Headlines and pundits continually tout that the tobacco industry is doomed. Are they correct? I don’t think so, and I believe there is compelling data that explains why.
Price hikes have largely offset cigarette volume declines, allowing ongoing, often growing, profitability.
I hear that rather often and it implies to me that Tobacco doesn't price optimally. It looks it would be more profitable for them to sell at higher prices given that usually it is said that cigarette volume declines were offset or even more than that, by price hikes. But then I start thinking wouldn't be then logical to raise prices even without proceeding volume declines?
It ultimately comes down to RGM - revenue growth management. While demand is quite inelastic, increased pricing does have an impact. All major participants use analytics and RGM tools to monitor volumes and purchasing trends and use pricing to optimize fiscal outcomes.
Looking at affordability, the U.S. is one of the most affordable markets in the world. Even with increasing excise taxes, manufacturers can likely continue to keep up the current dynamics for the foreseeable future.
A seemingly undemanding valuation but not as well positioned as MO, PM, or BTI, in my opinion, though I do believe they have some interesting opportunities ahead. I'll likely get around to compiling notes and releasing a similar company-specific post covering IMBBY.
Price hikes have largely offset cigarette volume declines, allowing ongoing, often growing, profitability.
I hear that rather often and it implies to me that Tobacco doesn't price optimally. It looks it would be more profitable for them to sell at higher prices given that usually it is said that cigarette volume declines were offset or even more than that, by price hikes. But then I start thinking wouldn't be then logical to raise prices even without proceeding volume declines?
It ultimately comes down to RGM - revenue growth management. While demand is quite inelastic, increased pricing does have an impact. All major participants use analytics and RGM tools to monitor volumes and purchasing trends and use pricing to optimize fiscal outcomes.
Looking at affordability, the U.S. is one of the most affordable markets in the world. Even with increasing excise taxes, manufacturers can likely continue to keep up the current dynamics for the foreseeable future.
Thanks for commenting, Mendo.
What do you think about Imperial Brands?
A seemingly undemanding valuation but not as well positioned as MO, PM, or BTI, in my opinion, though I do believe they have some interesting opportunities ahead. I'll likely get around to compiling notes and releasing a similar company-specific post covering IMBBY.
Thanks for reading!