Altria and Reynolds American - which will purchase Lorillard in the near future - are the two largest tobacco companies in the United States.
The difficulties experiencing both cigarette manufacturers are visible - the number of American smoking people has dropped from 42% in 1965 to 18% in 2012, as outlined by the Surgeon General's Report on Smoking and Health. In reaction to this diminishing tobacco market, both tobacco giants cut jobs, increased prices on cigarettes, and expanded into non-cigarette product groups to maintain their bottom lines.
Altria and Reynolds American on a regular basis increase their cigarette prices. to balance decreasing cigarette shipment volumes. Bearish arguments against these tobacco companies usually state that growing prices, amplified by higher excise taxes, will hit a ceiling and result in decrease in revenues.
That argument primarily seems sensible in case of comparison of the cigarette price in the U.S. and other countries. 40% of adults in Russia are smokers, where a price for a pack of cigarettes is $1.74 with taxes included. In contrast, 18% of adults use cigarettes in the U.S., where an average price for a cigarette pack is $6.36.
At the same time, cigarette consumers in the U.K. pay $10.99 (0.32% of their monthly revenue) on a pack of cigarettes, yet the nation has a bigger smoking rate of 19%. In Australia, where a cigarette pack varies about $12.14 (0.47% of monthly revenue), 17.5% of people still smoke.
These evaluations suggest that Altria and Reynolds American can possibly manage to increase their U.S. prices over the next ten years without any obvious effect on smoking rates.
Nevertheless, increased health awareness and smoking bans could lessen the countrywide smoking rate. Higher federal and state excise taxes, which went up more than 120 times between 2000 and 2013, could also throttle cigarette makers' power to boost their own wholesale prices.