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    Philip Morris Lowers "Off-Invoice" Rate by 50 Cents

    Analysts speculate company may jump into smokeless tobacco market.

    RICHMOND, Va. -- Beginning on Dec. 19 and running through Jan. 29, 2006, Philip Morris USA will reduce the current $5.50 per carton Off-Invoice Promotional Allowance to $5 per carton on Marlboro, Virginia Slims, Parliament and Basic brand cigarettes.

    The tobacco account managers will contact retailers to sign a new wholesaler understanding form (WUF) for that period that will signify the new agreement of $5 per carton Off-Invoice Promotional Allowance for the four brands. Philip Morris is providing 500 printed retail flyers for suppliers to communicate the new policy to their customers that sell cigarettes.

    In more Philip Morris news, according to Brandweek, a recent memo from the company suggested that it would soon announce a new product along with changes for next year's Retail Leaders contracts -- the supplier's merchandising program with store operators. While no details were available, a couple of buyers reported to Brandweek that their Philip Morris rep said the company probably would get into the moist snuff category.

    There was much speculation during the heyday of deep-discount brands or fourth-tier cigarettes that Philip Morris would price value savings brand Basic to compete with the cheaper smokes, according to the report.

    Fourth-tier market share grew to about 15 percent by 2005 compared with 2.4 percent in 1998, Smith Barney reported. But Philip Morris has since regained pricing power and narrowed the pricing spread between premium and discount brands, according to Brandweek .

    With deep discount growth declining, smokeless tobacco seemed a possible option. David Beran, executive vice president of finance, planning and information, said at a September analyst's conference that Philip Morris was looking at potential moves into "complementary tobacco or tobacco-related products or processes," Brandweek reported.

    The company has tested PREPs, potentially reduced exposure products such as carbon filters on Marlboro UltraSmooth, and considered pharmaceutical applications like inhalers. Even Reynolds American chairman Susan Ivey fueled speculation about a smokeless entry when she told Smith Barney's Bonnie Herzog that she wanted Reynolds to be perceived as a tobacco company, not just a cigarette maker, according to Brandweek .

    Smokeless category volume is up 4.3 percent through three quarters, and the $7 billion category grew by as much as 6 percent last year, according to the report. By contrast, the $69 billion cigarette category has been declining 1 to 2 percent for the past 20 years, although PM has been able to boost its market share, Brandweek reported.

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