JT Seeks Major Price Increase Approval

Source from:  Tobacco Reporter 04/29/2010

Japan Tobacco Inc has applied to the Minister of Finance for approval to increase the retail prices of most of its domestic tobacco products from October 1, when a ￥3.50 per cigarette excise tax increase will take effect. Despite the fact that JT is clearly concerned about the fall in volumes that the excise increase alone could cause, perhaps in the order of 25 per cent, some of the increases it has applied for are double the excise tax increase: from ￥300 to ￥440 per pack of 20. However, it should be noted that JT's revenue will not benefit from all of the difference between the price and tax increases, some of which will be absorbed by consumption tax and retailer margins. In a note posted on its website, JT said sales on its domestic market were continuing to fall due to structural factors, including the aging of the country's population and stringent smoking restrictions. In addition, the cost per pack had been increasing as a result of recent sharp increases in raw material costs. Under these circumstances, JT had been maintaining quality and price levels through cost reducing efforts. However, the planned tobacco excise tax hike was unprecedented and, JT said, it was projecting a sales volume decline that was unparalleled. "In order to continue providing the quality and services which will satisfy our consumers as we face substantial declines in sales volume, JT has applied for an amendment of its retail prices which exceed the excise tax hike, given our cost reduction efforts alone will be insufficient to absorb the impact," the note said. "Further, retail price increases will vary among different brands and products, in order to ensure the quality of each brand and product will be maintained, consumer expectations will be met and their support will be secured." JT has applied for retail price changes in respect of 103 of its 105 tobacco products, which include 100 cigarettes, two snuffs and one fine-cut product. Earlier this month, Philip Morris Japan (PMJ) reportedly decided to cancel a planned increase in its cigarette prices for fear of seeing a further fall in sales. The retail prices of PMJ's brands were scheduled to increase by ￥20 on June 1 after it received approval in March. This would have increased the price of a pack of Marlboro to ￥340. A month ago, British American Tobacco Japan withdrew its application to raise its prices, citing the need to cope with the changing market environment. Enditem