PM USA Set to Hike Cigarette Prices Next Week

Cigarettes will get slightly more expensive next week, as tobacco industry insiders report that Philip Morris USA (PM USA) is set to hike the price of its cigarettes by 5 cents a pack across all its brands.

According to Bonnie Herzog, managing director, Beverage, Tobacco & Consumer Research, at Wells Fargo Securities, tobacco industry contacts reported that PM USA is also reducing its off-invoice promotion allowances on L&M to 34 cents a pack (down from 55 cents) through Jan. 28, 2012. She noted this price increase should bode well for R.J Reynolds' Pall Mall brand.

In an e-mail this morning, Herzog wrote that PM USA's list price increase "is encouraging in light of its recent modifications to its controversial MLP (Marlboro Leadership Price) program since this increase will appease most retailers as it allows them to increase their margins."

A spokesman for The Altria Group, the parent company of PM USA, could not be reached for confirmation or comment.

"Overall, this price increase is positive and the industry still does have some pricing power. Given that consumption will likely continue to decline in the mid-single-digit range, pricing is necessary to drive top-line growth," Herzog wrote.

R.J. Reynolds and Lorillard Inc. are expected to follow suit with their own price increases in the coming days, she said. Their hikes are expected to be in line with PM USA's nickel increase.

These increases come five months after the big three tobacco companies raised prices this summer. Lorillard began that round of hikes by raising the price of its Newport Menthol brand by 5 cents a pack and Newport Non-Menthol by 11 cents a pack.