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E-Cigs or Not, Big Tobacco Knows How to Make Money

By Tyler McCanus

Monday November 3, 2014
Big Tobacco charging more for cigarettes as e-cigs become more popular
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Even in an environment geared toward profit loss for Big Tobacco, giants like Altria, RJ Reynolds and Lorillard are still raking it in. It is simply astounding sometimes when we think about all the black eyes that big tobacco has sustained over the years and decades. Yet even with all the flack they took in the 70s, and all the restrictions against tobacco that have been enacted since, big tobacco is still cashing in on the American public.

It isn’t the volume in sales that is rising for these enormous corporations. It is purely the profit. This isn’t (yet) because of the entry of tobacco industry e-cigarettes like MarkTen, Vuse and Blu e cig into the market and their addition to the bottom line. No, what this actually means is that RJ Reynolds, for example, is able to squeeze out more dollars out of the same amount of traditional tobacco cigarette customers.

To break it down to the final denominator, this means the guys selling cigarettes just keep raising prices. They are steadily losing their customers, but the ones that stick around are left with a higher bill to pay. The addiction to tobacco cigarettes is still paying off for tobacco companies. Just recently RJ Reynolds announced that their income rose 2.2% in the third quarter. Even before their Vuse e-cig brand has started to make an impact, they brought in $467 million in profits during said quarter.

MarkTen And Other Big Tobacco E-Cigarette Brands

big tobacco loses customers and raises the prices to keep profits growingWe don’t know yet how Vuse, MarkTen and Blu e cig are going to play into the overall financial health of these big tobacco companies, but we do know that they are professionals at making money.

Alongside RJ Reynolds profit increases Lorillard has also enjoyed fuller pockets thanks to a whopping 12% increase.

There is no need to look at a financial update from Altria because we know they’re doing well for themselves and likely up in profit as well.

Even though traditional tobacco cigarette consumers are being loaded upon with more and more taxes, big tobacco has no problem piling on.

They know they have a lot of their customers in a stranglehold and so they will keep ratcheting up prices to meet or exceed their profit forecasts. This is how companies make money and how executives look good.

Those executives have also been wise enough to cover all of their bases. In the beginning, their goal was to crush the e-cigarette before it could even get started. That did not work out. Plan B, get into the e-cig business and use their clout to dominate. Early on Lorillard bought popular e-cigarette brand Blu Cigs. That was followed by a flurry of similar maneuvers by rival tobacco companies.

Eventually, the evolution took Big Tobacco into the territory of developing their own e-cig brands like Vuse and MarkTen. Both of those brands are behind Blu E-Cigs as Blu has recently expanded with the Blu Plus e-cigarette tank systems. Despite that fact, Big Tobacco seems more interested in ultimately developing and promoting their own e-cigarette brands as opposed to working with the companies that they have bought out.

That’s one way Lorillard CEO was able to help swing a deal to merge the company he runs with RJ Reynolds. The profit was there, and in fact they didn’t even care about Blu e cig. They tossed the popular e-cig brand in favor of Vuse, the brainchild from within RJ Reynolds.

Murray Kessler, the aforementioned CEO of Lorillard, is walking away with a cool $44 million for himself as compensation if and when he is let go. What seems like an insane amount of most of us is normal fare for tobacco companies that seem to create money like they were printing it at the U.S. mint.

The Role Of E-Cigarettes And Vapers

e-cigs and tobacco profits what is the connectionWhat do we e-cig consumers care or have to say about this? Well we can take it as a big warning signal for what we might have to contend with. As big tobacco tries to take over with Vuse, MarkTen, and Blu e cig, we have to keep in mind how they treat their traditional cigarette customers.

Right now the e-cig industry is filled with loads of options. So many that it is hard to mine through them all, which leads a lot of folks here to our rankings and ecig reviews to get a brief on the different options they have.

Having a lot of choices also keeps prices down and it keeps companies honest. They know their customers could jump ship, so they have to do the best that they can to keep their prices competitive.

This is still the case in the electronic cigarette industry, but of course if Big Tobacco had its way things would be much different. We are sure that Altria and RJ Reynolds (which now owns Lorillard) are dying to have the same set up for Vuze and MarkTen, the same one they currently have for tobacco cigarettes. This is why they lobby against open systems and other competition that could make price controls hard for them. We must keep a very keen eye on where big tobacco wants to move industry.

E-cigarettes started as a grassroots movement that gave people a viable alternative to switch to, but things could wind up very much the same if we aren’t careful. Because if there is one thing that Big Tobacco knows, e-cig or not, it’s how to make money.

Tyler

Team ECCR

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