Premium-to-Discount Cigarette Price Gap Narrows

NEW YORK -- The price between premium cigarettes and deep discount brands got a little narrower as Liggett took an 8-cent -per-pack list price increase on its deep discount brands, according to one analyst.

With the price hike on Liggett's Select, Eve and Grand Prix cigarette brands, the relative price gap between premium and deep discount drew slightly closer to around 32 to 33 percent. It had been approximately 36 percent, according to Bonnie Herzog, managing director, beverage, tobacco and consumer research at Wells Fargo Securities LLC.

The three big tobacco companies could come out winners in the move, she noted. "We believe this is positive for the three big manufacturers since there has been some evidence recently of downtrading pressure, likely due to the challenging economic environment and a slightly wider price gap," Herzog wrote.

The next several weeks could see a price hike by the major tobacco companies, although she predicts a more modest one around 5 cents per pack. "By taking a modest price increase, the major manufacturers would be able to get some pricing, yet still maintain a relative price gap below Q3 levels of 36 percent," Herzog explained.

With consumption expected to continue declining, Herzog added that "pricing is crucial to drive top-line growth."