Nov 30 2009
BAT drawn into price war in Germany
The global economic crisis brings strange stories in its wake. Such as this one about a cigarette price war in Germany, a country where the government tries to raise the “entrance barrier” for young smokers by making cigarettes more expensive.
A few months ago the German government increased the compulsory size of the cigarette packet from 17 to 19, to push up the retail price of a packet and so make it more difficult for young people to take up smoking!
Now British American Tobacco (BAT), the number two in the German market, and Philip Morris, the number one, both announced price cuts. The cut comes in the wake of a launch by the number three (Reemtsma, a subsidiary of Imperial Tobacco) of a new cigarette with a price tag of €4.10 per packet of 19.
BAT will launch two Pall Mall brands on 7 December in the price range €4.10 and Philip Morris will launch a L&M Soft Label for €4.10. Both are so-called branded cigarettes, which normally sell for over €5 per packet, the Financial Times Detschland (FTD) reported this morning.
According to FTD this was the first drop in cigarette prices in Germany in years. In June this year all manufacturers last increased cigarette prices by between 20% and 30%. And then came the price war.
Spokesmen of BAT and Philip Morris critisized Reemtsma’s move and pointed to govenment’s health-motivated move to get cigarettes more expensive in Germany. Apparently BAT and Philip Morris felt forced to follow suit, to get a foothold in the fast-growing segment for cheaper cigarettes (now 25% of all cigarettes sold and growing fast, thanks to the economic downturn) and in which Reemtsma has been doing very well.