According to a recent report by the Wall Street Journal, U.S. inflation and changes in consumer habits have posed huge challenges to tobacco companies. It is difficult for tobacco giants such as Altria Group to continue to increase product prices to make up for the continued decline in cigarette sales.
According to analysts, one reason why investors have long been optimistic about tobacco companies is that even if cigarette sales decline, tobacco companies can increase profits by raising prices. The current decline in cigarette sales in the US market has exceeded expectations, and the feasibility of the price increase strategy is being severely tested. Data show that from July to September this year, U.S. cigarette sales fell by 8% year-on-year.
Altria Group said many cigarette consumers are likely to switch to illegal disposable e-cigarettes. To this end, Altria Group announced in October a comprehensive lawsuit against 34 manufacturers and sellers of illegal sales of disposable e-cigarettes in California and other places.
The U.S. Food and Drug Administration's (FDA) increased crackdown on illegal e-cigarettes may help stabilize cigarette sales. However, in addition to competition from illegal e-cigarettes, high-end brands such as Marlboro are also facing pressure from consumers’ increased price sensitivity caused by inflation. Smaller brands that can offer consumers discounts are gaining market share, with sales of the cheapest cigarettes in the U.S. growing 15% last year.
Data from Altria Group shows that the average price of a pack of Marlboro, including taxes and fees, is $8.77, which is 43% more expensive than low-priced cigarette brands, while the gap was 31% five years ago. Vector Group's Montego brand has become the largest-selling low-price cigarette brand in the United States, benefiting from the downward price trend.
Despite growing market pressure, the Wall Street Journal believes Altria is unlikely to take drastic measures. Thirty years ago, Altria Group lowered the price of Marlboro by 20% in order to narrow the gap with lower-priced brands. This led to the "Marlboro Friday" incident, when investors panicked and sold stocks on a large scale. .