Wells Fargo Securities’ recent “Tobacco Talk” survey results predict cigarette net price realization will accelerate in FY13.
Wells Fargo continues to forecast net price realization of at least 4% this year.
“Our recent c-store retailer survey results indicate an expected ~$0.06-0.07 per pack (~2-3%) list price increase and retailers overwhelmingly predict (96% of participants) PM USA will lead and announce the list price increase during the first week of December. Pricing power remains crucial for tobacco manufacturers since they generate 3x the earnings leverage on a point of pricing vs. a point of volume. Bottom line: we anticipate cigarette net price realization will accelerate in 2013 and a ~2-3% price increase announcement is expected in the next couple of weeks,” noted Bonnie Herzog, managing director, Beverage, Tobacco & Convenience Store Research, Wells Fargo Securities LLC.
Nearly 70% of Wells Fargo’s retail trade contacts believe cig manufacturers have the same or more pricing power today vs. last year. Many respondents noted feeling the emergence of e-cigs has resulted in a pricing power shift from manufacturers to retailers, potentially setting the stage for c-store retailers to start regaining some power.
Nearly 65% of respondents believe e-cig displacement of conventional cigs has accelerated from 1% earlier this year with nearly 50% repeat purchases. With the big three aiming to be more entrenched in the category.
“Our contacts expect industry consolidation, as well as some pressure on the very attractive retailer e-cig margins as the big three attempt to exercise more control over the category,” Herzog noted.