Dosal Tobacco Feels Pack of Trouble
Adding to Florida's cigarette tax is one thing, say Dosal Tobacco executives. But they think it's unfair to slap a fee on their products by retroactively including the company in a legal settlement in which it had no part.
Dosal — which wasn’t part of the state’s landmark settlement with larger tobacco companies — has seen its share of the Florida market rise to about 13%. Meanwhile, larger tobacco companies’ market share has fallen from 97% presettlement to 85%.
[Photos: Eileen Escarda]
In the wake of the lawsuit, the “Big Four” tobacco companies at the time — Philip Morris, R.J. Reynolds, Brown & Williamson and Lorillard — and other manufacturers raised their prices to cover the costs of the settlement. Meanwhile, Dosal and other manufacturers not named in the suit suddenly found themselves with a price advantage.
“It provided certain opportunities in the industry. That’s why so many (new) companies came into the industry,” says Yolanda Nader, Dosal’s CEO and CFO.
In May 2001, Dosal launched a new line of cigarettes called 305’s. Named after Miami’s area code and selling for $1.79 a pack — approximately a third less than competitors’ brands — 305’s quickly became Dosal’s best-selling brand. Nader says the cigarettes’ packaging — which features a waving flag and a silhouette of the United States — also proved timely, appealing to patriotic sensibilities after the Sept. 11, 2001, terrorist attacks. “It was a well-priced product,” she says. “It was an attractive product with this label. Those factors were what made it sort of take off.”
Indeed. The success of 305’s has given Dosal between 12% and 14% of Florida’s cigarette market. Larger cigarette manufacturers, meanwhile, have watched their market share drop from around 97% presettlement to around 85%.
Dosal’s sales growth is particularly notable since major retailers like Publix, Wal-Mart, Costco and others don’t carry Dosal brands. Typically, big retail chains have complex agreements with cigarette manufacturers involving shelf space and liability issues. Dosal chooses not to participate: With just five distributors in the state, the company sells its cigarettes primarily at mom-and-pop convenience stores and other independents. Even there, customers may have to ask for Dosal brands, which are often kept under the counter rather than on shelves.
But Dosal’s success has bred resentment that’s surfacing as state lawmakers consider raising the state’s cigarette tax — at 33.9 cents a pack, one of the lowest in the nation. Dosal’s larger competitors say they’ll only support a tax increase to $1 a pack if the state agrees to levy an additional 40-cent per pack assessment on Dosal and other discount cigarette manufacturers, including New York-based Smokin Joes, that weren’t part of the 1997 tobacco settlement.
Barney Bishop, president and CEO of Associated Industries of Florida, which represents the major manufacturers, argues that the assessment would level the playing field for the tobacco companies and raise at least $89 million more for the state.