Professor Sherry Jarrell Discusses Wholesale Cigarette Price Increase on News 14

6.19.2012 Article, Business Analytics, Faculty News

Cigarette companies raise wholesale list prices
Reposted from News 14 Carolina |by Ed Scannell

WINSTON-SALEM — Three U.S. cigarette makers, including two Triad companies, increased list prices paid by wholesale and direct-buying customers. Increases at R.J. Reynolds Tobacco Company and Phillip Morris USA took effect Monday on the heels of Friday's price hike by Lorillard Inc.

R.J. Reynolds increased the list price on seven of its brands by six cents, while Lorillard and Phillip Morris USA put in place across-the-board hikes of 8 cents and 6 cents, respectively.

Wake Forest University professor Sherry Jarrell said the move was not surprising.

"These companies have hesitated for as long as they could to raise prices in response to tax increases," said Jarrell, a professor of finance and economics.

"Someone had to go first. They couldn't hold on anymore. Their profits were going down too much and they're going to start cutting labor, start firing people unless they raised prices a little bit," she said.

Jarrell said retailers typically have not passed on wholesale price increases to their customers and she wouldn't expect that now.

"The only way it would make sense for them to do that would be if they wouldn't lose any demand at all. They absorb as much of it as they can in order to keep the prices as low as possible in order to maintain their profits," said Jarrell.

But it may be just a matter of time before retailers feel like they have no choice.

"At some point in time we must pass that cost on to our consumer, unfortunately. But we are gonna probably try to stay as competitive as we can," said Account Executive Jeff Mercer, with Family Fare Stores.

Jarrell said the cigarette makers were not raising prices simply because they could. She said there was no evidence that they had any pricing power in the marketplace.

"I see it as them just trying to survive in an oppressive environment," she said.

Representatives from R.J. Reynolds and Lorillard declined News 14 Carolina's request for interviews. Both said it is company policy not to discuss pricing.