Newports and Camels are a smoking combination

Jul 11, 2014
HTML EMBED:
COPY

Newports and Camels are a smoking combination

Jul 11, 2014
HTML EMBED:
COPY

The second-largest cigarette maker in the U.S., Reynolds American, is trying to acquire the third-largest cigarette company in the U.S., Lorillard. The deal speaks volumes about the current and future state of the tobacco industry.

While smoking has declined in the U.S. (18 percent of adults smoke here), the U.S. remains a major profit center for the tobacco industry – while it accounts for only 5 percent of volume, it produces 14 percent of all revenue globally. Tobacco firms have been raising prices to offset declining demand. Consolidation helps cut costs, and a duopoly could make raising prices in the future even easier.

Also factoring into the deal: Lorillard owns Blu e-cigarettes, a market leader in a small but persistent cigarette alternative. Finally, Lorillard also owns menthol-flavored Newports. Premium menthol-flavored cigarettes like Newports are the one area of the industry where sales are flat or barely declining, and Newports have very strong brand loyalty.

If the cigarette industry is slowly burning out, Reynolds is buying a few extra years on its life.


Graphic by Shea Huffman/Marketplace

As a nonprofit news organization, our future depends on listeners like you who believe in the power of public service journalism.

Your investment in Marketplace helps us remain paywall-free and ensures everyone has access to trustworthy, unbiased news and information, regardless of their ability to pay.

Donate today — in any amount — to become a Marketplace Investor. Now more than ever, your commitment makes a difference.