supply side

Cigarette manufacturers vow to vigorously defend themselves against the U.S. Department of Justice's legal effort to recover billions of dollars it says taxpayers have spent on smoking-related health care, while some convenience store players wonder how this latest onslaught will affect cigarette pricing and consumer demand.

The Justice Department's civil lawsuit alleges tobacco companies conspired to hide the health risks of smoking in violation of a federal civil racketeering law. The civil lawsuit comes on the heels of the Justice Department's closing of a nearly five-year-old criminal investigation of whether tobacco companies lied to Congress and regulatory agencies about the addictive nature of tobacco. No charges were filed in the criminal investigation.

"[This suit] is going to add to the cost of cigarettes, because the tobacco companies will incur legal expenses and anything that raises your overhead ultimately has to be paid for somewhere," said John Lattauzio, president of J&J Mini-Markets, of Alamogordo, N.M.

"It seems to be the greatest of hypocrisy for the government to do this," he added. "For years, the government subsidized tobacco. The government knew better than anyone the dangers of smoking. The issue of cigarette sales has become a good [target] for politicians."

What's more, he said, the increasing cost of cigarettes is becoming a c-store a security issue. "When you get the price of something that small and portable up that high, you encourage pilferage."

Indeed, the price of cigarettes has increased as much in the last 16 months as it had in the last 16 years, according to Seth Moskowitz, corporate communications director for R.J. Reynolds Tobacco Co. The recent surge stems largely from last November's $206- billion, 25-year settlement between state attorneys general and tobacco companies.

"I can't speculate on future price increases or the effect this [Justice Department] suit will have on demand," Moskowitz said. "But we don't believe there is any merit from a legal basis or factual basis for this suit."

Since 1966, Congress has mandated every pack of cigarettes sold in the United States carry a warning of possible health effects of smoking. "For the Clinton Administration to now say that Americans were somehow deceived and the government ignorant of the risks associated with smoking and health is beyond reason, said Greg Little, associate general counsel for Philip Morris Inc., the world's largest tobacco company.

Many retailers agree. "I think this is a very dangerous legal precedent they are trying to establish because they have taken legal theories and stretched them beyond any reasonable interpretation," said Carl Bolch Jr., NACS vice chairman of government relations and CEO of Atlanta-based RaceTrac Petroleum Inc.

As far as the lawsuit's effect on the c-store industry, Bolch foresees little impact. "People want to smoke. Despite all of the health warnings set forth, they have decided to smoke," he said. "The government must stop treating a legitimate business in a quasi-criminal manner. In the end, it will cost the consumer."