Big Tobacco: price increases used to offset decreasing sales volumes

In the US, large tobacco manufacturers are using higher prices to offset decreasing sales volume and a violent increase in California’s tobacco excise tax. On April 1, 2017, the excise tax rate on cigarettes have increased from $0.0435 to $0.1435 per cigarette. This means that taxes on a package of 20 cigarettes will increase from $0.87 to $2.87, a more than 300% increase on the cigarette pack!

This change change took place after a public health campaign led by a coalition of health groups and backed by billionaire Tom Steyer. It is known as the California Healthcare, Research and Prevention Tobacco Tax Act of 2016. It will also enforce a similar tax increase on other tobacco products and also on electronic cigarettes containing nicotine.

A two-step price increase

When tobacco manufacturers decided to increase their product prices, they did it in two steps. In November 2016 and in March 2017 by 8 cents a pack each time. These increases were made in wholesale prices but the increase is generally passed on to customers.

Indeed, as we can see in the figures below, the year on year evolution of pricing clearly shows an upward tendency while the sales volumes are decreasing.

  • Reynolds’ American pricing went up 5.7% while sales volume went down 4.5%
    •  Natural American Spirit (company owned by Reynolds American) pricing went up 7.3% while sales volume went down 5.7%
    • Camel (a Reynolds’ American brand) pricing went up 7.3% while sales volume went down 5.7%.
  • Marlboro’s (a Philip Morris / Altria brand) pricing went up 5.3% while sales volume went down 4.8%.
  • ITG Brands’ (brands include Winston, Kool, USA Gold, etc.) pricing went up 5.9%, while sales volume went down 4.9%.