Most of the nation's major tobacco companies raised the prices of their cigarettes this week by approximately $2 a thousand, or four cents a pack. The action comes three months before the federal excise tax on cigarettes doubles from eight to 16 cents a pack.
Two of the companies said they were seeking to mitigate the possible adverse effect of a doubling of the tax all at once by making it more gradual--in two bites instead of one.
"We are raising the price in an effort to soften the large tax increase, which is coming in January," said Carol Jova of Liggett & Myers Tobacco Co. "It's being done so consumers won't be hit by a big price hike at one time." The federal tax increase, which amounts to $4 on a thousand cigarettes, takes effect on Jan. 1.
R.J. Reynolds Tobacco Co., the nation's largest cigarette maker with a one-third share of the domestic market, said it will use the proceeds from the price increase in part to fund a promotional campaign to help offset the impact of the tax.
The program will include aid for its wholesalers and retailers and promotional offers -- like coupons -- for consumers.
"We believe the doubling of the federal excise tax on cigarettes will result in lost sales, although at this point there is no way to predict how severe the drop will be or how long the decline will last," a Reynolds spokesman said.
"It's our hope that, by adding a portion of the cost now--thereby making the increase more gradual -- and coupling it with promotional programs involving cost savings for consumers, we can stop some of the possible sales loss."
Reynolds sold 207 billion cigarettes last year.
A Philip Morris Inc. spokesman said that company raised its prices by $2.10 per thousand cigarettes on its 100- and 120-millimeter and premium-price brands--or the equivalent of 4.2 cents a pack -- and by $1.60 per thousand on its other brands.
"We're not making any comment on reasons and rationale," he said. Philip Morris, which sold 199.4 billion cigarettes last year, is the second-largest U.S. cigarette company. Philip Morris and Reynolds together account for almost two-thirds of total domestic sales; the other companies share the rest.
A spokesman for American Tobacco Co. said his company raised prices $2 per thousand across the board but called it simply "a business decision" that had nothing to do with the impending tax increase.
Cigarette prices at Lorillard were raised $1.50 per thousand on Sept. 29. A spokesman at Brown & Williamson Tobacco declined to say whether the firm had raised its prices, although other sources said B&W had raised its prices by the equivalent of three cents a pack.
After several years of no growth, cigarette sales increased over the past three years. However, industry spokesmen told the House Agriculture tobacco subcommittee this week that the doubling of the tax in January, along with such factors as cheaper imports, already has curtailed demand for this year's tobacco crop.