R.J. Reynolds to Slash Wholesale Costs

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R.J. Reynolds to Slash Wholesale Costs

WINSTON-SALEM, N.C. -- R.J. Reynolds Tobacco Holdings Inc., the nation's second-largest cigarette company, will slash the prices of its discount brands late this year as it revamps its cost structure.

The Winston-Salem, N.C., cigarette maker is replacing the discounts it gives distributors with lower wholesale list prices, company spokeswoman Carole Crosslin said Tuesday.

"This move will not net Reynolds Tobacco a cost savings. It is a reallocation of the discounting moneys that simplifies our cost structure," Crosslin said. "It's something our [retailer] customers have been asking for."

Wholesale list prices will be changed for Monarch, Best Value and Forsyth, RJR's private-label cigarette brand, effective Dec. 27, according to an Associated Press report. Consumer prices are not expected to change as a result of the new pricing strategy.

"RJR is going to an everyday-low-price strategy on these brands by reducing wholesale list prices, but eliminating some of the back-end discounts," Goldman Sachs analyst Judy Hong said.

In recent months, both RJR and rival Philip Morris USA, a unit of Altria Group Inc., have announced several changes to wholesale and retail programs. Other changes are also expected from the companies in the coming months. Both companies are in the midst of defending these programs in court after a group of distributors alleged the plans violate antitrust regulations by favoring some distributors at the expense of others.

The companies defend the programs, which they claim are aimed at rewarding strong sales performance.