey respondents reportedly feel that the emergence of electronic cigarettes has shifted pricing power from manufacturers to retailers, potentially allowing c-store retailers to regain pricing power.