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    Massachusetts C-stores Fear Tobacco Customer Exodus

    State to begin enforcing rules that could send smokers out of state or to Internet.

    BOSTON -- Even though tougher enforcement of the minimum-price law for tobacco begins Wednesday in Massachusetts, smokers may end up paying less for cigarettes, state officials say. Retailers and manufacturers are skeptical, though, and some insist prices will rise sharply.

    "There aren't going to be sales anymore," Catherine Flaherty, executive director of the New England Convenience Store Association, told the Boston Globe.

    State officials said the price of top-selling Marlboros, for example, which have been selling for about $4.80 a pack, could drop slightly. For Marlboros, the state has set a new minimum price of $4.59 for chain stores and $4.66 for non-chain stores, not including the 5 percent sales tax.

    "It gives the retailer the ability to sell below what they're selling for now," said Robert Kalell, a director in the Department of Revenue's audit division.

    CVS Corp., for example, is currently selling Marlboros for $4.94. A spokesman said the company hasn't decided whether to adjust prices tomorrow. In August, after about a year of considering the issue, the state Department of Revenue notified 6,000 retailers that they would no longer be able to use manufacturer discounts to reduce cigarette prices below the state's minimums. The state will begin enforcing the new regulations -- written to bring a 1940s-era law up to date -- Wednesday, the Globe reported.

    The Revenue Department says so-called manufacturers' buy-downs -- often worth 60 to 75 cents a pack -- thwart the minimum-price law, which "makes it unlawful for any retailer or wholesaler to intentionally injure competitors or to destroy or substantially lessen competition." Under the law, the minimum retail price is calculated by adding markups to wholesale prices. In recent years, cigarette makers have been offering discounts directly to retailers, undercutting the state-set minimums.

    Flaherty is pushing for legislation to allow cigarette makers to continue to give such discounts. She predicted most cigarettes would end up costing more. Manufacturers offer the discounts because they allow cigarette makers to more tightly control pricing and positioning of their products, without having to factor in the behavior of wholesalers. The discounts are in effect per-pack rebates tied to how many cigarettes a retailer sells.

    Philip Morris USA revamped its system in February, however, to offer the bulk of its discounts on four brands -- Marlboro, Basic, Virginia Slims, and Parliament -- to wholesalers rather than to retailers. It offers a 65-cent-per-pack discount at the wholesale level on those four brands and another discount to top retailers of 10 to 15 cents a pack on Marlboros and Basic.

    Other manufacturers have not made a shift to wholesale discounts, and as a result are facing higher minimum prices. The minimum price for Newports and Camels, made by R.J. Reynolds Tobacco Co., ranges from $5.41 to $5.49, the report said. Revenue Department officials expect other manufacturers to follow Philip Morris's lead on discounting, but if they don't, their prices could increase dramatically.

    Convenience store operators, who count on the foot traffic generated by cigarette sales to spur purchases of other products, fear any price increase will drive more consumers to New Hampshire or to the Internet. A 7-Eleven store in Nashua, Mass. was selling Marlboros for $3.45 a pack yesterday, while many websites sell cartons of Marlboros for as little as $26.99, or $2.70 a pack, not including shipping.

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