Cigarettes Price War, Big Tobacco

discount classic cigaretteCigarette makers are bracing for a potential drop in demand and a fierce price war, after Big Tobacco failed to overturn an Australian law last month calling for plain wrapping on their products. Since then, fear has mounted that generic packaging will not only hurt the premium brands that rely on distinct branding but will also trigger an illicit, counterfeit trade that will have major implications across the entire industry.

The developments have scared the investor community, with major tobacco firms lagging their regional stock indexes since the ruling. Imperial Tobacco Group PLC UK:IMT -1.10% ITYBY -1.61% and British American Tobacco PLC UK:BATS -0.02% BTI +0.09% have each dropped more than 6.5%, while the Stoxx Europe 600 index XX:SXXP +0.40% , a broader gauge of markets in the region, by comparison, has gained 1.6%.

Lorillard is buying electronic-cigarette maker Blu Ecigs for $135 million, marking Big Tobacco’s first foray into the small but fast-growing alternative to combustible cigarettes. Photo: AP.

“It’s common sense that if you make all packs look the same, it’s easier for criminals to counterfeit them and pass them on to consumers. That is a real concern and a real threat,” said Simon Evans, a representative for Imperial Tobacco Group. “We wouldn’t expect to see less people smoking, but would expect those people to smoke less-legal products.”

The Tobacco Plain Packaging Act will come into effect on Dec. 1 in Australia and see cigarettes packets stripped of any individual branding, with only the company name in a gray, Lucida Sans font at the bottom. In addition, a warning and a picture of lung cancer, gangrene, rotten teeth or other consequences of smoking will take up at least 75% of the front.

A graphic of cigarette packages released by the U.S. Food and Drug Administration last year that shows a varied collection of dead bodies, diseased lungs and a man on a ventilator. Health officials hoped the warnings would help smokers quit.

And the industry is concerned it’s not going to stop at Australia’s borders. Norway, India, France and Canada are already considering bans on cigarette branding, while both the U.K. and New Zealand are looking specifically at introducing plain-packaging laws. Russia is also considering adopting the idea while also looking into a ban on smoking in public places.


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