Growth of the US tobacco manufacturing industry is expected to remain flat in 2013, according to the latest industry forecast for First Research from INFORUM. In response, big tobacco is preparing to raise cigarette prices in hopes of boosting cash flows.
Analysts predict the industry will raise cigarette prices 6 to 7 cents per pack in December 2012, the second increase for the year. Although tobacco firms have not confirmed the speculation, Altria is expected to lead the price increase, with Reynolds American and Lorillard following soon behind.
Promotions often take the edge off price increases for consumers so the price will not necessarily deter smokers. For example, Marlboro increased the price per pack by 20 cents between second quarter 2011 and third quarter 2012, but consumers only paid 16 cents more per pack. The dominant Marlboro retained more than 40 percent of the retail cigarette market despite the slight price hike.
The deep promotions mean pricier cigarettes will not necessarily translate into higher profits. However, price increases may help tobacco companies generate cash quickly, improve dividends, and draw investors.
For more details about the US and global tobacco industry, read First Research’s Tobacco Manufacturing industry profile.