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Home » Recent CSD Articles » Categories » Today's News » Wells Fargo Anticipates Cigarette Price Increase Wells Fargo Anticipates Cigarette Price Increase Could the next cigarette price increase appear this September? Convenience store retailers should expect the next cigarette price increase to arrive sooner than the normal November cycle, according to a report by Wells Fargo Securities LLC. Wells Fargo conducted a survey of its tobacco retailer and wholesaler contacts representing approximately 60,000 U.S. convenience stores to gauge expectations for the next round of cigarette pricing increases. Bonnie Herzog, managing director – equity research, beverage, household & personal care, tobacco & c-stores for Wells Fargo noted, “According to our contacts, the next cigarette list price increase is expected to be led by PM USA during the week of Sept 18 at $0.08/pack (+2-3%). We agree as we don’t expect manufacturers to wait till the normal November cycle to take a price increase, especially given the severity of volume declines in Q2,” which were related to the outsized impact of California’s $2-per pack increase in excise tax. “As has been the case in past tax cycles, we expect the industry to further mitigate California tax-driven volume declines with list price increases, partially offset by stronger promo efforts. Longer term, we see further downside to combustible cigarette volumes if the U.S. Food and Drug Administration succeeds with its new nicotine mandate. However, we believe this could be mitigated by smokers potentially smoking more in an effort to get the nicotine levels they require—an ‘unintended consequence’—and increased conversion to reduced-risk products,” she added.
The government had oversimplified the problem by assuming price hikes would decrease the cigarette consumption in lower income families. However, with cheaper alternatives available, the citizens turned to illegal cigarettes with price tags of RM3 – RM8 (US$0.71 – US$1.89). Customs director-general Datuk T. Subromaniam appeared to be in denial, as he commented , “It (tax increase on cigarettes) is merely a measure to reduce the number of smokers in Malaysia and increase tax revenue. We cannot solely blame taxation for the rise in illicit cigarettes.” On a larger scale, Malaysia’s tobacco industry has taken a hit. In the first half of 2017, British American Tobacco – the country’s biggest cigarette manufacturer – reported a drop in 22.1% of revenue when compared to the same period in 2016. The decreasing revenue trend continues with further contraction of the legal cigarette market. According to Framework Convention on Tobacco Control (FCTC), excise duty should constitute at least 70% of the final retail price. The government had been quick to implement excise tax that constitutes roughly half of retail price today. However, the same speed did not apply to FCTC’s guidance on tobacco control programmes. The revenue collected from cigarette sales was used to finance local smoking cessation programmes like mQuit .
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