Philip Morris Drops Wholesale Leaders

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Philip Morris Drops Wholesale Leaders

NEW YORK -- Leading cigarette maker Philip Morris yesterday said it would drop its controversial wholesale marketing program after a group of wholesalers won a preliminary injunction against it over claims that it violated antitrust laws.

Sixteen wholesalers in Tennessee had filed suit arguing that the program, Wholesale Leaders 2003, constituted price discrimination and an attempt by Philip Morris to monopolize the market, according to the Financial Times. Under the program, the company is selling cigarettes at differential prices, through three tiers of discounts and rebates, according to what the proportion of wholesalers' sales made up by Philip Morris brands.

Wholesale Leaders is an important part of attempts by Philip Morris USA, the tobacco arm of Altria group, to combat the fast growth of "deep discount" cigarettes, which have cut into the company's market share.

Philip Morris said on Thursday that, given the uncertainty created by the injunction, it had decided to terminate the program beginning December 27. A "cents per carton", or volume-related rebate, portion of the program will cease at the end of the third quarter, the report said.

The company said it would still pursue its request for a stay on the preliminary injunction.
Bonnie Herzog, tobacco analyst at Smith Barney, said she believed the change could save Philip Morris millions of dollars but possibly disrupt its business. It could also hurt many wholesalers that relied on cash incentives for moving cigarette volume.

Philip Morris told its wholesalers in a letter Wednesday that the "cents off" portion of the Wholesale Leaders program will end on Sept. 28.