Despite headwinds, tobacco industry is still thriving
When you’re in the tobacco business, controversy is all part of the game. And it’s been rough sledding for the industry this week.
First came the Institute of Medicine report pushing to increase the tobacco purchase age from 18 to 21. Today, a group of public health experts writing in the British medical journal “The Lancet” called for a tobacco-free world by 2040.
At this point, you could quickly stack up the public health arguments like matchsticks to condemn the $100 billion U.S. tobacco industry.
Every year, 500,000 Americans die as a result of smoking. Nine million are sick from their smoking. And then, Stanford professor Tom Glynn says the CDC estimates we’re spending $300 billion a year dealing with the fallout from smoking.
“When someone goes into a store and buys a pack of cigarettes, it costs the American taxpayer about $10 every time in lost wages, lost productivity and healthcare,” he says.
And market data shows fewer people are smoking – just 18 percent of adults. And those who do smoke are smoking less. That said, University of Michigan economist Ken Warner says profits are strong, companies have cut costs, and they have expanded into things like e-cigarettes.
“We need to be aware that the industry has been thriving throughout this tough period, and they’re thriving now,” he says.
But Warner says there may be a chink in the industry’s armor, he says he’s seeing manufacturers do something he hasn’t seen before: They’re raising prices.
“With an addictive product, you want to pick a price that is not only going to keep your smokers smoking, but in particular is going to encourage kids to smoke. So if I’m right about this, they are probably taking the view that the cigarette market is not going to be a terribly strong one a few decades down the line here,” he says.
Capitol Securities Management analyst Steve Marascia says he’s not ready to bet against big tobacco.
“It’s a smart cat with nine lives, and it’s still a product people which people want,” he says.
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