Altria Joins Lorillard in Cigarette Price Increase

RICHMOND, Va. -- The Altria Group Inc. is upping the price of some of its cigarettes in an expected move.

The Richmond, Va.-based tobacco company is decreasing its off-invoice promotional allowances by 7 cents per pack on its Marlboro and L&M brands. In addition, its Philip Morris USA (PM USA) subsidiary increased its cigarette list prices on all other brands by 7 cents per pack and Marlboro Snus Tins by 6 cents.

The price changes take effect on orders shipping on or after Dec. 1, according to Bonnie Herzog, managing director of tobacco, beverage and consumer research at Wells Fargo Securities LLC.

The bottom line, according to Herzog, is that PM USA's prices are effectively rising by 7 cents per pack. In addition, Altria's U.S. Smokeless Tobacco Co. is raising its moist snuff tobacco and snus list prices by 6 cents per can on all key brands.

Altria's move comes just a few days after Lorillard Inc. took pricing action. Greensboro, N.C.-based Lorillard revealed last week that it will take a 6-cents-per-pack pricing action, on average, reducing its buydown per pack at retail and effectively introducing a price increase, although it will introduce a buydown in some states.

Herzog expects Winston-Salem, N.C.-based Reynolds American Inc. to follow suit with a price change of its own.

"Overall, the cigarette promo decreases/list price increases that Lorillard and now Altria have taken are positive and indicate continued pricing power, in our view," Herzog said. "Given that consumption will likely continue to decline in the mid-single digit range, pricing is necessary to drive top-line growth."

Herzog added that Wells Fargo Securities believes wholesalers have been building inventory in advance of these pricing actions and this could offset volume pressures due to electronic cigarettes.

"We expect overall cigarette net price realization to accelerate in 2013 to approximately 4 percent and we have further conviction industry topline will improve during the fourth quarter and beyond driven by solid volume trends, higher prices, and continued easing promotional spending," she said.