Mind the Gap: Changes in Cigarette Prices After California's Tax Increase

Rapid-response surveillance of the first US test market for VLN cigarettes

INTRODUCTION

VLN King menthol and non-menthol are the first combustible cigarettes to receive US Food and Drug Administration (FDA) authorisation as modified risk tobacco products. Focusing on the first retail test market, this study characterised VLN advertising, product placement, discounts and price.

METHODS

All Chicago-area Circle K stores (n=133) were telephoned to assess whether they sold VLN. Single-pack price of non-menthol was obtained in 57 of 100 stores that sold VLN. In fall 2022, trained data collectors visited those 57 stores to assess VLN product placement, advertising, discounts and prices. Paired t-tests compared observed VLN price with telephone price and to price of other cigarette brands.

RESULTS

Nearly all stores (91.1%) displayed exterior advertisements for VLN, and 41.1% displayed interior advertising, with 8.9% of stores advertising VLN in the power wall but never in the header row. VLN cigarettes were displayed in the power wall exclusively and among high-nicotine cigarettes. Some VLN marketing claims were not FDA-authorised. VLN advertised a sweepstakes offer and rewards programme. Most stores (85.7%) offered VLN discounts. VLN was priced like a premium brand (mean=$10.90, SD=$1.53), and prices obtained by telephone did not differ from observed prices several months later.

CONCLUSIONS

Retail marketing strategies for VLN mimic those for high-nicotine cigarettes. Deviations from FDA-authorised marketing claims were evident. Surveillance in future test markets is recommended to assess compliance with marketing claims and examine relative price and discount offers. Of interest is how premium-priced, low-nicotine cigarettes stand to compete in a market dominated by cheaper high-nicotine cigarettes.

Impacts of Tax and Flavor Tobacco Policies on San Francisco Bay Area Tobacco Prices

California Proposition 56 increased the state tobacco tax by $2 per cigarette pack effective April 1, 2017. Between 2015-2020 San Francisco (SF) and some cities in Alameda County enacted local flavored tobacco sales restrictions. SF also increased its Cigarette Litter Abatement Fee, from $0.20/pack in 2015 to $1.00 in 2020. Compare the change in tobacco prices before (2015) and after (2019/20) the implementation of a $2 increase in tobacco excise tax and local flavored tobacco policies in SF and Alameda Counties. Descriptive study of the pre-to-post policy analysis design. We drew a proportional random sample of retailers (N=463) in SF and Alameda Counties, by city. Using multivariable, single- and multiple-level linear regressions, we compared inflation-adjusted average tobacco prices in 2015 vs. 2019/20 by county and by flavor policy, accounting for socio-demographics. Change in inflation-adjusted average tobacco prices in 2015 vs. 2019/20 by county and flavor policy, accounting for socio-demographics. Between 2015-2019/20, the increase in cigarette prices was higher than the $2 tax increase, and higher in SF than Alameda County (+$4.6 vs +$2.5). SF retailers stopped selling Newport menthol cigarettes and Blu brand menthol e-cigarettes in 2019/20. Adjusted average cigarette prices increased significantly more in SF and Alameda County cities with comprehensive or partial flavor policies versus cities without flavor policies (by $3.23 and $2.11). Local flavor policies affected menthol product availability and may have had positive spillover effects and indirectly increased pack prices.

Follow the money: a closer look at US tobacco industry marketing expenditures

INTRODUCTION

While much of the concern with tobacco industry marketing has focused on direct media advertising, a less explored form of marketing strategy is to discount prices. Price discounting is important because it keeps the purchase price low and can undermine the impact of tax increases.

METHODS

We examine annual US marketing expenditures from 1975 to 2019 by the largest cigarette and smokeless tobacco companies as reported to the Federal Trade Commission. We consider three categories: direct advertising, promotional allowances and price discounting. In addition to considering trends in these expenditures, we examine how price discounting expenditures relate to changes in product prices and excise taxes.

RESULTS

US direct advertising expenditures for cigarettes fell from 80% of total industry marketing expenditures in 1975 to less than 3% in 2019, while falling from 39% in 1985 to 6% in 2019 for smokeless tobacco. Price discounting expenditures for cigarettes became prominent after the Master Settlement Agreement and related tax increases in 2002. By 2019, 87% of cigarette marketing expenditures were for price discounts and 7% for promotional allowances. Smokeless marketing expenditures were similar: 72% for price promotions and 13% for promotional allowances. Price discounting increased with prices and taxes until reaching their currently high levels.

CONCLUSIONS

Between 1975 and 2019, direct advertising dramatically fell while price discounting and promotional expenditures increased. Local, state and federal policies are needed that apply non-tax mechanisms to increase tobacco prices and restrict industry contracts to offset industry marketing strategies. Further study is needed to better understand industry decisions about marketing expenditures.

Tobacco industry pricing strategies in response to excise tax policies: a systematic review

OBJECTIVE

To explore what is known about the tobacco industry's (TI) price-based responses to tobacco excise tax policies and whether these vary by country income group using a systematic review.

DATA SOURCES

Studies assessing TI pricing tactics were identified via searches of five online databases using a combination of search keywords.

STUDY SELECTION

Inclusion criteria were applied by two reviewers independently who screened all search results (titles and abstracts) for possible inclusion. They identified 37 publications that reported TI pricing tactics.

DATA EXTRACTION

Study details were tabulated, and information was extracted on the country income group, population characteristics, excise tax structure, and pricing strategies.

DATA SYNTHESIS

Of the 37 publications identified, 22 were conducted in high-income countries, while 15 covered low-income and middle-income countries (LMICs). Major pricing strategies employed were: differentially shifting taxes between products (35 studies); launching new brands/products as pathways for downtrading (six studies), product promotions and different prices for the same products for different customers (six studies); price smoothing (two studies); and changing product attributes such as length/size of cigarettes or production processes (three studies).

CONCLUSIONS

While there is limited evidence to fully ascertain industry responses to tax increases, this review suggests that the TI widely uses a multitude of sophisticated pricing strategies across different settings around the world with the intention of undermining tax policies, thereby increasing tobacco consumption and maximising their profits. There is a need for further research in this area especially in LMICs so that effective policy responses can be developed.

Trends in Cigarette Marketing Expenditures, 1975-2019: An Analysis of Federal Trade Commission Cigarette Reports

INTRODUCTION

With tightened regulations on cigarette marketing and decreased smoking, the major tobacco companies quickly shifted their marketing expenditures in recent decades to maintain profits. We investigated cigarette marketing expenditures in the United States from 1975 through 2019 to examine the trends in cigarette marketing expenditures over the past 45 years.

AIMS AND METHODS

Cigarette marketing expenditure data were obtained from the Federal Trade Commission (FTC) cigarette reports, 1975-2019. Based on individual expenditure categories included in the FTC reports, we created seven aggregate categories for marketing expenditures: Retail; Print; Out of home; Free tobacco products and gifts; Sports, public entertainment, and sponsorships; Telephone and digital; and Other. Dollar amounts and percentages by category were examined to assess trends in marketing expenditures.

RESULTS

Cigarette marketing expenditures increased since 1975 and peaked in 2003 at $21.1 billion (adjusted dollars); afterward, they declined dramatically until 2010 and remained stable at around $9 billion through 2019. While all other expenditures decreased, retail expenditures increased, comprising more than 50% of expenditures in 1988 and reaching about 98% in 2019. In the retail category, tobacco companies spent the most on promotional allowances, coupons, and retail-value-added bonuses between 1988 and 2003, after which price discounts dominated retail spending.

CONCLUSIONS

Overall, cigarette marketing expenditures peaked in 2003 and retail first became the leading category in 1988. Tobacco companies adapted their marketing strategies in retail and allocated most of their retail spending on price discounts since 2003 to lower cigarette prices.

IMPLICATIONS

The major US tobacco companies directed the bulk of their vast spending on the retail environment since 1988. Moreover, they have dramatically shifted their marketing strategies within the retail category from cigarette advertising before 2003 to customer-directed price discounts since then. This shift may imply a change in focus from recruiting new smokers to retaining current smokers, in response to tax increases and government regulations. Accordingly, restrictions on price-related promotions in retail and nontax strategies should be implemented to counter tobacco companies' marketing efforts in retail.

The Impact of Recent Tobacco Regulations and COVID-19 Restrictions and Implications for Future E-Cigarette Retail: Perspectives from Vape and Vape-and-Smoke Shop Merchants

BACKGROUND

Tobacco regulations and COVID-19 state orders have substantially impacted vape retail. This study assessed vape retailers' perspectives regarding regulations and future retail activities.

METHODS

In March-June 2021, 60 owners or managers of vape or vape-and-smoke shops (n = 34 vs. n = 26) in six US metropolitan areas completed an online survey assessing: (1) current and future promotional strategies and product offerings; and (2) experiences with federal minimum legal sales age (T21) policies, the federal flavored e-cigarette ban, and COVID-19-related orders. Quantitative data were analyzed descriptively; qualitative responses to open-ended questions were thematically analyzed.

RESULTS

Most participants had websites (65.0%), used social media for promotion (71.7%), offered curbside pickup (51.7%), and sold CBD (e.g., 73.3% vape products, 80.0% other); many also sold other tobacco products. Knowledge varied regarding state/local policies in effect before federal policies. Participants perceived tobacco regulations and COVID-19 orders as somewhat easy to understand/implement and perceived noncompliance consequences as somewhat severe. Qualitative themes indicated concerns regarding regulations' negative impacts (e.g., sales/customer loss, customers switching to combustibles), insufficient evidence base, challenges explaining regulations to customers, and concerns about future regulatory actions.

CONCLUSIONS

Surveillance of tobacco retail, consumer behavior, and regulatory compliance is warranted as policies regarding nicotine and cannabis continue evolving.

Addressing lower-priced cigarette products through three-pronged comprehensive regulation on excise taxes, minimum price policies and restrictions on price promotions

The prices that smokers pay out-of-pocket for their tobacco products ultimately influence their smoking behaviour. Although cigarette excise taxes are arguably the best and most used policy to increase cigarette prices, taxes are only one component of retail cigarette prices. The persistence of lower-priced products, disproportionately purchased by lower-income smokers, in jurisdictions with high excise taxes is an Achilles heel for tobacco tax policy. When governments raise excise taxes, the tobacco industry responds. The industry reduces tax pass-through to minimise the price increases for lower-priced brands and offers price discounts to retailers and coupons to consumers. In addition, smokers who do not quit after tax increases may downshift brands, purchase in bulk or substitute lower-priced tobacco product types. This may be particularly true for price-sensitive smokers, including those with lower incomes. We propose that raising excise taxes will be more effective in reducing the persistence of lower-priced products and income-based smoking disparities when taxes are designed to raise prices frequently and substantially for all products and are combined with (a) minimum price laws and (b) bans on coupons, discounts and other promotions. In combination, these three complementary policies restrict the tobacco industry's ability to undermine the impact of higher excise taxes upon consumer prices. Very few jurisdictions have implemented comprehensive three-pronged tobacco price regulation, but doing so would likely address many of the limitations that come with a sole focus on raising excise taxes.

Implementation of a comprehensive flavoured tobacco product sales restriction and retail tobacco sales

OBJECTIVE

San Francisco's comprehensive restriction on flavoured tobacco sales applies to all flavours (including menthol), all products and all retailers (without exemptions). This study evaluates associations of policy implementation with changes in tobacco sales in San Francisco and in two California cities without any sales restriction.

METHODS

Using weekly retail sales data (July 2015 through December 2019), we computed sales volume in equivalent units within product categories and the proportion of flavoured tobacco. An interrupted time series analysis estimated within-city changes associated with the policy's effective and enforcement dates, separately by product category for San Francisco and comparison cities, San Jose and San Diego.

RESULTS

Predicted average weekly flavoured tobacco sales decreased by 96% from before the policy to after enforcement (p<0.05), and to very low levels across all products, including cigars with concept-flavour names (eg, Jazz). Average weekly flavoured tobacco sales did not change in San Jose and decreased by 10% in San Diego (p<0.05). Total tobacco sales decreased by 25% in San Francisco, 8% in San Jose and 17% in San Diego (each, p<0.05).

CONCLUSIONS

San Francisco's comprehensive restriction virtually eliminated flavoured tobacco sales and decreased total tobacco sales in mainstream retailers. Unlike other US flavoured tobacco policy evaluations, there was no evidence of substitution to concept-flavour named products. Results may be attributed to San Francisco Department of Health's self-education and rigorous retailer education, as well as the law's rebuttable presumption of a product as flavoured based on manufacturer communication.

Popularity of natural American Spirit cigarettes is greater in U.S. cities with lower smoking prevalence

BACKGROUND

Often perceived as a safer smoke, Natural American Spirit (NAS) may find particular appeal in communities with strong non-smoking norms. We hypothesized NAS would be more popular in cities with lower smoking prevalence, with the pattern unique to NAS. We tested household income, cigarette taxes, and young adult population as alternative correlates and examined brand specificity, relative to Marlboro and Pall Mall.

METHODS

Using proprietary, city-specific sales estimates obtained from Nielsen for 30 U.S. cities over one year (9/7/18-9/9/19), we computed cigarette sales volume as standard pack units per 10,000 adult smokers for NAS and Marlboro and Pall Mall. Linear regression models examined associations between city-level sales volume and adult smoking prevalence, median household income, the sum of state/local cigarette excise taxes, and young adult population.

RESULTS

NAS sales volume averaged 44,785 packs per 10,000 adult smokers (SD = 47,676). Across 30 cities, adult smoking prevalence averaged 18.0% (SD = 4.5%), median household income averaged $53,677 (SD = $14,825), cigarette excise tax averaged $2.55 (SD = $1.63), and young adult population averaged 10.6% (SD = 2.2%). NAS sales volume was greater in cities with lower adult smoking prevalence (β = -0.39, 95% CI[-0.74, -0.03], p = 0.034), a pattern that was not observed for Marlboro or Pall Mall (ps > 0.356). Marlboro (β = -0.40, 95% CI[-0.76, -0.05], p = 0.027) and Pall Mall (β = -0.48, 95% CI[-0.82, -0.14], p = 0.008) sales volumes were higher in cities where cigarette excise taxes were lower, a pattern not observed for NAS (p = 0.224).

CONCLUSION

NAS appears to be more popular in cities with lower smoking prevalence and may deter efforts to further decrease prevalence.

Cigarette Pack Prices and Sales Following Policy Changes in California, 2011-2018

Objectives. To estimate the combined effect of California's Tobacco 21 law (enacted June 2016) and $2-per-pack cigarette excise tax increase (enacted April 2017) on cigarette prices and sales, compared with matched comparator states.Methods. We used synthetic control methods to compare cigarette prices and sales after the policies were enacted, relative to what we would have expected without the policy reforms. To estimate the counterfactual, we matched pre-reform covariate and outcome trends between California and control states to construct a "synthetic" California.Results. Compared with the synthetic control in 2018, cigarette prices in California were $1.89 higher ($7.86 vs $5.97; P < .001), and cigarette sales were 16.6% lower (19.9 vs 16.6 packs per capita; P < .001). This reduction in sales equates to 153.9 million fewer packs being sold between 2017 and 2018.Conclusions. California's new cigarette tax was largely passed on to consumers. The new cigarette tax, combined with the Tobacco 21 law, have contributed to a rapid and substantial reduction in cigarette consumption in California.