Next Cigarette List Price Increase Looms

e-cigNearly 65% of respondents believe e-cig displacement of conventional cigs has accelerated.

Wells Fargo Securities’ recent “Tobacco Talk” survey results predict cigarette net price realization will accelerate in FY13.

Wells Fargo continues to forecast net price realization of at least 4% this year.

“Our recent c-store retailer survey results indicate an expected ~$0.06-0.07 per pack (~2-3%) list price increase and retailers overwhelmingly predict (96% of participants) PM USA will lead and announce the list price increase during the first week of December. Pricing power remains crucial for tobacco manufacturers since they generate 3x the earnings leverage on a point of pricing vs. a point of volume. Bottom line: we anticipate cigarette net price realization will accelerate in 2013 and a ~2-3% price increase announcement is expected in the next couple of weeks,” noted Bonnie Herzog, managing director, Beverage, Tobacco & Convenience Store Research, Wells Fargo Securities LLC.

Nearly 70% of Wells Fargo’s retail trade contacts believe cig manufacturers have the same or more pricing power today vs. last year. Many respondents noted feeling the emergence of e-cigs has resulted in a pricing power shift from manufacturers to retailers, potentially setting the stage for c-store retailers to start regaining some power.

Nearly 65% of respondents believe e-cig displacement of conventional cigs has accelerated from 1% earlier this year with nearly 50% repeat purchases. With the big three aiming to be more entrenched in the category.  

“Our contacts expect industry consolidation, as well as some pressure on the very attractive retailer e-cig margins as the big three attempt to exercise more control over the category,” Herzog noted.

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