Smokers soon may pay more for top brands

Bloomberg News Service

Prices of Marlboro, Camel and Kool cigarettes may rise next week after Philip Morris USA, R.J. Reynolds Tobacco Holdings Inc. and Brown & Williamson Tobacco Corp. eliminate financial incentives paid to distributors.

Premium cigarette prices may increase by about 5 cents a pack as wholesalers and retailers try to make up for lower payments from manufacturers, according to a report by Smith Barney analyst Bonnie Herzog.

The three biggest U.S. cigarette makers may lose sales initially should distributors decide to stock more deep-discount brands, Herzog wrote. Profits at Altria Group Inc.'s Philip Morris, R.J. Reynolds and British American Tobacco Plc's Brown & Williamson have been hurt as smokers switch to cut-rate brands that cost about $1.10-a-pack less on average than premium cigarettes.

"For distributors, it's a matter of survival," said Scott Ramminger, chief executive officer of the American Wholesale Marketers Association, a Fairfax, Va.-based trade group representing about 400 cigarette distributors. "They are very resilient and have found ways to handle major changes like this that affect their bottom line."

Distributors said they expect to receive as much as 3 cents a pack less for selling Philip Morris brands including Marlboro and about 4 cents a pack less for selling Camel and other R.J. Reynolds cigarettes, according to Herzog's report.

The average national retail price of a pack of premium cigarettes is $3.24, according to Smith Barney. In Hawai'i, brand-name cigarettes go for about $5 a pack.

Shares of New York-based Altria rose 2 cents to $44.50 in New York Stock Exchange composite trading. R.J. Reynolds rose 15 cents to $39.47.

Advertiser staff contributed the information about Hawai'i prices.