Price of top-selling cigarette is cut: Dow Jones plunges 72 points as Marlboro makers fight discounters
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Your support makes all the difference.PHILIP MORRIS, the world's biggest cigarette maker, yesterday outraged health groups by promising to cut the price of its best-selling Marlboro brand in the United States.
Shares in tobacco firms traded on Wall Street plummeted, with Philip Morris losing dollars 15.25 to dollars 48.875 and RJR Nabisco - which said it intended to remain competitive - down dollars 1.25 at dollars 6.75. The falls pushed the Dow Jones Industrial Average down more than 72 points to 3367. In London, shares in BAT, the huge tobacco and insurance group, dropped 71.5p to 927.5p.
Philip Morris agreed with its critics that the move would encourage smoking but argued that it had to defend shareholders' interests in the face of a fierce attack from brands of discounted cigarettes. The company said the move would this year cost it 40 per cent of its domestic tobacco profits - dollars 5.2bn ( pounds 3.4bn) in 1992.
Sales of discount cigarettes, which cost as little as half the average dollars 2 ( pounds 1.30) a pack Americans pay for premium brands, have eroded the market share of big tobacco firms such as Philip Morris, RJR and BAT. The price war has reversed a steady 25-year decline in smoking among Americans. Figures released on Thursday by the Center for Disease Control, in Atlanta, showed that the proportion of Americans who smoke increased in 1991 from 25.5 per cent to 25.7 per cent of the population. Discounted brands accounted for about 36 per cent of the 500 billion cigarettes sold last year in the US, up from less than 1 per cent a decade earlier. Marlboro's market share in a single year fell to 22 per cent from 24.3 per cent.
Philip Morris is also worried that a huge cigarette-tax increase proposed by President Bill Clinton as a way to fund a national healthcare scheme would accelerate the switch to cheaper brands.
'It would be irresponsible to our shareholders not to defend Marlboro, the world's most valuable trademark,' said William Campbell, head of Philip Morris's US division. The company also planned to cancel scheduled price increases on its other premium brands and to market its own discount cigarettes more aggressively.
No details of the new pricing strategy were revealed. Philip Morris said Marlboro would be priced to 'encourage consumers to make brand selections based on brand preferences rather than price'.
Health groups called on President Clinton to offset the cuts. 'This makes it all the more important that tax legislation be passed to keep prices in a range that discourages smoking and particularly taking up smoking,' said Joanne Schellenbach of the American Cancer Society.
Mr Clinton's healthcare reform package is likely to include a proposal to increase the federal tax on cigarettes, currently 26 cents for a pack of 20, to between dollars 1 and dollars 2.
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