Marlboro Testing New Version of MLP Program

RICHMOND, Va. -- Philip Morris USA (PM USA) is testing a new version of its Marlboro Leadership Price (MLP) retail program.

Industry insiders have told Wells Fargo Securities LLC that the tobacco company, part of The Altria Group, is testing the revamped program in Michigan and South Carolina.

"Assuming the tests are successful, we expect PM USA to roll it out nationwide," Bonnie Herzog, managing director of tobacco, beverage and consumer research at Wells Fargo Securities, added.

According to Herzog, the terms of the new MLP II program are effectively a price increase for PM USA since it requires retailers to raise their retail price points by 10 cents per pack on Marlboro and reduces the promotional funding from PM USA by 5 cents per pack (15 cents rather than 20 cents).

"[The Altria Group] wins since we believe its new MLP II program should drive greater profitability for PM USA," she said. "Also, this could be a positive for those retailers who feel they can charge a higher price point per pack without sacrificing volume. "

While Wells Fargo Securities does not see any downside risk to PM USA's volumes, its "promotional support levels will almost certainly decline, even if only a few stores move to the higher pricing/lower promotional support model (MLP II)."

In addition, the new program could prep consumers for the next cigarette list price increase -- which is expected in early summer. PM USA is possibly testing the waters to gauge consumer sentiment and the potential magnitude of its next list price increase, Herzog added.

PM USA's MLP retail program has caused some grumblings from retailers who allege it puts pressure on their gross margins.

In April 2011, the tobacco company rolled out the promotional contract option for retailers who have level three, four and five contracts with the cigarette manufacturer, as CSNews Online previously reported.

PM USA is based in Richmond, Va., and its flagship brand is Marlboro.