Philip Morris eyes selling low-priced Marlboro cigarette

MANILA, Philippines - Philip Morris Fortune Tobacco Corp. (PMFTC) is planning to introduce low-priced Marlboro cigarettes  to defend its  market leading position and keep up with competitors that are aggressively discounting to win market share.

PMFTC, the joint venture between taipan Lucio Tan and American tobacco giant Philip Morris International, is seeking to register with the Bureau of Internal Revenue Marlboro Original, Marlboro Gold Lights, Marlboro Menthol and Black Menthol in the low price segment.

Marlboro is classified as a premium brand under the sin tax reform law, which took effect in January this year.

In a letter to BIR assistant commissioner Alfredo V. Masajon, PMFTC president Paul Riley said it was critical for the company to secure the tax agency’s approval due to declining sales as consumers turn to cheaper brands and illegal cigarettes rather than give up the vice.

Riley noted that the company’s production volume has declined to 68 billion sticks this year from 92 billion in 2012 and expects this to decrease further next year to 48 billion.

“This is why we need to do something to reverse the current trend. What is more worrying, we expect the down-trading to continue, with the Marlboro volume further decreasing to 7.9 billion sticks in 2014,” Riley said.

Riley noted the downgrading by tobacco consumers this year following the approval of the sin tax bill which resulted in higher taxes and cigarette prices.

He raised fears about the  continued viability of one of PMFTC’s factories, which would affect its over 1,000 employees.

PMFTC has lost revenue in favor of Bulacan-based cigarette company Mighty which is selling its cigarettes at P1 per stick or P16 per pack.

To stay alive in the highly competitive industry, PMFTC is “willing to significantly cut its margins by introducing new Marlboro products with net retail selling prices of below P11.50/pack,” Riley said.

With these new products, PMFTC hopes to boost its volumes by an additional 8.9 billion sticks in 2014, which in turn, can help the government collect more revenues from the industry.

Riley, however, pointed out that the company is keeping its original Marlboro products in the premium category and that its flagship brand, Philip Morris, will not sell at lower price points.

If PMFTC’s request is granted, the new Marlboro brands will directly compete with other low price brands like Champion, Fortune and Jackpot.

Marlboro’s market share decreased by 5.9 points to 15.3 percent while   the share of low-price Fortune declined  by 22.6 points to 27.5 percent.

Under the  sin tax law, excise taxes will increase every year over the medium term.

The total Philippine tobacco industry volume of 23 billion units is  seen to have decreased by 6.7 percent due to the proliferation of counterfeits, which is eating into its market share.

The Philippines is one of the key markets for Philip Morris as it contributed 22 percent  to the company’s shipments to Asia last year.

PMI said it expects industry cigarette volumes in the Philippines to contract by 0.4 percentage points.