New Labels Not So Scary for Cigarette Sales

The nation's top tobacco companies' sales aren't expected to go up in smoke Atis cigarettes despite new grisly warning labels that are set to appear on cigarettes packs next year.

The graphic labels, which were released in June by the Food and Drug Administration and include an image of rotting teeth and gums, will cause a decline of less than 1 percent in overall U.S. tobacco revenues in 2013, according to a recent analysis by research firm IBISWorld.

An average person smokes fifteen cigarettes a day at a cost of about $1,500 per year, which translates to about $300 million in lost revenue. That's only a fraction of the estimated $43.8 billion in revenue for the tobacco industry in 2013, the firm's calculation show.

The analysis, however, does not take into account the cost of redesigning and printing new cigarette packages, the number of people who won't start smoking because of the warnings, or the smokers who cut down on their habit.

"Gradually, the warnings could impact the smoking population," said IBISWorld cigarette and tobacco industry analyst Mary Gotaas. "But in the near term, it won't have much of an impact."

The nine warning labels are required by federal law to take up half of the pack -- both front and back -- by the fall of 2012. The labels, which represent the biggest change in cigarette packs in the U.S. in 25 years, also include images of the corpse of a dead smoker, diseased lungs, a smoker wearing an oxygen mask and a man wearing an "I Quit" T-shirt.

The warnings must also appear in advertisements and constitute 20 percent of each ad, and cigarette makers will have to run all nine labels on a rotating basis. The FDA estimates that the labels will cut the number of smokers by 213,000 in 2013, with a smaller additional reduction through 2031.

Aside from the potential to get people to quit smoking -- or prevent them from starting -- the labels also could have a huge marketing effect for cigarette makers by making their brand names less important, said Deborah Mitchell, executive director of the Center for Brand and Product Management at the University of Wisconsin.

Being unable to differentiate cigarette packs, Mitchell said, consumers will care less about what brand they're smoking, and more about how much it will cost them. That's a potential concern for Marlboro, the nation's top-selling cigarette, and its owner Richmond-based Altria Group Inc., parent company of the nation's largest cigarette maker, Philip Morris USA.

"A great brand like Marlboro, it's like they cast this spell," Mitchell said, referring to the brand's cowboy mythology. "If the spell is broken, for example, with this really negative packaging . . . all at once, Marlboro is just another brand of tobacco."

Requirements to include the warnings on all advertising also will likely force tobacco companies be more creative in their marketing.

In some countries where more graphic warning labels were introduced, tobacco companies sold split packs so smokers could break the pack in half so one side didn't have the labels, sleeves were made to cover the warnings, and sales of cigarette cases spiked, said Michael Cummings, chair of the Roswell Park Cancer Institute's Department of Health Behavior in New York.