Philip Morris to cut cigarette prices to keep customers

Philip Morris USA, the largest US cigarette maker, is cutting prices of its four biggest brands, including Marlboro, to keep customers from switching to lower-price cigarettes sold by discount manufacturers.

Starting tomorrow, Altria Group Inc.’s Philip Morris unit is offering a discount of 80 cents a pack, up from 75 cents, to retailers that meet conditions such as prominently displaying its brands, spokeswoman Jamie Drogin said. The Richmond, Virginia-based unit began the discount program in February after its shipments dropped twice as fast as the industry average.

Altria’s decision to boost promotional spending to stave off discount cigarette makers and websites that sell low-price brands has contributed to four straight quarters of declining net income.

The number of discount cigarette makers has doubled since 1998.

R.J. Reynolds Tobacco Holdings Corp., the second-biggest US cigarette producer, also has been increasing promotions to attract consumers.

“I don’t see the competitive pressures going away,” said Marvin Roffman, who oversees $215 million in assets at Roffman Miller Associates. The Philadelphia-based firm sold its Altria shares in October. “The bottom line is that smokers are extremely sensitive to pricing.”

Shares of Altria fell 12 cents to $53.91 at 9.43am in New York Stock Exchange composite trading. They had climbed 33% this year as investors said the company’s risk of litigation has eased.

Winston-Salem’s R.J. Reynolds, the maker of Camel and Salem, fell 27 cents to $57.76. The stock had gained 38% this year.

The increased promotions have helped narrow the gap between Marlboro’s price and competitors’ cheapest brands. According to Altria Chief Executive Louis Camilleri, Marlboro costs about 47% more than brands such as Renegade Tobacco Co.’s Tucson, down from 59% in the second quarter of 2002.

The lower prices helped Philip Morris USA increase its share of US cigarette sales 1.3% to 49.7% in November from a year earlier, according to market researcher Information Resources Inc. The share of deep-discount manufacturers fell 0.6% to 11.5%.