Marlboro price cut made permanent

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PHILIP MORRIS, which shocked the tobacco industry in April by cutting the price of its best-selling Marlboro cigarettes, said it will make the cut permanent and extend it to other brands, despite the damage it has caused the company's profits.

The temporary price cut, equal to 40 cents a pack in the US, has reversed the decline in Marlboro's sales, increasing its market share by two to four points, chief executive Michael Miles said yesterday.

At the same time Gallaher, Britain's largest tobacco company and the manufacturer of brands such as Benson & Hedges and Silk Cut, said it is closing a cigar factory in Port Talbot, South Wales with the loss of 370 jobs. It is also cutting about 300 jobs out of 1,100 at its plant in Ballymena, Northern Ireland, in a move to reduce the total workforce by 15 per cent.

Philip Morris said its discounting caused a decline of more than 53 per cent in its tobacco earnings in the second quarter. Overall the company's profits fell to dollars 1bn, or dollars 1.20 a share, from dollars 1.3bn, or dollars 1.48, in the same period in 1992. However, turnover rose to dollars 12.8bn from dollars 12.2bn.

Philip Morris's decision is expected to have far-reaching consequences for other cigarette manufacturers, which have been forced to join in the discounting. Other consumer-products businesses are also expected to suffer as a result of the new price wars.

Gallaher, a subsidiary of American Brands, said the recession was partly to blame for its move. But it also attacked tax increases above the rate of inflation that have been imposed on tobacco over the past three years.

'Unfortunately these repeated warnings have been ignored,' a spokesman said. 'After the March Budget, the recommended retail price of 20 cigarettes was pounds 2.37, 45p up on the price at the March Budget in 1991. This 23 per cent rise is from tax increases way ahead of inflation.'