Up in Smoke

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Up in Smoke

09/12/2002
BOSTON -- Massachusetts retailers and cigarette wholesalers yesterday said sales have plummeted since the tax per pack jumped 75 cents in July, warning that revenues would be permanently crippled if state officials bar manufacturer discounts, which lets retailers drop the price to entice shoppers.

David Murdoch, vice president of operations for Honey Farm Mini Markets, a 34-store chain based in Worcester, Mass., and George Lamont, manager of franchising for 54 White Hen Pantry stores in the area, said their single-pack sales are off 15 to 20 percent.

The vendors told a special legislative committee that the cigarette tax hike may have caused some smokers to quit. But they said most of their sales are being lost to the Internet, to border states, New Hampshire and Connecticut, and to people switching from buying cigarettes to rolling their own, The Boston Globe reported.

Jim Foley, executive vice president of cigarette wholesaler George Melhado & Co. in Sharon, Mass., testified that his sales have dropped 25 percent in Greater Boston but increased 40 percent in New Hampshire.

''Most of these cigarettes going to New Hampshire are coming right back down into the Commonwealth,'' Foley said. ''It's going on, and it's going to get worse.'' Revenue Department officials say excise tax figures show that cigarette sales are off, but they said it's too early to say by how much.

For retailers in the Bay State, cigarettes represent one-third of in-store sales account for an average of 33 percent of their in-store sales. Customers who come in to buy smokes typically buy other items that in total account for half their sales, the report said.

Cigarette vendors said their plight will worsen dramatically if the Department of Revenue bars manufacturers from offering discounts directly to retailers. The so-called manufacturer buy-downs allow most retailers to drop the prices of popular brands 60 cents below the state's minimum of $5.41 per pack.

Alan LeBovidge, the commissioner of the Revenue Department, said the agency interprets the minimum pricing law, initially passed in the 1940s to prevent larger retailers from using cigarettes as a loss leader, to mean manufacturers cannot discount their products below the retail level.

The Revenue Department had planned to implement a ban on buy-downs July 1 but put off any action until the end of this month after convenience stores complained. The New England Convenience Store Association said it hopes to convince the Revenue Department that its interpretation of the minimum pricing law is incorrect, but department officials sounded skeptical.

ABOVE: White Hen Pantry is among the convenience store businesses that reported a drop in cigarette sales in Massachusetts following the state's 75-cent tobacco tax increase in July.