Never underestimate the power of a strong brand -- but never bet against the will of the people.
For the first time ever, a majority of U.S. citizens favor making smoking illegal in all public places, according to a Gallup survey.
The anti-smoking trend is blistering. Currently, 59% favor a public ban, up from 31% in 2003, and 40% in 2007. Those favoring an outright cigarette prohibition now stand at 19%, from 12% as recently as 2007. "27 states plus the District of Columbia have passed comprehensive smoke-free laws," Gallup says, and "a New York City law bans smoking in virtually all public places, including outdoor plazas and beaches."
Such sentiment can be unnerving for investors of tobacco giants Altria
Leaving aside all social effects, the relevant question for investors is how much a public smoking ban could ding sales. The experience of other countries leaves this open for debate. In Scotland, cigarette sales actually increased after a public smoking ban became law in 2006. Conversely, they fell 11% after England's 2007 public ban. A 1992 internal document from Philip Morris noted that workplaces forcing employees to smoke in designated areas had "very little effect on consumption."
The key might come down to pricing power. The tobacco industry has dealt with declining smoking rates for decades by flexing its ability to raise prices on existing smokers. The trend in recent years has been: volumes down, prices up, earnings still good.
Without question, the industry will have some degree of pricing power in the future. But widespread bans on public smoking might test the limits of that power.
What do you think?